Is Your Company Missing Out on a Billion-Dollar Opportunity in Cannabis?
Business is booming in cannabis country. Sales of legal cannabis in the U.S. grew 40 percent in 2021 to $25 billion, according to BofA Securities.
But entrepreneurs and large-scale corporations who are eager to cash in on the cannabis bonanza should be prepared for red tape and some seriously gray legal areas as they wait for federal legalization. Because while states have legalized cannabis in many cases—to some degree—it is still not legal on a federal level, meaning you cannot transport it across state lines, even for business purposes.
As of now, only four states have made cannabis completely illegal. Every other state has made CBD, medical, or recreational cannabis use legal, or has decriminalized it. And yes, that sentence is confusing and difficult to parse, but so is the bristling thicket of state and federal laws surrounding cannabis. In addition to being unable to transport product across state lines, nascent companies are also prevented from advertising in multiple states.
“When federal law changes, which we believe it will, it isn’t going to transform the market overnight,” says Ben Larson, CEO of Vertosa, an Oakland, California-based company using nanotechnology to infuse beverages, cosmetics, and food with cannabis and hemp. “There will still be a lot of challenges, and there are dozens of states with very strong rules already in place in terms of sales and cross-border commerce. Those laws will not be overturned immediately.”
But savvy businesses, both large and small, are finding perfectly legal loopholes they can jump through, and are finding a ready and willing market on the other side. Read on for insight into what can be done.
The Gray Area
Defining what qualifies as cannabis has become trickier in recent years. Thanks to a loophole in the 2018 Farm Bill, cannabis products derived from hemp are technically legal to use and sell. Hemp, per the Farm Bill, is cannabis that contains no more than 0.3% Delta-9 THC.
Delta-9 THC contains psychoactive properties that give users a “high.” But recently, analogs of Delta-9 have been appearing on the market.
“Delta-8, for example, is similar in molecular structure to Delta-9, but the carbon bonds are different,” says Liz Rogan, a cannabis educator and the founder of the Cannabis Business Council of Santa Barbara. “Delta-9 is a natural product of the cannabis plant, and even in states where it is legal, it is strictly regulated and tested for any traces of pesticides, or any other potentially harmful substances.”
Delta-8, and other compounds, are derived from CBD extracted from hemp plants in labs. There are more than 500 compounds in cannabis, and more than 100 cannabinoids, many of which can be tapped to provide a high. It wasn’t until very recently that the process of extracting these compounds from hemp became possible; and because they don’t technically fall under the Farm Bill rules regarding Delta-9 THC, they exist in a legal gray zone, Rogan explains.
“Vendors sell Delta-8 and other analogs in edible, vapes and tinctures, and there’s no oversight of the hemp source, and no analysis to ensure what they say is in there, is in there,” Rogan says. “Some of these products may cause hallucinations, and they’re not packaged appropriately in the way that anything containing THC is. I am personally uncomfortable with this market, and think that it could imperil the movement so many of us in the cannabis industry have been working toward.”
Recently, at least 14 states have made the sale of Delta-8 illegal, and Rogan predicts others, possibly federal agencies, will follow. But she is also predicting that other up-and-coming cannabinoids (like THC-O, THCP, THCV, CBG, among others) will slide into the space that Delta-8 vacates, with states, feds, and agencies essentially playing a game of whack-a-mole to outlaw them by name.
But entrepreneurs are still finding plenty of ways to get people THC legally, (almost)
Liquid Gummies, launched in November of 2021, offers the “first federally compliant Delta-9 THC gummies,” to every U.S. resident ages 21 and over (except those who live in Idaho, where every form of THC and CBD is banned), says the company’s marketing manager, Dominique Stueben.
Liquid Gummies complies with the 0.3% rule, Stueben explains, by offering a gummy that weighs 6 grams.
“To be in accordance, we can fit in up to 18 milligrams in there, but we stick to 15 milligrams,” Stueben says. “We don’t want to push it. We want to be completely compliant. But essentially, we’re offering a THC gummy, the same as you can get in a dispensary. Ours is derived from lab-tested and formulated hemp.”
Sales, she says, have been “great.”
‘The Tip of the Spear’
Other companies are managing to grow their businesses while operating in lockstep with both state and federal mandates.
Vertosa was founded in 2018 as an early-stage cannabis company, right before the Farm Bill was passed.
“While that legalized hemp and CBD, the FDA never provided guidance, so everything infused with CBD has been living in a legal gray area, and we are not interested in operating in that space,” Larson says. “We began focusing on the California market, after cannabis was legalized.”
Vertosa works with more than 85 brands—including Pabst—to produce a variety of products like cannabis-infused nonalcoholic seltzer. It is available only in California.
“But we are working with Pabst and our other clients to push into other markets,” Larson says. “We see ourselves as the tip of the spear, going into new markets, and then brands follow.”
Vertosa establishes itself in other markets—they’re in seven now, including Canada—and partner with a lab. Vertosa works with the lab to produce emulsions that companies can then infuse into their products.
“The brands then also have to set up businesses in each market, and work within the framework of each state’s laws, but it’s doable,” he says.
For the past three years, Vertosa has grown 300 percent year-over-year.
Federal legalization seems inevitable. About 91 percent of Americans support either full legalization or medical legalization of cannabis, according to a poll by Pew Research Center. And sales of legal cannabis in 2022 are projected to hit $30 billion this year, and $50 billion by 2026, according to forecasters at the Brightfield Group.
The broader drinks industry can either find a way to get in the game, or lose out on a major money play.
Kathleen Willcox writes about wine, food and culture from her home in Saratoga Springs, N.Y. She is keenly interested in sustainability issues, and the business of making ethical drinks and food. Her work appears regularly in Wine Searcher, Wine Enthusiast, Liquor.com and many other publications. Kathleen also co-authored a book called Hudson Valley Wine: A History of Taste & Terroir, which was published in 2017. Follow her wine explorations on Instagram at @kathleenwillcox