The end of 2022 gave the cannabis financial world a glimpse of what some experts believe will be the inevitable fate of popular alternative payments used by most of today’s U.S. dispensaries. Cashless ATM network shutdowns, beginning in early December, had concerned and affected American dispensary operators scrambling to find alternative ways for customers to pay for products.
Some of the largest alternative payment processors of ATM transactions, such as NCR’s Columbus Data Services, turned off the ability of processors to use their service at the time. Both small, and multi-state operators, were impacted by these shut downs, and it was predicted as much as one-fifth of the industry’s Cashless ATM payment systems were unavailable at one point.
The Cashless ATM Quandary
Cashless ATMs, also called “point-of-banking” systems, have long been the go-to method for marijuana retailers that don’t have access to traditional banking services to give their customers cash-alternative payment options. These systems allow cannabis buyers to use a bank card, pin pad, and card insertion device in lieu of an ATM terminal.
With Cashless ATM cannabis retail payment solutions, the total dollar amount selected by the customer is directly transferred to the retail dispensary operator for a purchase, while the customer receives the remaining balance in cash, along with their products.
For a customer purchasing $110.50 worth of cannabis goods, for example, a cashless ATM transaction would have the cannabis retailer returning $8.50 in cash. While accounting logic is consistent in both ATM and Cashless ATM payment scenarios, the latter transaction is considered bank fraud and the $8.50 of change paid to the consumer is considered money laundering.
But this technology is made to have ATM withdrawals appear as if they are coming from separate entities, and sometimes different addresses altogether, such as a neighboring Massachusetts McDonald’s, as a Bloomberg article reported in April, 2022. At that time, such transactions looked likely to move about $7 billion past the usual money-laundering controls of the banking system last year — or about a quarter of all U.S. cannabis sales.
“A Cashless ATM doesn’t make much sense, because instead of an automated teller machine that dispenses cash, but what it’s really doing with cashless ATM transactions is hiding their origination,” said Ethan R. Smith, an Executive Assistant with Las Vegas based ATM Merchant Systems. “So, it’s not giving the right address, it’s not giving the right business name, or industry the business is in, which is important, especially for ATM regulations and transactions.”
The Crackdown Will Continue in 2023
This past December’s round-up and shut down of select Cashless ATM service providers came exactly a year after Visa had said it was aware of the scheme, and declared it prohibited on its network. And unfortunately, most cannabis business locations are relying on these non-compliant ATMs to do business, resulting in “outlaw” ATMs.
So, what we saw just last month was merely a foreshadowing of what we can expect in 2023 with greater federal banking enforcement. “This is a pivotal point in cannabis banking,” said the CEO of one payment-technology provider affected by the chain of events.
“It’s left merchants in the lurch because it happened overnight, but the writing has been on the wall for a while now,” said Peter Su, senior vice president at consulting and software firm Green Check Verified.
Cashless ATM Works, It’s Cannabis Cash That Doesn’t
It’s worth clarifying on thing about Cashless ATMs. From a customer standpoint, they’re convenient and effective. Essentially, the Cashless ATM is just a normal payment at the counter, rounded up to the nearest dispensable increment, and given back with change.
For the retailer, the process itself wouldn’t be illegal were the money put into a bank and not the owner’s bank account. A proper solution does exist, and it’s one where a compliant, 3rd party provider owns the end-to-end solution, the funds that finance it, and keeps them distinctly separate from the dispensary’s money.
This is where ATM Merchant Systems has emerged as an industry leader filling the void as an ATM/vault cash services provider completely independent of cannabis business ownership and involvement.
“With ours, we own the ATMs, we’re bank sponsored, we’re regulated by the networks, we follow all the rules and compliance, we load the cash (which is bank funded since it’s loaded completely out of the loop from the dispensary), and none of the dispensary money touches the ATMs,” explained Smith.
“So, it’s clean going in, and clean going out, which is then used to purchase, the customer can purchase it wherever they’re at,” Smith continued. “Our machine just happens to be in the dispensary and they’re able to use their money, understand and purchase the product.”
This is what it takes to be truly compliant with ATM systems in the realm of cannabis dispensaries. Up until recently, it wasn’t necessary, as enforcement hadn’t tightened up on the prevalence of onsite dispensary money fueled workarounds. But look for all that to change in 2023 as authorities firm up regulations and cannabis banking draws nearer and nearer to a federally approved reality.
There’s no denying the tremendous evolution we’ve seen in the cannabis market over the last few years; all signs point toward this demand continuing to increase. The U.S. cannabis market is projected to reach $72 billion annually by 2030, according to New Frontier Data.
Currently, 21 states and Washington, D.C., have legalized recreational and medicinal marijuana use, and 38 permit medicinal use. As more and more states come online with various levels of production and need, it is more important than ever to explore this market’s security and monitoring requirements.
Security plays a critical role in the success of facilities in this industry, mainly because of security and compliance. Production and retail facilities rely on video monitoring services to monitor product from seed-to-sale and ensure safety throughout. Video helps stakeholders extract relevant information and events from captured video to save time and enhance responses. Intelligent video solutions take it a step further: prioritizing resource management, enabling various security components to merge into a typical picture, and increasing situational awareness.
From needing to provide a sitemap detailing security to ensuring various locations are correctly set up for security monitoring – compliance regulations are tedious, evolving quickly, and may vary from state to state, county to county. In cultivation operations, video surveillance cameras are required throughout, assigned to plants and specific areas within the manufacturing facility. It can be challenging for growers and sellers to keep up with the changing laws and regulations.
Additionally, there is a need to protect a cultivation facility or dispensary from criminal action and liability. Some cannabis businesses may be targets for various types of crime, whether inside the facility or on the premises. With high levels of footfall in and out of dispensaries, it is essential to be protected from claims.
Cannabis providers rely on robust security infrastructures to address these needs, and more often than not, they include video surveillance and security guards. But COVID-19 changed the landscape as more businesses looked to add intelligent technologies to protect sites that were now unmanned. Concurrently, contract guard companies endured challenging times due to the difficulty of hiring and retaining personnel and the rise in wage rates and health insurance costs.
Today, companies are looking at finding ways to leverage both services. With technology designed to augment guards, there is an opportunity to embrace a process that will bring both together.
The introduction of AI supports greater automation and augments the efforts of security personnel on the ground, allowing them to focus on more crucial tasks rather than everyday operations. By combining AI with guards, businesses gain an effective force multiplier that works to ensure the highest levels of security.
One such solution that can be highly valuable is proactive video monitoring. Proactive video monitoring (PVM) empowers security personnel to focus on high-impact activities while an AI-based engine “watches” for potential security events. By monitoring, engaging in intervention, and reporting, PVM is proven to be highly effective at stopping criminal activity.
PVM also augments on-site security staff by increasing their ability to see, hear and identify danger. Hazardous activities — such as responding to a dangerous situation — can now be managed by PVM. This approach significantly reduces liability and ensures the continued safety of on-site personnel. It can also help support less desirable jobs, such as working the night shift, where perimeter rounds are completed several times each hour. Using PVM removes the monotonous, sometimes risky work and leaves more strategic duties to your security guards.
But there is far more to these types of intelligent video solutions.
PVM detects threats and unauthorized activity and, within seconds, can alert a highly-trained intervention specialist to verify the incident-in-progress. Intervention specialists assess and confirm the danger over a live video feed from a remote location during a security event. When necessary, intervention specialists can proactively intervene by speaking directly to the intruder through a live audio warning advising the individual that they are being recorded and should leave the premises immediately.
