Booming Cannabis Industry’s Need For Quality Control Can Be Solved
By Ryan Allway, Cannabis Financial Network
Last year’s landmark Gallup poll indicated that for the first time since Gallup started polling in 1969 (only 12% favored legalizing it back then) more than half of Americans (58%) are in favor of marijuana being legalized, and we continue to see indicators that the trend towards legalization is proceeding at a rapid pace throughout North America. In Canada, a recent poll by the Department of Justice indicates that 37.3% are in favor of legalization and another 33.4% want small amounts decriminalized. With 23 states including DC now having some form of medical marijuana legislation on the books and Health Canada having approved thirteen licensed producers already for Canadian markets under their MMPR program, like Tweed Marijuana, Inc. (OTC: TWMJF) and Organigram, Inc. (TSXV: OGI), it appears the regulatory floodgates may at last be opening and the sector is evolving rapidly in response, with a myriad of players rushing in to fill all the various roles this nascent industry requires.
Even the oldest continuously published newspaper on the west coast of the U.S., Oregon’s paper of record, The Oregonian, has now come out staunchly in favor, openly advocating legalization of recreational marijuana in a piece by the editorial board. Before recreational marijuana was legalized in the state of Oregon, The Oregonian editorial board argued that Measure 91 (which legalized marijuana) should be brought in, as it would eliminate the “charade” that is the current regulatory framework, allowing Oregonians access to an intoxicant that “should’ve never been prohibited in the first place.” The $40M in estimated tax revenues per year generated by legalization according to the Oregon Liquor Control Commission, combined with Oregon having a state debt over $86B (roughly $22,000 per capita – State Budget Solutions), looks like the proverbial handwriting on the wall for this state.
Burgeoning Market, Product Recalls
The forecast out in April of last year from Marijuana Business Daily on U.S. retail cannabis sales helps flesh out the underlying dynamics further, indicating an over 200% jump from the estimated $2.2B to $2.6B this year (minus ancillary businesses like lab testing services), to as much as $7.4B to $8.2B by 2018. The same forecast indicates that while the rapidly emerging recreational sales will likely make up the majority of that steep rise, medicinal is also set to more than double.
This data tracks very well with an ArcView Group report indicating that the industry grew 64% last year to around $2.34B, and CEO of the San Francisco-based marijuana research/investment group even went on record at the inaugural Oregon Medical Marijuana Business Conference this February saying in his keynote that he felt the sector was, “the fastest growing industry in America.” ArcView also posits a five-year national market projection of around $10.2B (a 700% rise) and predicted 14 states in the U.S. would adopt adult use regulations within that same interval, with Oregon and Nevada predicted to move fully towards state licensed dispensaries and hit around $46M combined this year. Meanwhile, north of the border, Health Canada estimates project 450,000-plus users and a CAN$1.3B commercial marijuana market cropping up within the next decade, as their MMPR program picks up steam.
The three product recalls on batches of marijuana in Canada (where Peace Naturals tested positive for bacteria outside of limits, Greenleaf Medicinals failed a production inspection by Health Canada and a Whistler Medical Marijuana batch tested positive for mold), as well as the first-ever recall in the U.S. (At Home Baked), look like canaries in the regulatory coal mine, signaling the start of serious changes. The Whistler Medical batch recall by Health Canada occurred after customers complained about the product’s appearance, leading to tests which found mold in the organically-grown product. Down in Denver, marijuana-infused edibles were found to be produced using a modified washing machine, after a food safety inspection was conducted by the Denver Department of Environmental Health.
State And Industry Already Developing Tight Standards
In the U.S., marijuana is still restricted by federal law, but the federal government has allowed states to pass laws for recreational and medicinal use so long as they adhere to a system for regulating it. Hence the speedy approach of more stringent product quality standards regulation, both by the states and by the industry itself. Because the industry is relatively new, standards have lagged behind and now a mounting need exists for ways to address the increased product safety requirements needed to make the state-based regulatory structures function. Since marijuana is being treated principally as a medication, growers and edible/extract producers will likely face the same scrutiny applied to major pharmaceutical brands like Tylenol from Johnson & Johnson (NYSE: JNJ).
The eagerly anticipated manufacturing guidelines for medical marijuana (PDF) out in July this year from the American Herbal Products Association (AHPA) also contained seed-to-sale regulatory recommendations for the industry and this framework has been fused together with the American Herbal Pharmacopoeia plant standards by leading MMJ advocacy group, Americans for Safe Access, for their nationwide Patient Focused Certification program. This is a prominent example of the industry itself taking the initiative to set standards and nurture sector growth. In Colorado, Rule R 1500 (PDF), the state’s public health and safety rule for establishing a retail marijuana testing program, is set to go live in October. Other than the cost to manufacturers from recalls, failing forthcoming regulatory compliance checks could ultimately result in suspended licenses, just like in the food industry.
