Culture Council: How to Pivot Your Cannabis Company When Industry Challenges Come Your Way

We have reached a point in the cannabis industry where, as operators, we are not only competing with each other and the illicit market, but now that the 2018 Farm Bill has legalized at a federal level “hemp-derived” THC products like Delta 8, we’re also competing with an unregulated hemp industry producing similar THC products at lower costs.

Unlike regulated cannabis, these hemp operators can create national brands that ship across state lines, are not subject to strict regulatory oversight, and avoid the burdensome taxes imposed by IRS Section 280E, all of which translates into higher margins. How can a land-locked regulated cannabis operator — with triple the expenses, multiple competitors, no access to capital and only a sliver of the market — possibly compete? The answer is, we can’t. 

So, for this reason, and a few others I’ll explain below, I’ve finally come to the conclusion for my own company: If you can’t beat ’em, join ’em.

First, a little lesson. Cannabis Sativa L is the name of the hemp plant. It is also the name of the “marijuana plant” (what I call “regulated cannabis”). So, why are these THC-producing plants with the same name treated so differently? Put simply, legislators wanted to legalize hemp under federal law for industrial (and non-intoxicating) purposes. So, they placed a low limit of no more than 0.3% THC (dry weight) on cannabis for it to be considered federally legal “hemp.” Smart extractors took material with 0.3% THC dry weight and converted it through a chemical process into intoxicating cannabinoids, like Delta 8 (D8), Delta 9 (D9), Delta 10 (D10), THC-O, HHH and more… And, with that, the federally legal hemp-derived THC industry was born.

While regulated, licensed cannabis operators like me fretted over this development, THC beverage companies using regulated cannabis in the state where they launched, like Happi for example, saw an opportunity to both lower the cost of their key ingredient and sell their products across state lines. This marked the first time I can think of where licensed, regulated cannabis companies were fully embracing hemp D9 distillate for their products.

What did this mean with respect to Dynamic Jack, my cannabis company in New Mexico? I saw the same opportunity as the THC beverage companies for our THC-infused cookie dough, which could only be manufactured and sold in New Mexico (remember, regulated cannabis companies cannot sell across state lines). Could we create a new branded cookie dough recipe, that was both edible and bakeable, infuse it with hemp D9, and sell it nationally? Could we do it safely and to my standards as a regulated cannabis operator? Spoiler alert: we did! 

Fast forward to today, and we have now launched Dynamic Jane D9 THC Infused Edible Cookie Dough with 5mg hemp D9 per serving (10 servings total) in local stores and online. While we’re still figuring out where to draw the line with respect to using unregulated hemp D9 distillate (and potentially other hemp-derived cannabinoids) in our future products, we now realize that after years of wanting to “beat ’em,” we should “join ’em” instead.

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If you’re considering doing the same, here are some key considerations that I took into account, and you should too:

For example, Minnesota is the top THC beverage market in the country right now. Why? Because Minnesota state law allows hemp-derived THC beverages with a max of 5mg hemp D9 THC to sit on shelves in liquor stores next to beer and other alcoholic beverages, allowing consumers to purchase without having to go to a licensed dispensary. A similar law does not exist in Illinois or California, where THC-infused beverages are mostly found in licensed dispensaries using regulated cannabis. If you have a target market in mind, check the state rules. And, don’t forget that 15 states have altogether banned hemp-derived THC products, while several other states have moved or are moving to regulate it.

Dynamic Jack is in the unique position of working with a manufacturer in New Mexico that produces products using both hemp D9 and regulated cannabis in the same state-licensed facility. Most manufacturers do one or the other, but not both. Manufacturing our hemp D9 cookie dough in the same licensed facility, with the same standard operating procedures, the same good manufacturing practices and the same state-mandated testing gave me great comfort and was one of the key reasons I decided to proceed. If you find yourself in a state that prohibits this, you still can (and should) seek out a manufacturer that leans into and prioritizes compliance by applying state cannabis laws to their operations. 

Embracing a compliance-first approach entails creating responsible labeling and packaging designs that are clear, conspicuous, allow consumers to access test results, and are not appealing to children. Compliance-first also means using child-resistant containers and packaging as well as avoiding brand designs and marketing that would appeal to children.

Historically, regulated cannabis operators have perceived hemp-derived THC products, like D8, as both inferior to and less safe than regulated cannabis. It’s essential to reflect on how this perception aligns with your brand values and, more critically, how your customers could react to the addition of these products. Marketing will be key in socializing the new products and why, as a regulated cannabis operator, you decided to diversify into this category. 

In the always-changing landscape of cannabis, adaptation is the name of the game. So, I’ve decided it’s time to blur the lines for Dynamic Jack. Not just to survive, but to thrive. While the hemp-derived THC world may once have been viewed as the pariah of regulated cannabis, serious hemp manufacturers are now prioritizing, and even advocating publicly for, compliance. So, for those on the fence about diving into these hemp-infused waters, I say: put on your life vest and start swimming.