These interventions can deter loiterers and other potential criminals from proceeding further onto the premises. In 98 percent of cases, a live warning through an intervention specialist will stop criminals from proceeding.
Unlike traditional methods of video monitoring which are prone to signaling false alarms, PVM can reduce false alarm frequency by verifying actual actions through intelligent technology and the experience of highly-trained specialists. When necessary, operators will immediately alert the responding police department and management and provide insight into what is occurring to ensure response teams have the correct information at the right time.
Though on-site monitors and third-party remote monitoring companies can successfully initiate an alarm should an incident occur, PVM companies can assist a cannabis business even further. When contracting with a PVM company, cannabis businesses can customize their alarm response and set pre-determined protocols for the PVM company, depending on the situation and threat level. These protocols may include live auditory interventions, alerting management of the cannabis business, and notifying law enforcement, depending on the incident.
The Heart of the Solution
“Proactive” is the driving force behind PVM and what sets it apart from traditional offerings. PVM always has an active presence behind the scenes, observing the situation. Organizations can rest assured they won’t need to pick up the pieces left in the wake of a destructive and potentially costly crime.
PVM is effective at preventing criminal activity by monitoring, engaging in live intervention, and reporting. An intervention specialist is automatically alerted in real-time of risks caught by the built-in intelligence. If an intruder is detected, the operator can communicate with them directly to tell them to leave. PVM delivers numerous benefits that should be noticed.
The video surveillance market is full of outdated solutions and reactionary measures that leave businesses with a steep bill to pay. Organizations can achieve guaranteed peace of mind by investing in proactive solutions.
For those businesses in the cannabis market looking to supplement their security operations, PVM is a solution you should consider. With the experts handling all the heavy lifting, organizations can focus on growth. And, right now, in the cannabis industry, the sky’s the limit in terms of opportunity.
Netwatch has been preventing crime and protecting assets for cannabis businesses and other organizations with proactive video surveillance solutions for almost two decades. The company’s technology and processes are designed to streamline the flow of live incidents across thousands of sites, enabling faster response with no nuisance alarms.
Driven by machine learning, the system continually improves, increasing accuracy and quality. This enables faster reaction times and a reduction in false alarms, allowing Netwatch intervention specialists to work to the highest industry standards, including the strictly regulated conditions in the cannabis industry.
Learn more about our unique approach by visiting our website at netwatchusa.com
2022 has been a difficult year for cannabis operations to secure capital with raises off 64.5% YTD. The cannabis cultivation and retail sector has been hit the hardest, with total capital raised down 67.0%, and more notably, equity capital raised dropping by a whopping 96%.
Go to any investor pitch competition or capital conference, and legions of worthy, viable cannabis operators are all vying for attention from the same limited number of equity investors actively participating in the market. Few of them will actually secure investment, and for those lucky enough to succeed, not as much capital is being offered as in years past.
In fact, 2022 has produced no cannabis equity deals valued above $25M at the time of this writing.
All this, while nearly 1,000 cannabis entrepreneurs are competing for New York’s first 150 dispensary licenses. For those who do win them, where does the capital come to build out operations, stock inventory, and run operations as business ramps up?
In years past, private equity investors were more accessible and eager to participate in the exciting, emerging market. The better your company promised to solve a problem, the larger the check they’d be willing to write. Today, with equity options having all but dried up, cannabis business debt financing is the highest in the industry’s history.
Alternative lending made up 54.4% of total capital raised through September of 2022, and for many operators, this sort of access to capital makes a whole lot of sense. With capital deriving from private sources, alternative lenders aren’t beholden to the same industry restrictions as banks, and the right ones can offer competitive financing terms and interest rates for cannabis operators.
National Business Capital
One such lending company is doing just that. National Business Capital (NBC) has enjoyed success in conventional business lending since the founder, Joe Camberato, began the company out of his bedroom in 2007. Fifteen years later, the lending marketplace includes over 75 lending partners and has eclipsed $2 billion in total business financing.
With an impressive Trustpilot review score of 5.0 from over 2,000 reviews, National Business Capital has proven itself to be a consistent provider of customer satisfaction and successful funding.
National Business Capital’s foray into alternative lending for the cannabis industry began five years ago, and over $20 million in capital has been funded to marijuana and CBD operators since. The company has successfully helped businesses across nearly every touchpoint of the market, from consumption devices, to cultivators, and even cannabis marketing and business development agencies, with an approximate breakdown as such.
Hemp & CBD Products (20%)
Marijuana Products (20%)
Consumption Devices (10%)
Cannabis Marketing and Business Development Agencies (5%)
Other Ancillary Companies (20%)
According to Camberato, his company’s CannaBusinessfinancing is primarily used by cannabis operators for facilitating business growth, helping cover business expenses, and venturing into new business opportunities.
To qualify for cannabusiness funding through a National Business Capital alternative lender, a cannabis operator need only meet the following criteria.
1 year in business
$10K in monthly revenue
No minimum FICO score
Rolling in Wins with a New Pre-Roll Machine
One of National Business Capital’s clients is now enjoying exceptional returns in the financing of an automatic pre-roll machine. With a $750,000 total ticket price, NBC was able to finance the equipment over four years, with a manageable monthly payment, at a competitive interest rate, all while preserving equity in the company.
“It’s really important to pull in the right lending products, because on an equipment deal the collateral is that piece of equipment and you actually leave your cash flow in your business and receivables unencumbered,” Camberato explained.
Introducing the new pre-roll machine allowed the cannabis company to better optimize its resources. With automated production, the company no longer required eight employees to hand roll products. Those critical human resources were reassigned to other parts of the business, generating greater value and contribution.
“This company was able to buy the machine, and the payment of the machine versus what they were paying eight employee salaries was like one 10th of that cost,” Camberato said. “The payment was maybe one or one and a half employee, so they basically saved 80% of what they were paying in salaries.”
“If they didn’t do this deal, it would would’ve cost them more money,” Camberato explained. “By doing it, they saved money, and those awesome employees that they had, they put into other parts of the business where they really needed people.”
The NBC financed pre-roll machine yields multiples of product quantity than were possible before, with greater product consistency.
“A lot of companies don’t even realize there’s a lot of equipment lenders that’ll do that stuff, especially that size,” Camberato said. “So that was a really special deal that we got done.”
It was a big day for Winter Greens when I spoke to owner Todd Winter, as his Orange County, California delivery-only cannabis store had finally arrived at opening day. This Costa Mesa, California location is the second of two such Winter Greens delivery locations, the first having been established in 2018 in Truckee, California, near Lake Tahoe.
Winter had relocated his family to the area from Orange County and found the need to service both the Tahoe region’s local and tourist population with dependable, compliant cannabis delivery service when he started his first store. But the Winter Greens Orange County location was a bit more challenging to get up and running.
A cannabis-progressive city in an otherwise largely conservative county, Winter Greens’ Costa Mesa location came after over a year of regulatory compliance requirements. Something to be expected from a city new to the recreational cannabis market and still discovering what regulations work, and which are merely bureaucratic.
A practicing attorney by trade, Winter was able to navigate the challenges. With a portfolio of notable clients including Eureka Vapor, Pacific Stone, Humboldt’s Finest, and Kush Bottles, WINTER LLP has helped small and medium hemp and cannabis businesses navigate the ins-and-outs of regulatory nuances.
Despite the unpredictable hurdles he would encounter opening his Orange County operation, one thing Winter had in place the whole time was his payment solution.
