#025 - How Hemp Will Reshape Cannabis in 2024 w/ Bob Hoban & Xavier Jaillet

Speaker 1: 0:00

Hey everybody, happy New Year and welcome to episode 25 of High Spirits. Super excited to jump into the show today. We have a big topic, a lot of you in the audience. So while I have you here, while it's the New Year, I'm going to do some self-serving stuff really quick. If you're here, if you're listening to this, follow us on LinkedIn. If you're listening to a podcast, please subscribe, please share.

Speaker 1: 0:27

We're going to do a lot of work on ramping this up. Like I said, we're on episode 25 and we have a big topic today. So, as we get into the New Year, be look out for some changes. Anna Rae and I are going to be traveling I'd like to say the world, but at least the US the continental United States and then getting ourselves to some conferences. There might be a rebrand on the horizon We'll still be high spirits, but maybe just a refreshed look. So that's just some things to look ahead to. But I'm excited to jump into our kind of forecast of what 2024 looks like, how it's going to be influenced by the hemp industry and all that. But before we go there, anna Rae, happy New Year.

Speaker 2: 1:15

Oh, thank you, Ben. Happy New Year to you and to all our listeners. I think 2024 is going to be killer in the best kind of way. I'm feeling a lot of positive momentum and hope and excitement from all the folks in the space that I'm working with. People are ready to go hit the ground running.

Speaker 1: 1:34

Man, yeah, coming in this New Year with the belly full of fire. I was at the Oakland airport at like 5 am yesterday and I'm sitting there grabbing my coffee and I was just opening my laptop, about to start cranking on some emails, and AVE Miller, one of our older guests from Uncle Arnie, is popped up and he's like Ben, what's up? And I'm like just hustling Getting the year started right. We had a good hour, hour and a half to just catch up and just talk about the year ahead and, yeah, it was just really refreshing to be back in it. I love the holidays, love hanging out with my family, but I might love working a little bit more right now.

Speaker 2: 2:18

Oh shit, Well, well, I think we should jump right into it because we're going to have a super packed full hour and this is a bit of a special episode that we decided to do with the folks over at the Hoban Minute, which is another podcast, and we're going to be syndicating this episode with them. And today we're going to have on Bob Hoban and Xavier Jaillet and we are talking about all things hemp. We'll probably talk about some cannabis policy as well. These guys just published Bob published in forms of five part series all about hemp. Really everything from what is hemp to the history of hemp, to explaining what some people think is a loophole in the Farmville and how it isn't a loophole, downloading us on the economics of where the market is, some of the things we've talked about in past episodes, like the Whitney economics analysis of the market size coming in around close to $30 billion and really kind of where the laws are, and then some predictions of the future. So I think that we've got ourselves set up for a super interesting discussion.

Speaker 1: 3:39

And this is like real content, like I don't tell the people at Forbes, but I like downloaded the articles and put them into like a doc and when I got done doing all that, it was a good like 45 pages of content, and so you know, of course I dumped a little bit of into chat. Gpd it's like give me some summaries here. But incredible Like, it's like we'll have to ask them in a little bit like do they intend to write the book on the evolution of hemp and cannabis? Because it's going to be a telling tale.

Speaker 2: 4:07

Well, I'll do the intros, so let's let's bring Bob. Bob has been an attorney and a contributor in cannabis for as long as anyone's been paying attention. In 2022. He was named one of the top 42 most influential people in cannabis by Forbes and he is widely credited for creating the class of lawyers known as cannabis attorneys. So really stoked to have Bob here and welcome, hi, bob.

Speaker 3: 4:37

Oh, super good to be here, guys. Thanks for having us. A big fan of what you guys are doing and look forward to the discussion. And I see my compatriot here, xavier has joined us so it's good to be here.

Speaker 2: 4:51

Xavier is the director at Clark Hill Public Strategies. He's a cohost of the Hope in Minute with Bob and just really pumped to have you guys so welcome.

Speaker 4: 5:01

Thank you so much for having us and I got to say you guys both sound like you could be native French speakers with the name pronunciation. So well done.

Speaker 1: 5:07

All right.

Speaker 2: 5:10

That's a win. So five part Forbes piece on hemp. You basically wrote the book, like Ben said in the intro. Why'd you decide to put this out there into the world?

Speaker 3: 5:24

You know that's a great question. Well, a, having that platform is pretty remarkable and I was pleased to use it for what I consider a mix of educational and just an open your eyes type of effort. But I'm also you know, I'm proud of this. As you pointed out, I've been working in this industry for a very long time. Proud of sort of always trying to identify what's next, whether it was CBD 10 years ago, whether it was the international marketplace, whether it was opening up the Spenceries for the first time in multiple states. You know, always trying to look for what's next.

Speaker 3: 6:06

And you know this is something that not only do I believe it's what's next, but it's so misunderstood. You know, when Xavier and I attend conferences and we've done a lot this in 2023, and we talked to people and we talked to marijuana operators and we'd say you know, what's your hemp plan, or do you have a hemp plan? The reactions sort of fit into one of three buckets Well, what are you talking about? A hemp plan? I don't, I don't do that. Or oh, those guys are going to get shut down. Or here's what my hemp plan is.

Speaker 3: 6:39

Or, you know, help us understand what a hemp plan could be. So, when we began to see, like realistically, that operators had no idea that these things are going on, and usually not to their detriment. It's just people have blinders on because it's a hard industry, as you guys know as well as anybody else. So you put your blinders on, you do your work and then sometimes somebody needs to grab you by the back of the head or the scruff of the neck and say look up and look around, because you're missing things by looking down, and that was really the intention behind the Forbes series.

Speaker 1: 7:08

Yeah, it's interesting. You know, we talked a lot about in the past about like kind of you know the business they call the sunk cost fallacy and we get so anchored to the way we've been doing things, the way we've been advocating for things and the way we thought it was going to legalize and it's just changed dramatically. And, xavier, you've actually spent time on the operation side in cannabis businesses and now you are taking kind of this, you know, high level perspective, this forward looking opportunity. How has that kind of helped?

