The Growing Cannabis Industry

Episode Transcript

(00:01):
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(00:44):
enrichment opportunities. Learn more at okkillctdot org. Now here's your host for
Pulse of the Region, Kate Bawman. Hello, and welcome to Pulse of
the Region, the show where wehighlight all of the happenings occurring throughout our
business community. I'm your host,Kate Bowman here today in the iHeartMedia Studios
in our lovely capital city of Hartford. Today we are getting the pulse about

(01:07):
the cannabis industry in Connecticut and howthe laws are impacting the infused beverage industry.
We're going to highlight where the lawsstand today, what's changing up ahead,
and how all of this is impactingour manufacturers and also all of our
consumers. So, in a nutshell, we have a lot to talk about
today. So I'm very grateful thatwe have our two guests joining us who

(01:30):
have a heck of a lot moreknowledge on all of this compared to me.
So first from Shipman and Goodwin.She is a partner at Shipman,
it is Sarah Westby. So,Sarah, welcome to Pulse of the Region.
Good morning, thanks for having us. Of course we're very happy to
have you here with us today.And our second guest, he is the
founder of Floatthouse. It is GordonWepley. Gordon, welcome to the show.

(01:53):
Thank you, so happy to behere, of course, No,
we're excited to have you here.We're excited to have you've even brought some
favors for us. I'm very excitedabout we'll talk more about that. None
that we're consuming now, but alittle early a little early, Yes,
a little early. We'll get throughour day job first. Fantastic, Well,
first things first, I'd love todo some introductions, So Sarah,

(02:14):
if you don't mind, I'll startwith you. If you could tell us
about Shipman and Goodwin. Sure.So. Shipman and Goodwin is a full
service law firm based in Connecticut.Our home office is here in Hartford,
and we also have offices across thestate and in New York City. I
am a partner in our labor andemployment practice, so I focus on litigation
and counseling, but as you know, I also head up our cannabis practice,

(02:37):
and we've assisted cannabis businesses in allstages of their life cycle, from
existing businesses expanding their operations to newbusinesses trying to start up. And we
do a lot of counseling to tryto help these businesses understand the complex law
and regulations here in Connecticut, figureout some of the practical aspects of forming
partnerships and how to negotiate their contractacts. And we've also assisted a lot

(03:01):
of people with the initial licensing processesas well. Okay, so a lot
of and especially over the last handfulplus years, very busy on your end,
right, Sarah, Absolutely definitely wellexcited for you to kind of enlighten
us a bit more here today.So but Gordon first, would love if
you could tell us about Floathouse.Yeah, totally so. Floatthouse is uh

(03:23):
the uh kind of the final iterationbefore we come to market of a cannabis
beverage brand. We are, youknow, going to be launching here in
Connecticut, hopefully in August. Youknow, fingers right and goes well,
you know, at every step ofthe process, uh, everything goes wrong.

(03:43):
So you know, tentatively in August. But we you know, are
focused on, you know, bringingthe fun side of these low dose beverages
to consumers who are looking for analcohol alternative with no hangovers. So I
like it, okay, Yeah,So can you talk, Gordon a little
bit just about your experience in theinfused beverage industry. Yeah, so I

(04:08):
come from craft beer. I spentabout thirteen years working all over the place
from Magic Had out on the WestCoast. I was at Elsa Gondo Brewing
before moving back to Connecticut, andI worked at Stony Creek and Branford for
about four and a half years,where I was eventually running production over there,
and then I went over to thetwelve percent Beer project and very cool

(04:30):
at that point. You know,I had been in that space for so
long with the intention of opening upa brewery, but there was one hundred
and twenty breweries in Connecticut and thiskind of product category popped up on my
radar and I decided to pursue it. So it's been the last three years
kind of trying to navigate the space, and it's been interesting doing some work

(04:55):
for other cannabev companies and then youknow, finally bring these to life.
Okay, fantastic. And what kindof first sparked your interest in, you
know, really looking into kind ofthe cannabis and hemp beverages. Well,
I was at the Craft Brewers conferencein Denver, I think in twenty nineteen,
and there was a talk about thisspace that highlighted that beverages were less

(05:16):
than a percent of total sales incannabis, and that, you know,
just kind of screamed opportunity to me. Little did I realize why it was
so low and how difficult it wasto get into the space. But you
know now that things have changed,especially with the UH, you know,
wide abundance of hemp drived TC products. It is very exciting, definitely very