It’s customary for cannabis operators to encounter struggles managing a primarily cash transaction business in a world of traditional banking. With cannabis still federally illegal, business owners face severe limitations on how to manage their banking and payment needs. Cannabis operators frequently try to apply traditional solutions to an untraditional business, and for Winter, the experience was no different.
Winter Greens first attempted to manage transactions and banking with a traditional bank account. That works for so long, until the bank finally, and ultimately figures out you’re not selling Beanie Babies or whatever other business you’ve claimed to be conducting. This leads to a nightmare scenario where a cannabis operator’s funds are either held indefinitely or never released.
It never came to that for Winter Greens, but the interim solution was short lived. The company next tried to conduct its banking business through a credit bureau, but that proved to be a temporary solution as well. Limitations on cash withdrawals, deposits, and the availability of funds make credit bureaus a patchwork of difficulty to work with. As a last resort, Winter Greens used Square as a transaction solution, but that, too, proved short lived.
The Dama Solution
Ultimately, Winter discovered Dama Financial and its suite of financial solutions tailored for cannabis operators. With an account managed by Dama there are no limits on deposit frequency or amounts, and no frustrating end-of-month caps on account size. Dama follows all FinCEN and BSA/AML rules, adheres to Cole Memo priorities, and stays current with state and federal regulations to ensure clients remain fully compliant, something important to Winter.
Once Winter Greens was up and running with Premier Banking, Winter integrated Paytender into the company’s point of sale system. Text-to-pay electronic payments now account for nearly 40 percent of overall sales at his Truckee location.
“We love Paytender, we try to get everyone on it,” he said. “Once you’re set up, it’s really incredible, and so easy to use. Everyone who uses it loves it. Our drivers love it too. The tip feature is great.”
Once users have signed up on paytender solution, and have successfully linked their bank account, the system generates a “QR code” which, sent to a user’s phone, enables the payment will be continued on a mobile device. Next, the user receives a text from Winter Greens with a link to paytender to complete the transaction to pay for their delivery before it arrives.
With Dama’s proven, reliable banking and transaction solutions in place, Winter Greens Orange County is poised for success. The company has even created a rewards program for its customers converting 3% of every order placed into “Winter Greens Rewards” to be redeemed at checkout.
2022 has been a tough year for cannabis companies seeking equity investment. Global equity raises have declined 77% year-to-date, to $962.1 million. I’ve seen even promising, patent-holding cannabis companies struggling to find the right investment partners.
This is likely not going to change until corporate valuations improve, according to some industry execs.
“Cannabis is a defensive industry,” Andrew Fellus, CEO of Canna Business Resources (CBR) told me in an interview. “Investors in general view this industry as defensive because it’s not going anywhere. Even if it does slow down a bit, it’s not going to zero.”
Fellus remarked that industries like electric vehicles have a lot more investment risk than cannabis. His point is well taken, as California based electric vehicle manufacturer Rivian lost $1.7 billion in the second quarter of 2022.
Equity investors know the cannabis industry will always be an investment option, are holding out for a stronger market, and are meanwhile looking for some meaningful short-term fundamental results elsewhere.
Still, cannabis operators need to expand in light of the fact that there is less capital available in the market. Many are left to find consolidation parters that can provide some liquidity or better access to capital. For operators like these, accepting multistate operator stocks at current discounted levels presents a potential upside in a merger or acquisition deal.
Viridian Capital Advisors tracked 75 mergers and acquisitions transactions globally with a total value of $3.5 billion through the end of April 2022, up 3.5% from the same year-to-date period in 2021.
Cannabis Debt Financing on the Rise
By contrast to equity investment, cannabis debt financing is up 73% year-to-date in the U.S., to $729.3 million. This bodes well for the team at CBR that specializes in cannabis debt financing.
CBR provides cannabis companies with growth capital, acquisition financing, equipment financing, CRE financing, or special situation financing. The company can provide funding up to $20M as a bridge to an equity deal or a just general working capital facility, both first and second lien loans, and is often able to structure financing that is complementary to an existing credit facility.
The company is a market leader in providing 2nd lien loans to cannabis operators with additional capital needs beyond what their existing senior lender is willing to provide. A unique product is tailored to companies that have an existing senior lender, can demonstrate sufficient cash flows, and are looking for a creative capital solution.
“We’re not equity players, we don’t invest in the equity, we don’t own the equity, we provide financing options for working capital for businesses that either need to grow or that are just getting off the ground,” Mr. Fellus explained. “And instead of taking eight months in investor discussions and going out of business in the meantime, we can close a financing in as little as one week.”
Financing New York Cannabis Operations
CBR prominently represented itself as a capital source and viable alternative to equity investment at the recent Benzinga Cannabis Capital Conference in Chicago, IL. With timely progress in New York’s Adult Use licensing activity, CBR presented cannabis operators with a faster, non-dilutive financing option to quickly tap into the state’s market opportunity.
CBR knows that cannabis entrepreneurs and existing companies in the licensing process must line up their working capital today to prepare for a surge of demand next spring. The New York market is bound to be supply constrained and that means manufacturers can be a bottleneck, or they can be a resource. Having the right amount of working capital to launch a thriving and critical part of the supply chain.
For soon-to-be New York dispensary owners, shelves need to be fully stocked with enough supply in inventory to make it through an expected surge in demand upon opening. And for cultivators, massive amounts of working capital will be needed to bring much needed high-quality flower to the regulated New York market on a timely basis.
Mr. Fellus, himself a lifelong New Yorker, said that the New York market will require billions in investment in infrastructure, marketing, product development and compliance, and that CBR has set up a separate division and allocation to underwrite and finance New York market participants.
CBR has a track record of success assisting new and growing cannabis businesses with capital resources to seize opportunities brought about by regulation and legal change. When final regulations were approved for consumption lounges in Nevada, CBR was able to help a client acquire a suitable property with which the operator could vertically integrate its existing cultivation operation into a retail store with attached lounge.
The company provided $3.5 million in loans, consisting of a $2.5 million in real estate acquisition and $1.0 million for working capital needs. The working capital needed for the facility included tenant improvements, furniture and fixtures, personnel, and inventory. The loan was structured at a 75% Loan-to-Value ratio with a three year-term and interest only component. The cannabis real estate loan has a three year balloon.
In some cases, CBR even offers exclusive interest only structures.
Understanding Hurdle Rates
A the halfway point of the year, interest rates began to rise, impacting the cost of capital for borrowers. At the same time, it’s also impacted hurdle rates for investors. As Mr. Fellus explained it, “The Hurdle rate being the hurdle you need to overcome in order to be a profitable investor.” So, the hurdle rate being your total cost of capital.
“So the way you would look at it if you’re an investor is, ‘Okay, I’m borrowing money from somewhere, whether it’s investors or otherwise,” Fellus said. “The cost of that capital is ‘X’ plus your cost of overhead investment committee compliance, all of which are going up. So, it’s not getting easier to run one of these lenders or investor groups because the regulatory burden is increasing and so that means your hurdle rate is going up.”
If your hurdle rate going up, then the cost of capital to the borrow is also going up. As an investor, to be profitable on your investment costs you more. “I think a lot of people don’t know that cannabis is still a nascent industry when it comes to talking about really openly talking about the inner workings of finance,” Fellus continued.
The Future of Cannabis Debt Financing
Many, many successful entrepreneurs are in this industry and they’ve done well for themselves and they haven’t needed outside financing. But when they do, as Mr. Fellus pointed out, they begin to see how the hurdle rates work for private capital and it’s more expensive than they anticipated.