Speaker 4: 7:42

Well, I think what you said calling it an opportunity is really kind of the best way to look at it, right? I think that this is a whether or not you want to call it a new theory or a new approach to doing business in the cannabis space. The fact of the matter is that the 2018 Farmville passed in 2018. And so this has been an opportunity that's been available and it's just been waiting for someone or some entrepreneur or company to come along and identify it. And so I think, for me, the exciting piece with the potential integration or combination of what we perceive to be two distinct industries, is really, when it comes down to consumer opportunities and the ability for new product forms and new consumer segments to be touched.

Speaker 4: 8:29

I think there's a kind of built-in natural limit when it comes to the current marijuana industry and how it's structured.

Speaker 4: 8:38

I think, most of the time, the dispensary experience is of a certain kind right, and I think bud tenders do a great job and stores do a great job, of course, of creating welcoming retail environments, but I do think that there's still large segments of the American population that stay away from adult use or medical dispensaries because there's a certain stigma associated with certainly entering the facility and going there and purchasing product, but also the experience itself can be overwhelming, and I think especially post-COVID, as the average consumer becomes more and more easily influenced and aligned with kind of virtual trends. I do think that having products hemp drive products for sure that are available for online purchase, for direct home delivery, these are things that the consumer is seeking now, and the marijuana industry, of course, in certain states has the ability to do that, but not in every state, and so I do think that there's a massive business opportunity that comes along with the interesting kind of legal theories and pieces that we're looking at here.

Speaker 1: 9:44

Yeah, it's so interesting we were talking about a dinner last night. There's not just the dispensaries, but just the whole methodology by which you're accessing cannabis. Right, it's like I'm sitting in LA right now and a big assignment about LA was the consumption lounge opportunity. But it's just so broken. Right, you had to purchase these pre-packaged, pre-dosed form factors and you're also having to purchase the food from an adjacent building and it has to come and be delivered pre-packaged. And it's just this broken experience. And what we saw last year with Minnesota is just from the get an opportunity to serve cannabis beverages or hemp beverages and other products right alongside their alcoholic and non-alcoholic counterparts. And that was just such an exciting opportunity, because those of us in the industry always know it's like well shoot, you can make a ton of money off of ancillary products like non-infused food snacks. Imagine a movie theater where they already make most of their money off the concessions. Now imagine all those people a little bit high and wanting some munchies. Concession rights would shoot the roof. But we just don't have that model.

Speaker 2: 11:09

But, ben, what you're saying is exactly why I think we have to attempt that. There's so much about regulated cannabis that is broken, and we've all tried really hard and I've been one of those people that's been building it. When you invest a lot of energy and not only energy, but tens of millions, sometimes hundreds of millions of dollars of building infrastructure it feels very threatening to have hemp and seemingly be a lot simpler and easier place to operate, and I think that there's been a lot of folks that are trying to hold on because of those investments, and that's totally understandable. But at the same time, if you're open to understanding about what's happening in hemp, you see the way around the controlled substances act. A lot of the things that have been the most terrible about cannabis over the past couple of years, from taxes to but guys.

Speaker 3: 12:12

I would just add to that point Think about this. You've got. These are bets, strategic investment bets that were placed in this space. Some of the first bets were placed, for example, in the Canadian marketplace to the tune of billions upon billions of dollars. And while the Canadian market is not dead, it's all but dead. Right, it's those billions of dollars spent around the world on proverbial infrastructure and so-called real estate in the space, and those certain people made money, but the operations, the investors, they lost. Same thing happened in Columbia. As an example, people went to Columbia, was intimately involved. Down there, about $450 million worth of investment went into the Colombian marketplace. There's literally nothing to show for that right now, and that market's evolving. So, at the end of the day, these are all strategic bets, and if they're strategic bets, that's the way investment goes.

Speaker 3: 13:14

So I'm not sitting here flippantly and saying, oh, there's the MSOs that have invested, to your point, hundreds of millions of dollars. So too bad, so sad. No, there's ways to reinvent that. Look at what Tillray did. They're getting into the craft brew industry with hop production and otherwise. Is it the price point that they envisioned for a kilogram of fine, high-grade marijuana cannabis? No, it's a viable business model and that's the theme here is you're placing bets in a new marketplace that has no infrastructure or foundation and hoping that that foundation takes hold and some people are going to win and some people are going to lose, and it's OK. It's OK if businesses fail the statistics suggest that the vast majority of businesses are going to fail but those assets still retain value, people still learn things and you reinvent yourself or re-aggregate those assets and distribute them in different places where there's an opportunity to make money.

Speaker 4: 14:17

So, again, I'm just not compelled by this notion that somehow we have to protect everything that was already done, because that's not the way business works, and I think I would just add too, speaking to the, because I think there's a contingent of folks that kind of are for the plant, which I certainly consider myself to be one of those people.

Speaker 4: 14:36

That's why I'm in the industry. But I think they also lose sight of the reason, or the start, I guess, of the cannabis industry as it is now. 10, 15 years ago, marijuana, high THC, the state-based systems that we have now were in the same exact position and at the end of the day, the plant is exactly the same. Hemp is cannabis to T-V-L, marijuana is cannabis to T-V-L. It's just the arbitrary distinction of the THC in there that differentiates the two. So I think it's interesting kind of seeing those same folks that were intimately involved in grassroots movements and kind of policy changes and patient access and kind of these movements that go along with, again, the ethos of the plant, if you will, to see them now say, oh well, hemp's not quite the same and we're going to actively lobby against it or you spend dollars against it, right, when in fact it seems to be just another side of the same coin.

Speaker 2: 15:32

Well, so to set the table, I think in three of the five articles you explained the concept of what some people call the loophole and what the statute actually says, and I think it would be useful to just set the table for all of the listeners about what the Farm Bill says and what that means in terms of what the CSA controls. So will you break it down for us, Bob?