Proven Technology, First-Mover Advantage
Enter Amfil Technologies, Inc. (OTC: AMFE), which teamed up with Antibacterial Cleaning Treatment Services, Inc. (ACTS) a few months ago via a definitive JVA to adapt ACTS’s proven mPact™ Cleaning Antimicrobial System’s core ozone technology for the marijuana industry. Originally designed for multi-surface (from walls and floors to vats and prep surfaces) cleaning and antimicrobial treatment, mPact is an established technology in the food and beverage, as well as fresh produce industries. With a solid track-record of installed hardware helping to secure food safety compliance at critical production infrastructure for major players like SYSCO Corp. (NYSE: SYY) and Nestle (OTC: NSRGY), mPact carries quite a pedigree with it into the marijuana business.
The first unit in the company’s mPact -GROzone Antimicrobial System product line, the mPact -GROzone 60™, has already seen successful installation at one of the state-of-the-art cultivation facilities belonging to commercially licensed Today’s Health Care (THC), Colorado’s premier medical marijuana organization. Engaged in both production and retail, THC has four modern retail locations, 18k square feet of indoor hydroponics, and 26k square feet of greenhouses (being expanded to 56k). THC plans to build one of the biggest indoor hydroponic cultivation facilities in the state as well (some 200k sq. ft.), making this relationship a potentially very bright one indeed for Amfil Technologies. Easton Pharmaceuticals, Inc. (OTC: EAPH), a specialty pharmaceutical products and services company establishing itself in the sector, which has paid and acquired an initial ownership interest in Amfil Technologies (with an option to purchase 32.5% or more), is setting up the field for themselves with an exclusive option to purchase up to 50% ownership interest in a private medical marijuana grower which already has received a letter to build from Health Canada, prior to getting its license under MMPR (one of only 43 growers at this phase). This could set Easton Pharma up for a play similar to the one executed so expertly by GW Pharmaceuticals (NASDAQ: GWPH), which is at the cutting edge of full-spectrum cannabinoid research, with control over their entire production pipeline and a plant-based prescription pharmaceutical portfolio that includes the multiple sclerosis indication, Sativex®.
The mPact -GROzone 60 is a triple-function sanitization unit capable of naturally eliminating 99.9% of airborne pathogens and the typically problematic pests that wreak havoc for cultivators (like aphids, whiteflies and spider mites), as well as bacteria, fungus, microbes and mold on surfaces, all without chemicals. The unit can also constantly regulate a given facility’s water supply, oxygenating the water and maintaining a consistent PPM infusion of ozone that prevents the formation of algae, bacteria or mold (allowing for comprehensive water recycling), simultaneously removing the need to use dangerous, often carcinogenic products to treat the water, as is common throughout the industry today. This environmentally-friendly solution also eliminates odors, while slightly reducing the air temperature, lowering energy consumption by the HEPA filtration and HVAC systems. There is even compelling research indicating that elevated levels of ozone and CO2 can produce yields having as much as 53% more total biomass in certain plant types, with similar results for seed production.
Providing The “Green Rush” With Picks And Shovels
As a systems and service provider to the burgeoning marijuana industry, Amfil Technologies is able to use a strategy similar to the likes of indoor/outdoor agricultural solutions provider Agritek Holdings, Inc. (OTC: AGTK), or Abattis Bioceuticals Corp. (OTC: ATTBF), which is focused on mass cultivation systems, a supply aggregation strategy and their extraction hardware/technology. By avoiding the complications and costs of navigating regulatory compliance, acting as a hardware solutions provider to self-establishing, licensed producers, the company can benefit from the growth of the industry without incurring typical systemic risks. This is the same approach that made renowned oilfield services provider, Halliburton Company (NYSE: HAL), the giant that it is today: serving a growth industry with what it needs to thrive. Amfil Technologies feels they have first-mover advantage with their mPact -GROzone system and is looking to become the industry standard moving forward as regulations get tighter.
The regulatory trends appear to be self-evident and the only thing seemingly keeping more states from moving towards open recreational legalization is fear of the external costs associated with the drug’s use. These fears may be soon assuaged as emerging technologies hit the market to address them, like the Cannabix Marijuana Breathalyzer developed by Cannabix Technologies, Inc. (OTC: BLOZF), which would give law enforcement the same ability to non-invasively test drivers the way that is commonly done for alcohol. Such products could also give regulators the peace of mind they need to move the ball down the field on marijuana legalization, which appears to be a tax revenue bonanza.