“As the cannabis industry becomes more competitive, it’ll become prohibitive to bootstrap it and you’ll need outside capital,” Fellus said, “So I think it’ll become more prevalent to the discussion of cost of capital in the industry in the next couple years.”
As a family office with its own money, CBR “We don’t need to get our capital from anywhere else, and we have set rates for borrowers that we’ve been doing for years that are not economically sensitive,” Fellus explained, citing his company’s advantage for its borrower clients. “I call them clients because they really are–like half the time I spend my time helping them learn how to run their business.”
In today’s capital sparse cannabis industry, having a lending partner that will not only provide the resources to operate and grow, but guide your business along the way is an ideal scenario. And for small and medium sized cannabis operators not looking to participate in an M&A, CBR offers an appealing alternative and an opportunity to have a financing partner that will evolve as their business does.
“Do you have everything you need from me for that Paybotic article?,” he inquired, having sent me some follow-up answers to an interview I’d conducted with him on the topic weeks earlier. “I’m all set,” I replied.
There’s something to be said for his enthusiasm. After all, payment processing isn’t a necessarily a sexy or riveting topic. Adding “cannabis” to the mix only makes it mildly more exciting. To be passionate about payment processing in what’s considered an alternative and risky market, requires understanding just how fundamentally important it is to the backbone of the industry.
The cannabis industry brings with it, a set of stringent guidelines and regulations, policies and procedures, requiring vendors to seek out alternative avenues to the traditional point of sale (POS) systems available.
Banking and payments for cannabis is a frustrating process in the cannabis industry. Nearly every business owner has horror stories about having their banking or merchant services accounts shut down, funds seized, or a myriad of other financial nightmares.
As an authority on niche industry payment offerings, Rassman has built a national network of partnerships with banks and credit unions that are willing to offer full-service cannabis banking solutions to state licensed cannabis related businesses, and is able to offer merchants practical solutions.
Rassman honed his payment expertise in the limo industry, and rapidly expanded his client base out to other traditional retail merchants and verticals such as restaurants, attorneys, automotive, and plastic surgeons to name a few traditional businesses that frequently receive payment via credit cards.
In 2017, sensing the wave of impending legalization of recreational cannabis in California, he decided to go deep into the cannabis vertical.
“Not realizing how truly different the cannabis industry is when it comes to financial services, I was in for a quick and rude awakening,” Rassman told me. “The traditional credit card processing that I was familiar with was forbidden in the cannabis industry and compliant alternatives were required.”
It’s been over a decade now that he’s been in the business, and Rassman offers traditional merchant services outside of the cannabis industry, along with a specialized suite of compliant cannabis payment solutions for Cannabis Related Businesses (CRBs).
Atop his portfolio of vendors of choice, Rassman cites Paybotic as his recommended go-to cannabis payment and banking solution provider.
Paybotic’s custom payment solutions include debit card processing and PIN-authorized credit card acceptance, ACH processing, check service, gift card programs, merchant cash advances, cannabis banking, and more.
Paybotic helps clients with accountancy services, cash management, including online tools like bill payment and account analysis, as well as business insurance providing top-tier coverage for any risk situation.
Rassman attributes his long-standing cannabis industry involvement and activism as part of the reason he serves as one of Paybotic’s leading cannabis industry representatives, and cites the company’s reputation for remarkable customer service as one of the reasons he’s so passionate about the provider.
I dove into a Q&A with Rassman on the topic of cannabis payments, industry struggles, and how activism plays a role in his success.
Q: What can you tell me about the origins of your interest in cannabis?
Rassman: I grew up on the Big Island of Hawaii during the late 1970s and 80s and I was definitely aware that cannabis was around me with some regularity. We called it Pakalolo which is the Hawaiian slang word for cannabis. By the time I was in high school I knew many people who were using it, but in all my years of living in Hawaii, I never tried it.
Looking back, like most of America, I was most certainly influenced by much of the media on TV during the failed War on Drugs; “This is your brain on drugs,” “Gateway drug,” that sort of thing.
In the mid 90’s I was fortunate enough to get a job in Europe as an international traveling software engineer. After a year of being based out of London, my boss offered that I could live anywhere I wanted as long as I had quick access to a large International airport. So, within weeks I packed up a right-hand drive U-Haul and moved to Naarden Vesting, just 20 minutes outside of Amsterdam.
One of my software partners there was a retired police officer from the famous Red-Light District in Amsterdam. I learned a lot from him about Holland’s long-standing, sensible, and non-criminal approach to cannabis. From my local Dutch friends, I came to understand more of the cultural and medical aspects surrounding cannabis during the several years that I lived there.
By the time I returned to California in 1999, Proposition 215 had been enacted and California’s approach to cannabis was picking up speed. The culture was coming out of the closet and becoming more mainstream in California. I had just moved to Marina Del Rey and was within a 10-minute rollerblade of Venice Beach where dispensaries and script-writing doctors seemed to outnumber Starbucks.
Q: Can you give us a quick breakdown on the difference between ACH transactions and the cashless terminals Paybotic uses?
Rassman: ACH payments are electronic payments that go through the Automated Clearing House (ACH) network. Funds move from one bank account to another with the help of a centralized system that directs funds to their final destination.
Most people are already familiar with ACH payments either from direct deposit from their employer or when they pay bills electronically from their checking account, where the customer would need to know their bank routing and account numbers to transmit funds.
Paybotics brings you a cashless ATM (point of banking) terminal supports PIN-based card transactions: ATM/debit cards. When the customer inserts their debit card, a digital transfer is initiated. This gives your customers the ability to pay with their cards at the point of sale, increasing customer throughput and average ticket price.
The secure countertop and 4G mobile terminals that we use are easily updated with the latest software, and on the first day that the card brands allow for it, we will patch the terminals to accept those cards. Customers must have their card present and know their ATM PIN number to transmit funds.
Q: What are the benefits cannabis retailers can experience by using Paybotic digital payments? Do customers spend more?
Rassman: Retailers typically experience increased average ticket price as compared to cash payments.
Other benefits include:
Eliminating the liability of having cash at the counter.
Safe, Secure and Compliant.
No processing fees to your business.
Quick and easy approval process with only a cannabis license, a driver’s license, and a voided check.
Q: Cannabis delivery services are subject to robberies and other hazards on the field. How can digital payments make deliveries safer?
Ian: The new normal brings health and safety concerns to both customers and drivers alike. First and foremost, on everyone’s minds these days is the current COVID-19 pandemic. No one wants to touch cash anymore, so digital payments via a Cashless ATM with limited contact is a much safer alternative for everyone. Eliminating the cash also makes drivers less of a target for robberies.
Mobile terminals providing digital payments, can enable safe home delivery and curbside pickup.
Cannabis payment processors have always been a shaky part of the cannabis industry. There are horror stories of accounts getting shut down and assets being frozen. If your bank throws you out for being a cannabis business, your merchant services account dies along with it.
However, there was a time when some CRBs and processors, to get around restrictions put in place by the card brands (Visa/MC/Amex, etc.), would mis-represent who the merchant was by coding the dispensary as a “pharmacy” or a “florist.” Eventually it would become clear that there were no aspirins or roses being sold and that account would be shut down.
Misrepresentation was a common contractual reason for closing a merchant services account. It should have been the responsibility of the processor to lead their customer down the road to compliant solutions, rather than the many work-arounds (crypto, blockchain, stored value, etc.) that exist to undermine the card brand policy of not accepting credit cards for cannabis.