Speaker 3: 16:00

Yeah, so this has been called, as you point out, aniray, it's been called a loophole. And is it really a loophole? And again, as a lawyer, definitions matter. Loopholes are things that are undefined. That that's very different than what we have in our federal law right now. In fact, to the contrary, we have something that's very specifically defined. Does that mean that Mitch McConnell and the folks behind the original language involving industrial hemp intended this to be the outcome? It's doubtful that Mitch McConnell would like to see THC beverages in gas stations and grocery stores although you know we certainly never heard him take a specific position on that but it's doubtful that that was his intention. But that doesn't mean it was a loophole when the plain language says that the following compounds are federally legal no longer controlled substances all salts, all isomers, all acids, all salts of acids, all compounds, all derivatives. All of them, including THC, from the hemp plant, are no longer controlled substances. Now what do you think? This is important against the backdrop of saying that doesn't sound like a loophole to me. And again, some people would say what I led with. No, mitch McConnell didn't intend this to be. It doesn't matter what he intended, because you never get to that as a legal matter If the language is unambiguous, and those words I just said are very crystal clear in the law. If the language is unambiguous, doesn't matter what the intent is, because you never get there. You have to look at the unambiguous, plain language of a statute and that's what its intent is. So it's not really a loophole, it's what the law says.

Speaker 3: 17:47

People say the same thing about THCA flower, which is a whole nother topic which we could get into the weeds and I won't do, unless you want to go there. The whole point being is, the law prescribes that Delta 9 THC is the line in the sand between hemp and marijuana. It's that 0.3% threshold at harvest Doesn't talk about post-harvest, it doesn't talk about finished goods, it talks about at harvest. So if you recognize that these compounds, whether they're cannabinoids, whether they're terpenes or other components of the plant, if you recognize that they are merely ingredients destined for other products or other formulations, then you get it. That doesn't dishonor the plant by saying that, and I firmly, firmly believe that Many of us in the industry take the plant very seriously and hold it in such high regard as something that's been put on this earth to help people, and we see that every single day, but by sort of saying that the plant itself produces these compounds that are later used as ingredients in other products.

Speaker 3: 19:01

That doesn't dishonor that spirit. It's also facing the reality. And so you have this federal law with that language I suggested, which, again, I don't believe it's a loophole, for the reasons I described, coupled with the fact that the future of every product in the United States of America and beyond is about ingredients. What am I going to put in my shampoo to get consumers to buy it and make it better? What am I going to put in my toothpaste to get a consumer to buy it to make it better? What formulation am I going to put together in a supplement to help me prevent me from getting a common cold in the winter? This is the same theory that exists in every other business that involves consumer package goods or consumer intended goods, such as supplements and the like, and I think that that's the thing that we've gotten away from, because people feel like that doesn't do a service to the plant, and I disagree.

Speaker 1: 19:54

Yeah, yeah, you're singing for my song book as an ingredient company. I love this. I'm just going to record it and publish it, okay, so we're kind of setting the stage here and Gary Kaminski, one of our past guests, left this comment about the Civil War and so, like, the battle lines are kind of being drawn. You know there are those that are fighting and trying to put the toothpaste back in the tube, so to speak, but a lot of this is just off of speculation about what is going to happen this year, and so let's do a little speculating, right, because we don't want a civil war. That doesn't serve either side of the industry.

Speaker 1: 20:34

Like we need progress, and you know progress, for some feel like getting more clarification and drawing greater boundaries around what we have, either through the Farm Bill or otherwise. You know from where I stand, I'm hoping that someday, from a scientific perspective, we can all line and agree that this is all one plant and that we can start creating one voice around it. You know, for that I think we need some of the national organizations to come a little closer to the center and come up with some reasonable positions, but I guess kind of open-ended, and I know you guys kind of get to this in parts four and five of the articles. Like where are we heading in 2024? Like, are we going to see the heavy hand of government come down and really start to control this, or are we witnessing the new kind of legalization strategy for the plant?

Speaker 4: 21:38

Well.

Speaker 4: 21:38

I think, party politics aside, I do think that there's this interesting kind of notion, I think that's accompanied the cannabis industry with a legalization perspective, where advocates for the industry, I think, thought that there would be some critical mass of states that we could reach where we would have recreational or marijuana programs, where there'd be this limit 50%, 30 states, whatever it is where eventually the federal government would say, okay, we have to look at this and do something about this.

Speaker 4: 22:07

But I think that the opportunity with hemp and kind of a forward-looking view into 2024 is really looking at what Bob, I think, locally calls red state weed, how some of these politically-oriented red states are looking at hemp as a way to essentially satisfy constituents say, hey, we are hearing what you say, we know that marijuana is a hot topic right now and that younger voters ought to see some movement when it comes to marijuana policy in their states.

Speaker 4: 22:40

But they're saying, hey, we're not going to actually have a marijuana program. Instead you can go pursue hemp-derived cannabinoids or products in other, more traditional retail environments or sales channels. So I do think that we'll continue to see I wouldn't call it quite a civil war, but I think we see these competing models and we'll continue to see states that do have the hemp model, if you will, they are going to be affirmatively regulating these products. We saw in Florida and Tennessee and a couple other southeastern states that they've come out and passed regulations mandating specific label information, identifying age limits for purchase on products and it seems like, to your point, the tube pays out of the tube and it's not going away. So I think we continue to see maybe some frameworks be established around the industry and operators, but I do think that we continue to see the two models almost compete a bit.

Speaker 2: 23:38

Well, and what you're bringing up is that states have gone ahead and actually done regulation around hemp in some instances, which I think is widely misunderstood. People think that there are no regulations at all for hemp products, and that isn't necessarily the case. The FDA has not come out and made those regulations yet, and maybe they will or maybe they won't. And so when we look ahead at 2024 from a policy perspective, we know that the farm bill is going to be revisited, and so that could be a place where there might be some level of change, legal shifting of the waters in terms of how some things are defined, but it also might stay the status quo and maybe instead we see more state level regulation of hemp from a safety and quality perspective, in similar ways to the way that cannabis has been regulated. I mean, what's more likely? Where will things start to become more restrictive, if at all? Do you think, bob?

Speaker 3: 24:45

Well, that's a great point and it is that state level regulation that does exist. We've been intimately involved in drafting and advancing those policies in multiple states and the list of those states is in, I think, the fourth and the fifth article of that Forbes series. But, to your point, it is misunderstood that these products are not regulated. And they are regulated. One of the first states to enact a policy that we drove as lawyers, we drove something called the hemp foods policy under our CDPHE, which is our public health department, and they adopted a policy that said hemp derivatives should be treated like any other ingredient and accordingly, if you're producing an ingredient that's supposed to go in products intended for human consumption whether that be a food, a nutritional product or a supplement that you should have the same registration that the person that's producing peanut butter or chocolate chips or whatever the case might be, is regulated by. So the CDPHE adopted that. That later became the law. So it became the hemp foods policy to the hemp foods bill and many states picked up on that. That existed eight, nine, ten years ago. Guys, we've been working on this for a very long time. This is not new. What was new is that entrepreneurs were pushing these compounds that produced intoxicating effects versus just CBD or protein derivatives from the plant, for example. So that's the difference. But those the framework still exists and many states have intentionally and directly, because of lobbying, enacted policies and procedures so that the compounds that are indeed intoxicating to Xavier's point, the red state weed concept that they can be done in a friendly and a consumer protectionist manner. So nobody's been flipping about that. And yes, are there bad actors? There's bad actors in every industry. The bad actors that operate in the hemp derivative space are akin to bad actors that are operating in the unlicensed and unregulated marijuana space. Right, it's illegal behavior, plain and simple. It's just. It's not intended to protect consumers, it's intended to just make a quick buck and those people exist in all sectors of the cannabis industry.

Speaker 3: 27:10

But the Civil War notion is unproductive. To Gary's point, it's silly. But think about why wars typically occur, and I'm no war expert, but in this real time that we're living in right now and we see things in the Middle East and and in in northern Europe and Russia, wars tend to start because people get surprised by something. Oh my gosh, this country has expanded its arsenal in doing this. Or what happened, that terrible incident in October 7th in Israel, people were surprised by something. That's what leads to wars.

Speaker 3: 27:44

So if there's a civil war, it's because somebody was asleep at the wheel. And I would direct that surprise to the marijuana industry lobbyist and I'm not going to be hold any punches about this, because many of those lobbyists are uninventive, uncreative and, frankly, were asleep at the wheel. So because they were asleep at the wheel, they can cock this story that says pay me more money that I was asleep at the wheel before to go and fight this thing because it's a war. Now, it's not a war. You were asleep at the wheel and you refused to acknowledge what was going on around you in the broader cannabis picture, and now you're blaming your clients and trying to make the enemy the hemp industry instead of embracing all of this as forward looking policy change. And those people should be fired. Those uninventive lobbyists should not be involved in this industry because they were not ready for the job that was at hand.

Speaker 3: 28:38

Now I'll also say that there's a lot of folks that are really, really good on the policy, even though they might take a protectionist position. But you know, when I say they should be fired, I don't really mean they should be fired. But the point is you're asleep at the wheel, you're not doing your job If you're a substitute for the Denver Nuggets and I put you in a basketball game to get a rebound and you don't get a rebound, you don't get any more playing time. These lobbyists didn't get the rebound, they didn't get the shot. They should be benched in favor of people that have a broader perspective.

Speaker 3: 29:09

That's what we do through Clark Hill Public Strategies. We've always had this sort of broad perspective and our clients are healthy and thriving because of it. And guess what, when you go into Washington DC with a purely marijuana driven agenda, they ignore you. They ignore you, they don't listen. If you go in with a broader pace perspective, then you have a better chance of getting your outcome. And here, with the advent of the liquor industry at least distributors attempting to own the THC beverage space in mainstream distribution we all of a sudden have allies that can help us get what we want because it's the same thing that they want is wider spread distribution of cannabinoids as ingredients in mainstream products. So anyway, that's a little bit of a diatribe, but I tend to do that.

Speaker 3: 30:00

So, my point is. My point is I think that's where people just look at who you're working with. If they're calling it a war, it's because they were asleep at the wheel and they need somebody else to blame but themselves, and that's a fact.

Speaker 2: 30:13

Well, so, interestingly, a lot of these lobbyists then, and I hear you and I agree that the lobbyists that have been representing cannabis don't understand the business enough and were asleep at the wheel on some of this stuff. And so often more local policy change is almost like a lower lift. It's a lot easier when Congress moves so slow, and so then what we see is these local bands and local bands on derived cannabinoids, local bands on intoxicating cannabinoids. From state to state they're starting to look different and these bands are now being challenged in court, and we're seeing it in places like Arkansas and Maryland and New York and all over the place. So I'm curious of your perspective, because these bands are happening and then people are coming and say, whoa, now, federal law trumps your ban, we get to do what we want to do. The Farm Bill protects us, and I'm curious if you think more bands are coming, if people are going to see that these bands haven't worked, and where this is all going on the state level for bands.

Speaker 3: 31:28

Well, dave, I'll defer some of the details for Xavier because one of his roles has really been to monitor what's happening at the state level from a judicial perspective. But I can tell you, as I attempted to summarize and I also rely quite heavily on Rod Keitner and his interpretation, because he follows the lawsuits really, really closely and a number of our clients are involved on all fronts in those things the law tends to come down to in favor of hemp derivatives being legal, because it's the plain language of the statute. To our point earlier and this is something that is somewhat counterintuitive as well to the cannabis industry We've always sort of said well, maybe and again, I'm apolitical, so when I talk about R's and D's I'm not taken aside but we've thought as a industry that maybe the Democrats have been our friends versus the Republicans. I'm not always sure that that's the case. Put that in the judicial context Conservative or I don't want to say Republican, but let's call them conservative jurists, conservative judges tend to be textualists, meaning the only thing that they do and they're very proud of this is whatever the words say.