No matter how much everyone wants it, there are simply no air-miles for your cannabis purchases. Transparency is critical in this process. For our cannabis clients that work with Paybotic, we only utilize Point of Banking (POB) where all transactions are PIN-based and through your ATM card.
Paybotic’s solution utilizes the ATM rails. In the simplest possible terms, a payment rail is any form of digital infrastructure that transfers money from one individual or business to another. These are a completely different set of payment rails than the ones owned and operated by the card brands. At this time, there is no Visa/MC/Amex for cannabis.
Q: What are three concerns that you have as the industry continues to grow?
Rassman: I am concerned that we are not doing enough about expunging criminal records for non-violent cannabis convictions. We can’t leave a single person in prison for selling cannabis while our regional governments are handing out licenses to sell cannabis. I am concerned that we need to do more on social equity, especially here in Los Angeles.
As well, we need expanded licensing for those social equity applicants and faster timelines on that approval process. I am concerned that the Federal Government has not taken more decisive action on legalization when 70% of Americans believe cannabis should be legalized, and less than 30% oppose legalization.
The last decade has seen a steady increase in support for legalization and the disparity between these numbers continues to widen. The path towards Federal legalization and de-scheduling (not rescheduling) is critical for enabling additional banks and credit unions to determine their own risk assessment and willingness to bank CRBs, without the threat of being afoul of Federal Know Your Customer (KYC) and Anti-Money Laundering (AML) issues.
Q: What motivates you to volunteer your time with NORML and what else do you do in the industry?
Rassman: My entrepreneurial instincts made me realize that I needed to spend more time and energy to help change the things that I thought needed addressing within the industry. I also felt it was important to volunteer my time and pay it forward to support the business community from which I expected to make a living. With its national effort to reform some of the banking issues we were all facing in the industry, NORML became that vehicle for me. I found that NORML’s mission aligned very well with my core values.
I learned everything I could about consumer activism, safe access, social equity, expungement policy, employment protections, and education. I ramped up my time and effort within the organization and realized that Los Angeles, where I have lived for over 36 years, is a perfect microcosm of the industry as we are undoubtedly the largest cannabis-friendly city on the planet and well-positioned to set a positive example.
With a mature medical marijuana market, a plethora of cannabis companies basing themselves in Southern California, a liberal government policy on cannabis and a county population larger than 41 U.S. states, Los Angeles is where consumers, industry, and policymakers come together to define how cannabis will become integrated into our communities.
I also run a very popular Event Calendar for the cannabis industry. I believe in building community. The cannabis industry is very old school in terms of relationship building; the people that you do business with are usually the people you have met face to face.
I created the cannabis event calendar to provide a quick view of what is coming up in your area where you can meet so many of the amazingly talented people working in the cannabis industry. The calendar has promotional codes for reduced ticket prices and full event details that you can click to add to your own personal calendar on your phone so you know where you are going.
For more information on cannabis payments and banking services, Ian Rassman can be contacted at Rassman.com
While large-scale cannabis related conference events bring mass attention and large groups together to network, they can sometimes lose focus and intention for specific goals. And while there’s a place for smaller, concentrated, sometimes vertical events, their focus can often be too narrow to accommodate enough people to be justify the return on investment to attend. Which leaves a space in the middle to invent something entirely different to create, develop, and host.
Enter MJ Unpacked, the first of its kind event that ties together various concepts such as panels, booths, exhibition halls, meetings, networking, and investors in a simplified format with a highly focused audience.
MJ Unpacked returns to Las Vegas for its second West Coast show and third offering since its well-received conception in 2021. The conference is coming to the MGM Grand Convention Center in Las Vegas, Nevada, September 28th-30th, 2022.
Cannabis owners, executives, and accredited investors from across the country will convene, connect, and conduct business together once again. September’s Unpacked is set to be the biggest show to date both in size and features.
The effort of producers Kim Jage and George Jage, MJ Unpacked is a cannabis conference that, unlike others, is focused on featuring THC brands from all over the country. A carefully curated event, attendance is exclusive to cannabis retail and brand executives with the title manager and above, and family offices, personal or private investment funds, hedge funds, and venture capitalists actively investing in the space. The idea is that every attendee is some form of a decision-maker.
The latter Jage is no stranger to the cannabis industry, or bringing world-class B2B events to the space. Marijuana movers and shakers are still feeling his influence from his three-year stint as president of MJ Biz Daily and his assistance in helping mold its famous MJBizCon conference, recently acquired by tradeshow and media company Emerald X, a subsidiary of Emerald Holding.
After helping the conference series grow to become the industry’s largest, Jage sought to find gaps within the cannabis B2B event space. The Jage Media team spent some time in the lab, talking to CEOs and executives to find what this industry needed in the ever-crowded event sector. The common feedback was brands and retailers wanted to connect with one another. There was a clear need for executives from the two backbones of this industry to connect without unaffiliated onlookers and consumers–they wanted business and networking.
With a specific audience group, Unpacked is able to efficiently tackle multiple angles of industry networking leading with value and purpose. This conference is designed to be a massive room full of individuals who should all know one another, and are brought together to do so.
Unpacking the MJ Unpacked Experience
In the two previous events, attendees could browse the lounge, find a meeting room, sit in on a panel discussion, walk the show floor, browse the brand exhibition hall, or simply approach anyone for a conversation. And the lobby bar-like layout of the main networking area is extremely comfortable and conducive to that type of discussion, featuring cocktail tables, with soft couches and seating.
Unique to the MJ Unpacked experience are features like a brand exhibition hall featuring small footprint glass showcases for brands to feature their products without having to pay for an expensive booth, handing out swag, taking up valuable space. Instead, QR codes are used to provide product and contact information, and connect with retailers, potential license partners, and investors without being tethered to a booth.
Larger booths are available, but uniform and turn-key, used mainly by ancillary companies and larger brands. The event also offers premium 20 x 20 exhibits and executive board rooms for larger MSOs.
Panels include diverse line-ups of creditable speakers from across the country who never pay to stand on stage to present. The organization hand selects speakers based on topics that can genuinely help other colleagues in the industry, not self-serve the company represented by the speaker presenting.
Brands are brought face-to-face not only with potential investors, but with both large and independent retail operators. At MJ Unpacked, it’s not uncommon for them to gain insight into new markets, meet new distributors, and strike new licensing deals. Investors in attendance also include those looking to partner with retailers seeking to expand and buyers looking to acquire.
And Unpacked’s showroom floor also wouldn’t be complete without the gong. Sounds ringing from the gong indicate that a business deal has been done on the show floor.
And lastly, no registration lines. MJ Unpacked mails attendees their badges in a simple, efficient way of alleviating the headache of standing in long, winding lines to pick up a conference badge.
Building upon two successful shows, it’s no surprise that MJ Unpacked is onto something special and has clearly filled a much-needed gap in the industry. The Jage’s goal is to maintain MJ Unpacked as a bicoastal, biannual show in both Las Vegas and New York each year.
Here’s what this year’s conference was like in New York City, and the organization is expecting to see more of the same excitement, with even more attendees in Las Vegas 2022.
Vape products provide a unique, and affordable, consumption experience that lends itself to all levels of cannabis consumers. Cannabis concentrates offer consumers enhanced flavor and potent effects, making this commodity group extremely appealing to cannabis brands, retailers, and customers alike.