Speaker 3: 32:38

That is the extent to which I can rule. I don't get to provide insight or fill a gap that's missing by absence of words. So conservative jurists tend to be friends of the cannabis industry, particularly when you use the Farm Bill. So when you see these judicial interpretations come out, it's because the plain language says what the plain language says and courts kind of feel like they have one hand behind their back, if not two. Because what are we fighting about here? We're selling something that federal law clearly authorizes in terms of legality. Yes, it's not regulated by the FDA, but the FDA takes 15 years to inhale. It just doesn't do anything quickly. And that's just a comment on a big, unwieldy organization. But, xavier, maybe you could dive into a little bit of what we're seeing in terms of trends and what are those legal issues, without getting into the weeds on the technical nuance.

Speaker 4: 33:35

Yeah, no, we'll avoid getting too technical with it, but really most of these cases have really turned on kind of one constitutional law concept and that's the concept of interstate commerce and the fact that states there's a dormant commerce clause which, again, we'll get too technical but states effectively can't favor citizens or businesses when they're state over other states. In the United States, it's supposed to be an open and free economy and country for the movement of commerce and goods, and so a lot of these cases have come down to. In the Farm Bill, there's actually a provision that states do have the right to implement regulations, to pass laws that create standards and laws that are actually more strict than the language that we see in the 2018 Farm Bill. So, by and large, states do have the ability to do that if they desire. We saw that actually here in our home state of Colorado, where there was affirmative regulations passed that did really restrict the ability for federally legal IHDs and toxicating hemp products to be sold within a state, which is totally okay.

Speaker 4: 34:45

We have yet to see the regulations challenged in Colorado and what happens in other states is that the states attempt to do outright bans.

Speaker 4: 34:53

They attempt to prevent the sale of these products within their borders and essentially what that means is that they're preventing the movement of commerce into their state.

Speaker 4: 35:03

And so that's where the federal judges come in and they say no, you can't stop the movement of federally legal good from within your state borders, because then we create this strange map of the United States where if you're delivering hemp to one state you might have to drive around a few other states because they don't allow Delta 8, for example, within their borders.

Speaker 4: 35:22

So it really comes down to that, and I think one seminal case that all of these state cases I've looked at is a federal case AK Futures, out of the Ninth Circuit, and that was a federal appellate court that looked at what Bob was speaking about earlier in the language or earlier in the episode, the plain language with the farm mill, and the judges there evaluated that language and came to the same exact conclusion that Bob said that all downstream products are legal as long as they're derived from hemp. And so I think, with that standard and kind of with the restriction on restricting interstate commerce by states, I think that's what we continue to see a lot of these lawsuits hinge on and I do expect that a lot of them continue to be ruled in favor, let's say, of the hemp industry, unless states are doing things a little bit more of a nuanced way, like we saw in Colorado or even in California.

Speaker 3: 36:21

I prefer to think of it, though, as in favor of freedom, not in favor of the hemp industry or the marijuana industry. This is about freedom, and this is what drives me nuts about this civil war concept. Why are we trying to restrict people when we're trying to free, we're trying to conduct free business, we're trying to free the plant, we're trying to give consumers free choice, but yet, when we don't like something because we're surprised, we want to restrict somebody else's freedom. It's just, it's nonsensical, is what it is.

Speaker 1: 36:49

Yeah Well, in this industry, as operators, we certainly get used to being surprised, and so this is just kind of a new framework to think about. And you know, it being the turn of the year, we've internally have been having operational, like strategy conversations and you know, someone always posits the question you know what happens if it all goes away? And like, how do you have to adjust your business? And you know, I think the response lately has been it's not all going to go away. That's impossible because we've had this like state by state. It might get more regulated from the high level and then we have this very fragmented, you know state by state market and then it just feels like the fragmentation that we've been feeling in the cannabis industry over the years.

Speaker 1: 37:39

And what do you guys think the chances are in 2024? That it does just become this like state by state. Look where you're looking at the having cannabis approach holistically, but it indeed becomes kind of state by state like that, and it just becomes that complicated where it's like Tennessee is different than Colorado, is different than Minnesota, and so you have a. You might have the benefit of centralized manufacturing, economies of scale and being able to ship into these states, but the rules are so fragmented that it becomes almost as in yeah, it almost becomes as incongruent as the cannabis industry.

Speaker 3: 38:19

This will likely continue to occur because, even if there's federal farm bill change, the states have dug their heels in. And imagine this for a second. Imagine you've got a Democrat in the White House and the Democrat whether through an agency or Congress for that matter comes out and says you know what red states stop doing this. What's Texas going to do? You think Texas is going to go? Oh, federal government, my father, thank you for telling me what I shouldn't, shouldn't do, especially when that presence in DC is coming from a blue perspective. Politics has driven this discussion such that I believe that you will see, and will continue to see, Republicans sort of take a position that is in favor of something that they never in their wildest dreams thought that they would be in favor of. So, even if federal law does change, the states are not going to give up these jobs, this revenue and the like.

Speaker 3: 39:20

But you also have different models, guys. You've got the Colorado model, for example a purple state, politically, a marijuana state and a hemp state. We have maybe the second, largest, third largest hemp derivative manufacturing complex in the country, about a billion dollars in revenue. You've got about $700 million in infrastructure. You've got about 4,000 jobs. Colorado's governor, who's always been a proponent of the whole plan hemp and marijuana and been very, very active in that space. He doesn't want to see people lose those jobs, doesn't want to see that infrastructure go away. But he also recognizes that the marijuana industry is struggling. So they said you can produce this here, you can continue to produce these compounds, but here's the standards by which you have to produce them so that they appear consistent and safe, so that consumers are protected. And guess what? Furthermore, you can't sell the vast majority of these products in Colorado, but you can sell them in other states. So that's kind of the purple state model, the red state model. Look at Tennessee. Tennessee, it's a free-for-all in Tennessee and, by the way, it is the freest cannabis marketplace. It makes you so happy to walk around Nashville, Tennessee, to walk into Dabbars, to walk into a restaurant, to order infused hot sauce on your steak while you're sitting there with your kids across the table. It is freedom. And if we're not looking at that as a positive thing, then I don't know what we're looking for. And then you've got the blue state model, which, if they tend to attempt to ban these hemp derivatives because it's perhaps in favor of the marijuana sector. Then the courts come in and the courts tend to say that you can't, you know, usurp the authority set forth in federal law because of interstate commerce.

Speaker 3: 41:03

To Xavier's point, so there aren't different models, but the common denominator, guys, is consumer safety is at the forefront and standards for production and, importantly, that AK Futures case that Xavier talked about a minute ago. That had to do with Delta 8. Delta 8 may not be something you or I want to consume on a regular basis, but a lot of people do and it can be produced safely because the governments are putting standards in place. Colorado was groundbreaking in saying that if you produce Delta 8 compounds this way, then it's safe. Not gas, not conjecture. Don't make it in a bathtub, but do it this way.

Speaker 3: 41:44

So I think that's the common theme is the states will enact a baseline consumer safety production standard and if that's the case, then you have to just navigate what states can I sell it in? What states can I produce it in, and are there states where there's maybe court cases pending? All of those things work together. But again, the common theme is consumer safety is at the forefront for the most actors. Yes, as I said, people are making things in bathtubs. Yes, people are selling things at gas stations that nobody should ever put in their mouth, but that happens with every single product known to man, at the least of which is soda. So that's unfortunately what we have to deal with in a capitalistic society, Can we?

Speaker 1: 42:25

double click a minute on the safe harbor that has been created in Colorado and New York, and is that I mean from a policy perspective that seems like a low hanging fruit, that we can kind of go around from state to state and lobby to create these opportunities, at least for the manufacturers? And being a California resident, that's frankly what I'm concerned about, because California has been very heavy handed from a regulation standpoint. We can imagine them trying to put hemp cannabinoids back in a box in support of the regulated cannabis industry. But there's an opportunity to at least allow them to manufacture and ship to other states. Are there efforts going on in various states to at least create that manufacturing foundation?

Speaker 3: 43:21

I mean certainly so. Florida's been at the forefront, florida's a major producer, and then you've got Colorado, and then you've got a number of other states. You know, of course there's a large manufacturing complex, as you well know, in California and, by the way, my analysis, our analysis would be that if somebody did challenge AB45, it would likely be curtailed as well, limited in its scope, because it is infringing on federal law. Now, you don't know how that's going to go in a California court, but if the AK Futures decision is any indication, if it went to a federal court somehow, some way having jurisdiction over this issue which, again, I thought through the nuances there and I don't litigate anymore, so so I'm not exactly going to go down that road, but I don't think that the AB45 restrictions can sustain scrutiny as a practical matter and as a legal matter. There have been, you know, efforts to sort of overturn that. There's some other dedicated discussions to move towards that. But also, you know, because California is so large and unwieldy, people tend to sell products there anyway, even if AB45 doesn't expressly allow it, particularly when you have e-commerce. So I think that some of those statutes are unfounded and cannot withstand judicial scrutiny, but they're at least in place for now to protect one sector over the other, and that's really where the Civil War concept really falls apart is what's the point of fighting each other? You're going to get this state and I'm going to get this state Well, as a practical matter, even if it becomes a red state, weed state, people are still going to sell marijuana illicitly or in a gray or a traditional market, whatever you want to call it. And if it's a blue state that has marijuana and doesn't allow for IHDs, then that state is still going to have IHDs, because that's what young people want and you can buy it online. So why not ensure consistency from a consumer safety standpoint and make sure that the people buying these products are buying them from reputable sources? That's really the best.

Speaker 3: 45:36

To your point about the FDA I think, Anari, you said this the FDA. I had discussions with FDA consultants and regulators at MJ BizCon a few weeks ago and my suggestion was what I wrote in one of my articles, which was I know that the FDA moves slowly and it's a big organization, so that's understandable. So why not issue some sort of policy memo that says you know what? We don't know what we're going to do with this stuff yet. But we just want to remind everybody that if you're producing any compound for human consumption, that it has to meet these basic safety requirements. That's what the states are putting into effect by way of legislation and regulation. Why not a subtle reminder from the FDA? Oh, that's not politically feasible, or it's not likely that they would do that, and they'll never take a stand on things. But what if they did? Wouldn't that provide some sort of guidance? So I remain hopeful that something like that could come out, because if you just say don't do it, we know how Americans behave when they tell us not to do things.

Speaker 2: 46:32

Well, I think people believe that the FDA is moving slow because hemp policy is in the farm bill and the farm bill keeps changing. So we are talking about laws and we're talking about judicial review at the state level. That's basically dependent on the farm bill and the farm bill was going to change in 2023. It didn't. It was going to take down into this brand new year, and now we're all kind of in this purgatory opportunity space whatever we want to call it of not knowing how it might change.

Speaker 2: 47:09

And earlier you talked about Mitch McConnell and what his intent may or may not have been with the 2014 farm bill language. Now we're revisiting the 2018 farm bill. I think it seems like a lot is riding on this and we've ended up in the weeds talking about state level policy, because that's really where the rubber meets the road, but in the end, the farm bill could really mix it up this year, and I wonder if you think that any actual big changes are in store and if these questions around intent are going to rise to the surface, or if the farm bill is just this mechanism for agricultural commodities and programs to move through and that Congress is just going to keep it status quo. Where do you guys fall on this spectrum of potential change in the farm bill?

Speaker 4: 48:03

So I'll jump in here. I think one thing that we've discussed internally, certainly between Bob and I and amongst other industry professionals and colleagues, is that at the end of the day, the farm bill is exactly the latter description that you laid out there, anna Ray, where it really is a collection of bills designed to promote and help farmers plant crops, sell their crops and exist as farmers. So at the end of the day, what the farm bill seeks to do is make it easier for them to grow their crops. Now, adding more complex definitions and standards and regulations on testing times and THC percentages and Delta 8 versus Delta 9 cannabinoids, you start to throw in all these complexities and it becomes certainly unwieldy for a trained attorney, let alone a farmer, and so even the most sophisticated of operations out there. So I think there's this fear that the farm bill is going to be the mechanism by which the federal government closes this loophole again.