So, it’s not hard to understand why cannabis vape sales are booming throughout North America. In the United States, vapor pens were the second to flower, as the largest selling cannabis category in 2021, netting nearly $2.6 billion in retail sales across California, Colorado, Michigan, Nevada, Oregon and Washington.
As popularity increases, so do consumption patterns, and the data shows that for the first time, sales of 1g cartridges have surpassed the sales of their half-gram counterparts. One gram cartridges (or 1ml in Canada) were the hottest-trending products in 2021. Over 50 million of these units have been sold this year already among the 11 North American markets, generating upward of $1.7B in revenue.
One-gram units debuted in the US in 2017 with a mere 1.5M unit sales. That number increased 5x to 7.5M unit sales in 2018, before vaulting to just over 18M the following year. In 2020, the sale of 1g cartridges nearly doubled once again to 34M units, overtaking the 0.5g package size for the first time, and this past year the segment share of 1g cartridges grew to 67% of all cartridges sold nationally.
In addition to the popularity of these larger sizes, the market has witnessed an uptick in the sale of disposable vape pens. As we enter post-COVID territory, and canna-tourism returns to legal markets, we expect to see this trend continue.
Greentank: Adherence To Excellence
When it comes to hardware, however, not all vapes are created equally. Well-made vaporizers account for the safe temperature thresholds of common approved device manufacturing materials, and tend to adhere to similar exemplary standards of makeup. Food-grade stainless steel, for example, is indicative of a quality-built vaporizer and is one of the safest and most relied-upon, non-allergenic metals in the world.
Some inferior products use nickel-plated brass that can leach heavy metals into extracts and flake over time. Some plastics, like food-safe plastics, including polyethylene terephthalate glycol (PETG) and poly cyclohexylenedimethylene terephthalate glycol-modified (PCTG), are suitable alternatives at lower temperature ranges to stainless steel, provided they can withstand high temperatures and are resistant to corrosion. Cheaper plastics that cannot withstand high temperatures and are not resistant to corrosion are unfit for vape hardware.
When it comes to heating technology, coils have replaced wicks as the go-to core solution for cannabis vape hardware. Still, there are some major differences between the two predominant coil options on the market today: ceramic and quartz. Ceramics are the industry’s preferred coil material because they offer superior heat retention than quartz coils and deliver more robust flavor profiles and consistent vapor. But there’s a trade-off, they take longer to heat up than quartz coils.
Quartz coils, on the other hand, heat up more efficiently than ceramics and deliver pure flavors but they retain heat rather poorly and burn through batteries rapidly. Their temperature controls are also less accurate than ceramics, making them a poor choice for low-viscosity oils and extracts.
Mastery of these elements, materials, performance standards, durability, and producing the desired user experience requires not only adept engineering skill and marketing understanding, but the resources and facilities to conduct legions of research and development iteratively innovating the best products. North of the U.S.-Canadian border, award-winning Greentank knows this well. The company designs, engineers, and manufactures high-quality vape devices for brands and producers across North America. The Toronto, Canada, based company is considered an industry powerhouse with a proven track record of over 200+ successful custom vape launches in the US and Canada.
Greentank has consistently manufactured the safest, highest quality, and most reliable vape hardware available on the market today. By implementing rigorous quality control processes, managing the entire supply and fulfillment chains, and maintaining the highest ISO and GMP certifications, Greentank boasts the lowest failure rates in the industry. Greentank offers peace of mind to its brand partners in a market where reliability means everything.
“Strict additional industry regulations can be difficult for smaller hardware manufacturers to overcome, but they create the types of evolutionary bottlenecks that challenge businesses to innovate,” said Pete Duckett, Chief Engineer at Greentank. “We see them as opportunities to demonstrate our commitment to quality and innovation.”
Greentank prides itself to have worked hard to become the safest and most transparent vape hardware solutions provider in the world. From universal factory and product certifications, to third-party heavy metal and child-resistance testing, Greentank adheres to a standard of excellence that its competitors struggle to match.
Vape Research & Development Advantages
Part of the company’s competitive advantage is due to its aggressive capital spend and commitment to state-of-the art research facilities, equipment, and licensing. Greentank paired its extract experts with the first 7,000 sq. foot, world-class, research and development, vape device innovation lab in North America. With this facility, Greentank can bring product development visions to life by enabling:
Expanded innovation capabilities
Expedited validation of new hardware technologies
Accelerated product speed to market
Full suite of on-site product and emission testing equipment
High fidelity 3D prototyping
Partner formulation testing
“Greentank is the only cannabis vape hardware manufacturer with a Federal research and development license,” said Derek Champoux, Vice-President of Brand & Marketing at Greentank Technologies. “This allows our designers, engineers, and product specialists to conduct critical safety, quality, and performance testing with our brand partners. It also allows us to innovate and bring forward more ground breaking product developments quicker and more efficiently.”
Additionally, the Canadian cannabis industry’s first cannabis research license was issued to Greentank. The license grants the teams access to materials and permission to conduct activities to pave way for further safety, reliability, and performance research and development in the company’s manufacturing process.
Handle up to 10,000 grams of dried flower & 2,500 grams of cannabis extract
Test extracts for viscosity, fluidity, constituents, emissions, and interactions with different materials
Import cannabis from legal foreign suppliers
Conduct focus-group studies with brand partners
Collect critical vape data
Efficiently validate new hardware technologies
A Greentank blog post clinically describes what cannabis connoisseurs already know and will tell you, concentrates aren’t optimally consumed using “one-size-fits-all” vape hardware. They have different compositions, viscosities, ideal heating temperatures, and more. So selecting the appropriate vape hardware for your concentrate type isn’t as easy as selecting from a model number in a catalog if you want to bring out the true flavor profiles and experience of your product.
Unique to Greentank is its “Market Matching” data-driven hardware development and selection process and partner offering that addresses this reality and the market forces driving brand product development decisions. Any multi-state cannabis brand manager will tell you, each market is unique with its own set of consumer tastes, sales trends, and nuances. As Greentank defines it, “Some of these trends follow basic, logical patterns; others defy predictive models altogether.”
“We know that every market is wildly different,” said Champoux. “Understanding real world consumer sales trends allows us to not only build smarter devices, it empowers us to bring these sales trends to our partners. Intimately knowing what is happening inside each territory allows us and our partners to get on top of market trends faster and more efficiently than the competition.”
From the multiple point-of-sale data platforms Greentank gathers datasets from, it is able to study and understand vape market trends, patterns, and anomalies. This market intelligence allows the company to educate its partners on which hardware sizes, types, prices and formulations are currently trending, or will sell best when launched, in their current or target markets.
Based on the types of concentrate formulations being produced, Greentank is able to prescribe the precise hardware to yield the optimal, most native consumer experience possible from a vaporizer.
Concentrate Trends: Live Resin
Distillates may still be king in the North American cannabis industry, but live resin concentrates have catapulted in popularity – becoming the industry’s fastest growing vape segment. But just what is live resin, and what makes it so special?
As defined by industry experts Respect My Region, live resin provides the consumer with a very diverse cannabinoid and terpene profile because it’s a whole-plant extract. For this process, the cannabis flower is frozen within an hour of harvest to preserve the maximum levels of cannabinoids and terpenes.
By freezing the cannabis immediately at harvest, and extracting using Butane Hash Oil (BHO), labs can typically get an extremely flavorful result. This full-spectrum form of concentrate has a much stronger potential to activate the entourage effect and provide a strain-specific high for the end-user.