Speaker 4: 49:05

But I would expect something along the lines of promoting the cultivation of hemp, which may align with increasing allowable THC percentages in the plant. I also think that one of the ways that the farm bill itself could address the intoxicating hemp derivatives piece is by changing the definition of THC from just Delta 9 THC but to include total THC. So to factor in the THCA pre-decarboxylation into that THC percentage and then maybe bump up that total THC percentage a little bit and then have all cannabinoids or all tetrahydrocannabinols be included in that THC definition. So I think there's a good chance that we see the farm bill come out and actually-.

Speaker 2: 49:50

It impacts on the industry. What you just Certainly.

Speaker 4: 49:53

Yeah, massive impacts. So and then, whether or not a regulatory body then comes along like the FDA and actually passes regulations, I think still remains to be seen. I mean, they've had CBD other desks for five years now and haven't done anything about it.

Speaker 3: 50:08

And that's kind of the indicator of the FDA right. We saw what was earlier this year let's call it February or April, I can't recall exactly what but there was the FDA all of a sudden said we're going to have hearings on CBD. Well, you guys are 10 or 12 years late. Nobody's selling CBD anymore, and that's an overstatement as well, but that market has risen and sort of shrunk dramatically because of the lack of mainstream distribution. To Xavier's point, though, if Congress was this kumbaya entity that was out to solve problems, then I'd be more concerned about the farm bill reining things in. But it's not, and it's going to be a-. I wrote this in one of my articles. Can you imagine a New York Senator that's from the Democratic Party and a Republican Senator from the state in the South agreeing on something like this, when they have different motivations and sometimes they just disagree because you're a red and I'm blue, and so forth and so on? That tends to be the way things are done these days, so that political headbutting means that the problem likely does not get solved, and our sources tell us that, accordingly, that would leave the farm bill in the status quo state, because it doesn't require any changes, if there is a change with this political headbutting. Don't you think that that would say, okay, we need to do something about this, but we can't agree what it is to do. I'm from a red state, you're from a blue state. Why don't we just leave it up to the states? Well then, that's exactly where we are today, although maybe it gives a little more teeth to the blue states that don't want these things to be able to legitimately say you can't produce these in our states or sell these in our states. It has, you know, similar to, you know, marijuana permissiveness. These states would be allowed to say what they want and what they don't want. So I think those are the two likely outcomes. I mean, up until recently, we heard about them raising the THC percentage to 1%. That's only going to produce more downstream cannabinoids into the marketplace, and the Farm Bill tends to be, as Xavier points out, something that encourages farmers to plant things, not necessarily restrictions.

Speaker 3: 52:35

So anything can happen in Washington DC, guys. You know that as well as I do, and nothing should be a surprise, but given the political headbutting at issue here, I don't expect that this is going to get solved through congressional action. The DEA might likely come out and say something. But we've seen the DEA come out and Saber rattle many times. On one hand they say we have no jurisdiction over hemp, and now they're going to come back out and say, oh yeah, well, we made a mistake before. We actually do have some jurisdiction over hemp, but only if it's this kind of hemp. I mean it just it's. It's.

Speaker 3: 53:09

It will chill the marketplace if those things occur, but it should not cause significant market impact for those that are doing things the right way. And that's what I want to stress is there are good actors. Just like in the marijuana sector, the hemp derivative sector is is replete with good actors that want to do things the right way. And you know, one sector might not like what the other, the other, the other sector is selling, but they're doing it the right way, they're doing it by standards, they're doing it through scientific processes that are utilized with other foods, in compounds.

Speaker 3: 53:43

Do we have the benefit of 20 years of data on how these compounds affect the human body? Not necessarily no. But do we know that they're akin to other things that are consumed and produced in a similar fashion? That fashion can be regulated and safe. We do know those things. So you know, I I don't see that the federal government is going to change things greatly, except through, maybe, agency act, and that's going to have to come from the DEA. And then they got the DEA talking out of both sides of its mouth, perhaps yet again.

Speaker 2: 54:18

Well, so if you are a business that is operating in the hemp space, january 2024, you're looking ahead. Do you have advice, as a lawyer that is watching this closely, about what people should or shouldn't be doing in terms of product development? Like, I guess I'm opening up the door to the THCA question Like, are you representing that people only produce beverages or low dose products or, as long as they're within the confines of what exists today, Are you telling people to go for it and enjoy the ride? What would be your advice? I?

Speaker 3: 54:58

mean. Look from a business perspective. There's this concept of doing business by arbitrage right, meaning I need to sell as many things as possible before they take my business opportunity away from me. This is this is something that's existed in numerous consumer industries over the years, and not because of federal illegality, it's just a business concept. So if you want to capitalize on the marketplace and the marketplace is worth billions of dollars, even if it's going to go away in September of 2024, why wouldn't you try to make 10 or $12 million between now and September of 2024?

Speaker 3: 55:32

Everybody else is trying to do it, and if the market is truly as big as Whitney Economics and BDS and some of the other folks say it is and I have no reason to doubt any of those folks, they're extremely reputable and methodical in terms of how they approach things then why wouldn't you give it a ride? This is not about principle, by the way. This is not about principle, by the way. This is not about I need to be on this side or this side. Your principle should be to your shareholders, and your shareholders want you to sell things, because then they'll get some sort of derivative or some sort of distribution at the end of the year, and I don't think that there's going to be a shareholder that would disagree with me on what they want. So you need to figure out ways to be creative and inventive and do so, and this is not a foreign concept. I noted this in one of my articles as well. This is what many companies did with CBD before. They created a CBD line and they use the same branding as their THC marijuana line. So this is not dissimilar. It's just use your branding, create a nimble structure where you can license the IP and the trademarks and the like, and have two distinct sectors. One sector of your business has no 280E restrictions, one does, and then you've got to figure out for your own business what that line in the sand between those two sectors is or are.