When live resin vape products first debuted in the market (in late 2018), not much was known about them – other than that they were more expensive than your average distillate. Ultimately being branded as a niche product aimed at cannabis connoisseurs.
However, in today’s market, live resin products have become the second-most sought after extract type in the US. With data showing improved revenue, unit sales, and market shares in 2021 relative to 2020. Additionally, national live resin vape sales spiked more than 150% last year.
This increase in sales has influenced brands to drop new live resin SKUs weekly according to Greentank data. The company has been a major cartridge supplier. A year ago only 10 Canadian brands offered live resin vape products – this number is set to surpass 50 by the end of 2022.
Greentank: Your Solution To Live Resin Vapes
Unlike distillate oil, the characteristics of live resin extracts can vary, making them highly incompatible with one-size-fits-all hardware. As the only vape provider in the world with a federally issued research and development license, Greentank is able to expertly design and craft affordable (and fully customizable) live resin specific hardware for a variety of extract formulations.
“Live resin, rosin, solventless, and other speciality extracts are only going to get more varied and complex,” said Champoux. “Having a vape manufacturing partner who is able to be nimble, adaptable, and willing to adjust quickly is crucial. Things like absorption rate and varied resistance levels are key to maintaining high-quality vapor, flavor, and reliability.”
Three things to consider with every new live resin hardware product launch according to Greentank include:
Is there a need for custom intake holes?
With any extract, it is important that the hardware allows for the absorption of oil into the heating core. This is critical for ensuring even and consistent heating for maximum flavor.
Have we solved any specialty needs?
Live resin absorbs differently than distillate. Heating cores must allow for even absorption. Greentank’s proprietary ceramic heating core is designed to do so.
Have we accounted for oil viscosity?
Every live resin is different, and therefore requires different heating elements. Greentank designs its hardware to accentuate the unique properties of each live resin extract.
Below is an infographic developed by Greentank illustrating their industry-class vape hardware live resin approach and solution.
Located a few miles inland from the Pacific Ocean in a valley between the Purisima and Santa Rosa Hills mountain ranges in Santa Barbara County, California, alongside a riverbed at the center of some of the USA’s finest agricultural land, rests a certified organic farm. This farm grows heirloom tomatoes, onions, carrots, and squash, but that’s not all.
Because these ranges run east to west, a rare configuration allowing the ocean fog to roll in during the late afternoon and burn off by morning, this combination of warm days and cool nights makes it an ideal climate region for growing a much more valuable crop as well: cannabis. And for that reason, esteemed craft cannabis grower PRO Farms uses this land to produce some of California’s finest.
From THC-Dominant strains to CBD-rich alternatives, the folks at PRO Farms are renowned for producing high-quality, organic products since 2012. The company’s sprawling properties include 100 acres of canopy farm (320 farm acres overall). In addition to its nursery operation in Santa Barbara County, the family-owned cultivator has its newest cannabis cultivation location is in Lake County, California, located in the heart of Northern California, just two hours from the Golden Gate Bridge.
Using one solution provider, PRO Farms was able to address two business-critical challenges holding the company back from executing on a much more seamless operations and output basis.
The First Challenge – Banking
One of the biggest issues U.S. cannabis companies face is the overwhelming resistance of banks to take on industry clients, as the crop is still federally illegal. With less than 800 credit unions and banks serviced cannabis-related businesses, cannabis companies regularly operate on a cash basis and face being underbanked.
2018, PRO Farms was flourishing, yet its traditional bank held accounts would repeatedly get shut down. This, because trying to hide a cannabis business in a non-cannabis bank has its inherent risks. Ultimately, when the bank discovers the true nature of the business (enter accounts payable to hydroponics stores and massive electric bills) and abruptly shuts down the account, business is radically disrupted and banks will hold on to funds for weeks or months after closing the account.
For PRO Farms, it was a perpetual problem. “It was a nightmare,” said Tilman Brisendine, PRO Farm’s Vice President of Finance. “If an account lasted six months, we’d be lucky.”
Constantly re-opening accounts forced PRO Farms to largely function entirely in cash, absorbing all the risks (and costs) that come along with doing that. Counting, sorting, storing in vaults, frequent transport by armored cars. All these are added costs an all-cash business bares that a traditional banking business would not, to the same degree.
“Operating in cash was horrible. Not being able to have a bank account is a lot of work, a lot of insecurity, a lot of risk. We just wanted to operate like any other business. We wanted electronic banking,” said Brisendine.
The Dama Financial Banking Solution
Dama Financial provides a full suite of banking and merchant services, to credit and payroll products, to cash management, all in an integrated platform. The company has leveraged its experience in other unbanked categories to develop solutions, driven by its proprietary technology platform, capable of navigating a complex web of regulatory and compliance requirements.
“We provide our customers access to all the business tools they need to thrive,” said Anh Hatzopoulos, Co-founder and CEO of Dama Financial in an interview. “Whether it’s paying a vendor, checking an account balance or scheduling an armored car pick-up—via a single login, either on a computer or through our mobile app,”
For Brisendine, this is precisely what he needed. Vendors he’d tried in the past didn’t last long. “They were horrible. Very archaic set-up. We never had any consistency,” he said.
With Dama, not only was electronic cannabis banking a newfound reality for PRO Farms, but comprehensive business services became available to the company as well. Dama Payroll, for example, offers payroll; employee timekeeping, labor management and workload planning.
With Dama’s “Smart Safes,” employees are able to deposit stacks of cash without counting or sorting it, as the safe tallies the bills right at the place of business. Clients then have a credit line from that cash deposit. The novel solution saves labor hours spent counting cash and making bank deposits, eliminates human error, and curbs theft.
Since migrating to Dama Financial, PRO Farms went from 100% cash to 99% electronic banking, eventually opening eight bank accounts. “It’s great to have that platform and not worry about getting our accounts shut down all the time,” Brisendine remarked. “Being able to bank electronically is the most efficient—and secure—way to run a business.”
Using Dama Payroll, PRO Farms payroll labor costs have significantly lowered, and payments are delivered in the traditional form of checks and direct deposits. “Before it would take three people a full day and a half to prep and process payroll,” said Brisendine. “Now…it takes one person a couple hours to do everything.”
The Second Challenge – Compliance
In January of 2022, Dama Financial made a strategic move to acquire GrowFlow, a B2B SaaS platform providing compliance, inventory management, point of sale, analytics and sales tools for cannabis and hemp businesses at various points in the supply chain.
Combining Dama’s fintech and payment solutions and GrowFlow’s industry-leading software allowed the company to create a sophisticated, comprehensive solution one-stop-shop for cannabis companies, integrating product, operations, compliance, and financial data into a more usable and flexible solution than separate competing industry solutions.
The track-and-trace solution Metrc pioneered in Colorado in 2011 is now standard in the cannabis industry, and is contracted by state regulators and committed to a secure and credible regulatory environment. The system gives state regulators the means to see the entire cultivation and production history behind every single cannabis-based product sold in their jurisdiction.
California’s Metrc track-and-trace regulations were set to take effect in a matter of months at the time, which meant PRO Farms would soon need to report granular data to the state government, a cumbersome process that requires sophisticated technology to manage efficiently. This was important for PRO Farms, as strong adherence to industry compliance is foundational to the company’s way of doing business.
With the clock ticking and PRO Farms still using rudimentary Excel spreadsheets to track its inventory across all operations, the company recruited Angelo Bellah, then working in recreational cannabis in Washington, to lead the charge to compliance.
The Dama Compliance Solution
Washington had already implemented track-and-trace regulations, so Bellah was familiar with the software options on the market. He and PRO Farms considered a small handful of vendors, but Bellah was convinced GrowFlow would be the right solution for the company.
“Managing track-and-trace regulations is super complicated, and for many people it’s a struggle, but GrowFlow’s ease of use allows our regular employees to learn new skills without over-tasking them or setting them up for failure,” Bellah said, adding that bringing in more experienced labor can be hard to come by in agriculture and cultivation—and it increases costs.
Now vice president of operations, Bellah estimates that if PRO Farms had relied solely on Metrc for reporting, the company would have to use twice as many employees to stay compliant.
“We have more than 200 licenses, so that’s a lot of data. If we had to do that all directly in Metrc, we would require three or four full-time employees during peak activity time—where now we can do it with one.”
Bellah added that another thing he loves about GrowFlow compared to Metrc is that Metrc doesn’t prevent a user from breaking the regulations.
“If you enter in a number of seeds that is above the limit, GrowFlow will stop you and say ‘Hey, this is illegal.’ Those fail-safes will keep operators from making mistakes that could cost them compliance fines, etc.”
In Quebec, Canada, where companies engaged in scientific (including tech) research and development can often qualify for generous refundable tax credits, engineering excellence abounds. One of the region’s top packaging manufacturing companies is using its expertise, precision engineering, and incentives, to develop the world’s most flexible automated pre-roll making machine.
A 25-year veteran in the packaging space, Harold Bouchard currently leads Montreal-based Procepak as its President and CEO. The 12-year-old Canadian company is a leader in its space, providing a complete line of packaging automation services in the food, pharmaceutical, cosmetics and chemical industries.
In November of 2019, he was called by an ex-employee, who said indiscriptively, “I have this machine, it’s a prototype, and I’d like you to have a look at it.”
Bouchard went and see this machine, which was very basic, and not a packaging machine at all–but a machine designed to roll cannabis pre-rolls. “The machine didn’t really work, but but we made it to work,” Bouchard revealed. “I decided to take it and make an industrial version of it.”
Months later, the earliest version (below) resembled something more along the lines of a Star Wars Gonk droid, than today’s sophisticated looking modern counterpart. Generations later, it’s become the flagship product of PreRoll-Er, the cannabis vertical of Procepack, and a leader in industry sales and processing flexibility.
PreRoll-Er’s first industrial version of its pre-roll machine was in early March 2020.
By the end of 2021, Tilray had replaced its previous, industry-leading competing brand units, with PreRoll-Er machines and written the company a testimonial.
At the writing of this article, the flagship pre-roller is in its fifth-generation, and the company has over 110 machines sold.
So how did a packaging manufacturing company from Quebec, Canada come to develop, from non-functional, highly rudimentary prototype, an industry-leading automatic pre-roll machine in its fifth-generation used by over 100 customers, from small manufacturers to MSOs?
Leveraging Technology for Competitive Advantage
The concept of making pre-rolls uses the same type of technology as packaging, Bouchard told me. Because of this, PreRoll-Er holds a distinct advantage in engineering sophisticated, precision devices, like pre-roll machines, with less development time, and greater agility than their competitors. This has laid the foundation for much of the company’s success.
“We’re using several motors, we’re using PLC programming, we’re using movements, so it’s very similar. The big challenge, and that’s what makes us difficult to beat, is that it takes a good 18-months of hard work to be there.”
“The reason is because you work with something that’s extremely different from one customer to the other. So each customer has its own strain of cannabis. And cannabis is a very difficult product to work with because it’s very sticky,” Bouchard explained.
In the less than three years of development, PreRoll-Er has established some key learnings, making its products stand out in the market.
WHAT WE CAN LEARN
The most distinct competitive differentiator to PreRoll-Er’s pre-rollers is the product’s trademark flexibility. The company’s machines are precisely designed to accommodate the nuances of different strains of cannabis–working just as effectively with extremely sticky flower, to very dry products.
PreRoll-Er studied the industry, consumer trends, existing automatic pre-roll units available on the market, and determined that flexibility in pre-roll production is what manufacturers needed most.
With product versatility as a focus, PreRoll-Er machines were designed to carefully accommodate different shapes of cones, from very slim to wide, to straight cigarette style cones, to blunts. The tooling to switch from one size cone to another was designed to be inexpensive compared to competing solutions, as well.
Be the First of Your Kind
With a constant pulse on the U.S. market, PreRoll-Er built the latest versions of their automatic pre-roll machine to works with infused cannabis, meeting the growing consumer market trend of infused cannabis pre-roll sales. What’s more, the latest generations have a feature now that we can inject concentrate and oil directly in the pre rolls with built into the machine.
Consumers demand value. If you’re buying a gram pre-roll, it should weigh no less than a gram, be perfectly packed, and deliver a consistent draw and experience. While competing automatic pre-roll machines weigh cannabis flower at the beginning of the rolling process, PreRoll-Er designed and enabled its units to measure the pre-roll after the rolling process, as a built-in quality control.
Build Your Products to Evolve
With multiple engineering groups dedicated to pre-roll machine research and development, PreRoll-Er planned for iterative, generational evolution of its machines. With each machine containing 10 stations, they were designed to be modular for flexibility, upgradability, and affordability.
“Let’s say you take the twisting station and we make a better twister so you can easily replace the old version and put the new one in,” Bouchard explained. “So even a customer that purchased the second machine has the latest version today, because all the hardware was designed that way, and our software is easy to upgrade by remote access through an ethernet connection.”
Exceed Expectations (Even the Toughest Ones)
PreRoll-Er machines were not developed to produce enormous volume, at low quality, but rather, high quality with very little rejection, and unrivaled flexibility handling different strains and sizes. “What we can create with this machine, even myself at one point, I couldn’t believe it,” Bouchard told me.
The company had a field expert come in who didn’t believe that an automated machine could make precision quality pre-rolls. “We created one, he went out and said, ‘Let me smoke to make sure it’s okay.,'” Bouchard recollected. “He came back and said he wanted it a bit smoother–not as hard. And we changed it and he couldn’t believe it. Even the twists, we can make perfect twists. So those are the things that we differentiate ourselves, too. This is where this machine shines a lot.”
While PreRoll-Er’s pre-roll machines place focus on precision and versatility, they still produce a steady output at 1,400 units per hour. The company’s next generation of high-speed units will more than double that production capacity at 3,000 units per hour.
ESTABLISHED AND EXPANDING
Today, PreRoll-Er is successful in Canada, especially in Eastern Canada, with a solid footprint in U.S. recreational marijuana states, including California, Washington, Oregon, Arizona, Michigan, Illinois, Massachusetts, and others.
“In Quebec, we own probably 80% of the market of bureaus with our machines because we’re local,” Bouchard said, “And in Ontario we’re very well aware also we’re doing extremely well with customers. We’re probably at 70%, 60, 70% and then in the U.S. it’s probably 15% maybe, so there’s a lot of room to grow.”
PreRoll-Er is focused on United States expansion over the next 12-months with the objective to reach an 80% U.S. to 20% Canadian customer footprint, and has a new facility in Las Vegas, Nevada.
The PreRoll-Er 200 comes with automatic and semi-automatic options and is the company’s flagship product. It is a pre-roll machine for cones and cylinders and works with all type of strains, including infused cannabis, producing up to 1,300 pre-rolls per hour, with a guaranteed a weight of 0.01 g before and after filling.