Speaker 3: 56:49

What I didn't write in my fifth part of the series is what I think that line in the sand is going to be or needs to be, because I'm not so sure I even understand what that is yet and I put so much thought towards this. But I think that's where the Civil War notion needs to go away and the collaboration needs to come into play. Ok, if you're going to sell this, what's the distinction between me selling this? Where is it sold? What are the limitations on? Perhaps you know THC milligrams when? What are the limitations on the production chain? Where can I sell it? Is it 21 and over, as they get hidden in the corner of a convenience store, like in the old days when they put adult magazines behind barn doors? You know things like that. What are the? What is the mechanism to put this line in the sand? And I'm not in the position where I can or should say what I think that line in the sand is going to be, because I think it's evolving. But that's where we need to focus our energy, I believe.

Speaker 1: 57:49

The wild thing that we're seeing with the, the IHD category, is that there's greater distribution already happening than what we were previously seeing in in CBD and you know you're talking about merchandising and retailers. So it's greater merchandising opportunities than we saw with CBD and I think that's the wild thing to me. It's like we're really about a year like heavy into this, thanks to Minnesota, and you know seeing end caps of THC beverages at Total Wine now in Connecticut as well. You know we're hearing about certain brands getting distribution into over 200 retailers through a single distributor relationship. That hasn't been happening with with CBD and it surely hasn't been happening with with cannabis, and so it's or sorry, you know regulated, regulated cannabis, marijuana.

Speaker 1: 58:39

It's going to become very confusing. It's all one thing. I'm just going to keep saying that, but I think that's for me what? What's really going to accelerate 2024? Because you get one distributor that has access to 200 doors. All of a sudden you have another distributor that has access to 300, then 400, then 500. And at that point it starts to get ubiquitous and I think that's the exciting opportunity because, going back to what we were saying at the beginning of the conversation, creating access to the plant and normalization. It's a great opportunity for the category at large.

Speaker 4: 59:15

I think it's. It's really comes down to economics and capitalism too, right? Consumers and consumer behaviors those are the ones that are driving at the end of the day of the bus, whether or not we like it. You know where they spend their money, what products they purchase, are the products and the businesses that create those products, of course, the ones that are going to be here tomorrow? And so, to your point, you know CBD products. They might have been available at Target, but they weren't high quality, they weren't desirable, they weren't tested, they didn't do what they said they did, and so people quickly became disenfranchised and disillusioned with CBD products, right? Whereas here people are getting their hands on. You know, in Minnesota they're going to get their hands on a hemp derived beverage and it does what it says it's going to do. Then they find out they can order it online, and so all of these behaviors and things are going to drive kind of the creation in the future of this industry, and that's what I think.

Speaker 4: 1:00:02

You know, vertosa, cannabis beverages you guys are really at the forefront of the space. You know alcohol is easily and widely consumed beverage in the United States. You have infrastructure, whether or not it's a brewery or a concession stand in a stadium or an alcohol store or a wine delivery service. You know we have the infrastructure in place for dissemination of intoxicating beverages and it's going to be very easy for cannabis to just slot right into that. Folks are going to be able to consume cannabis beverages the same way they would consume alcohol, and I think that's also going to tap into again these market segments of consumers that we haven't yet seen jump into cannabis because they've been overwhelmed or scared to try the existing product lineup.

Speaker 2: 1:00:46

Well, you guys, thank you so much. We could. I just want to clear my day and talk about every single element of this for the next few hours, but we can't, so we're going to have to wrap. We know that everybody has more questions about all of this and, xavier, you just started talking about consumers and I'm like, oh my gosh, there's so much I want to say about that. But I will hold it and we will talk more every Thursday, as we do. But so this is the end of the show, guys, and we want to get a last call from both of you. That's when we give our guests a chance to just really have the last word, whatever you want. So, you guys, it's up to you who wants to go first, but you've both got a last call, and then we're going to wrap for today.

Speaker 4: 1:01:38

What would you?

Speaker 3: 1:01:38

lead off.

Speaker 4: 1:01:40

Well, I think my finishing message here really comes down to, I think, a thread that we've followed through this conversation, that's to really follow the money. You know, that's where things are going to be going, that's where things have been. And the last message I want to say and I think this is something that shouldn't be controversial but still is, apparently is that THC is federally legal. You can have federally legal THC in the United States.

Speaker 3: 1:02:08

Well and that's music to my ears I would just say you know, look, this should not be something where it's eliciting feelings from people's guts, where they get angry at other people, or I'm not talking to that person, or this person has ruined their reputation in the marijuana industry because they spoke out about him and they're never going to hire that lawyer again. All of that's BS. People are going to go where they get good quality services, period. I say things in sometimes a bombastic fashion because I grew up in the Howard Stern School of Messaging. I listened to the radio as a kid and you say things over the top to get people's attention.

Speaker 3: 1:02:46

It's one of the reasons I wrote the articles that I wrote because I wanted people's attention to see what was happening around them, because it just seems silly that we're having this juvenile debate about this Civil War concept. So I respect everyone's hard work. I respect both sectors. I work very hard in both sectors, so I don't take a side one way or the other. I just see where the train's going and I think that everybody should open their eyes and either get on the train or move on to something else, because the train has left the station, so to speak.

Speaker 1: 1:03:19

Wow, that's incredibly valuable insight to kick off the year. I know when we first started having these conversations on both sides of the fence Pamela Epstein, Gary Kaminsky, Rod Kite we've just been covering this over the last several months and even in that time period the conversation has evolved and even my own perception has evolved. And so, coming into 2024, I think the message is clear. So, thank you both so much Again, really incredibly valuable information that we've provided to the audience. So I can't thank you enough and hope to do it again soon, sometime. Thank you, it was a true pleasure. Let's get it. Thank you All right, everyone.

Speaker 1: 1:04:04

Well, if you like the show again, please help us, Subscribe, like, share, do all the things. Who would you like to see on the show? What conversations do you think we need to be having? How are you shaping, guiding your business? We need to know we have our own businesses to run to. Thank you so much. Thank you for being along for the ride with us and continue to grow our audience and you know we couldn't do this without you Stay curious folks, Stay informed and, of course, keep your spirits high Until next time. That's the show.