(05:41):
exciting, and you know, kindof looking at the state and with all
of our with the laws, regulationschanges, is there certainly, I guess
kind of a lot of puzzles tobe smacked. And I think the two
of you, as you both sitthere, I can see it that on
your face is not in your heads. Is So it would really like to
talk a little bit about kind ofwhat does the landscape look like today,
So Sarah, if you could,you know, touch a little bit just

(06:01):
on kind of the state of thestate of the laws currently affecting cannabis beverages
in Connecticut right now. Sure.So Gordon mentioned it's a small segment of
the market, but I think it'sa small but growing segment and it's on
a lot of regulator's radar because itis growing and these beverages are very popular
with the millennial crowd and people whoare looking for an alternative to alcohol.

(06:24):
So there are essentially two regulatory schemesyou have to keep in mind when you're
talking about anything cannabis. There's thestate level and the federal level. Okay,
and we may talk about this later, but there are some changes that
are brewing on the federal level.For the most part, we focus on
state because the Feds have taken theposition that they're really not going to police

(06:46):
state legal cannabis regimes. Okay,of course, that could change at any
time because of the Controlled Substances Actand various other federal laws treating cannabis as
illegal. But you know, again, there are some changes on the horizon.
In general, the Feds leave usalone unless there's some really bad conduct
going on. Okay, So let'stalk about the state level. Connecticut legalized

(07:11):
adult use cannabis in twenty twenty one, and before that we had a medical
program since about twenty twelve or twentythirteen that was was fairly small. But
the number of businesses and the usehas really increased in the state since adult
use became legal in twenty twenty one, and there have been various changes to
the law, tweaks, major changes, new product categories created every year since

(07:36):
twenty twenty one. So last yearthe legislature created a new category of hemp
products that are that have some THHCbut are derived from hemp. And you
know the difference between hemp and cannabisis something we could talk a lot about,
but it's essentially the same plant withdifferent varieties that have varying levels of

(07:56):
THHC. So hemp plants have lowTHHC. However they can through various means,
have higher concentrations of THHC. Andso what constitutes hemp or cannabis is
a subject of much debate and regulatorymeandering among the states and the Feds.

(08:20):
More than thirty minutes to talk,I want to digress too much. So
in Connecticut, the legislature last yeardecided to treat hemp based products that had
more than five milligrams of THHC asa high THHC hemp, and they created
different strata so for different product typesthere would be a different total THHC threshold.

(08:43):
But Connecticut roped in Delta eight alongwith Delta nine and Delta seven and
Delta ten as well as well.It was it was all the deltas for
Connecticut. They didn't include THHC,but they look at and that's what they
call total THHC. And so ifyou had an edible product that was more
than five milligrams of total THHC,that would be considered cannabis in the state

(09:09):
of Connecticut, wharas in the federallevel it would not be. Now,
they didn't really do much with beverageslast year, but that changed this year
and the legislature actually created two newtypes of product categories. They created a
moderate THHC hemp further trying to constrainthe manufacture of hemp based products that have
some THHC. And they also createdan infused beverage category. And so for

(09:35):
the infused beverage category, they putvery defined strict limits on what can be
in a beverage that is derived fromhemp, an infused non alcoholic beverage derived
from hemp that has some THHC,and so those type of beverages cannot have
more than three milligrams of total THHC. And that is in terms of a

(10:00):
container that has at least twelve ounces, So you can't have, you know,
a four ounce can or an eightounce can with three milligrams at a
huge See, there's no loopholes aroundthere. They were very much trying to
close loopholes that they think exist infederal law. So you also can't have
more than four containers, usually acan in a package. So no more

(10:20):
than three milligrams at least twelve fluidounces, and no more than four containers
per package. Okay. And theseproducts can further only be sold by licensed
cannabis dispensaries or retailers and package stores. So you know, we can talk
a little bit more about what thismeans for consumers. But there's a very

(10:43):
narrow category of retailers who can nowsell these products, and in order to
make them, you have to havea special certification from DCP or a cannabis
license Who would be an example ofsomeone who could sell this So your neighborhood
liquor store could sell these products whocould not sell them, your whole foods

(11:05):
or your stew leonards who could previouslysell them. Okay, And that's as
of July first of this year ofthis year. So coming up ahead,
corner, right around the corner.Okay. And now, Gordon, how
is all of this impacting. I'mgoing to talk to you kind of specifically
and float house and then if youcould then touch a little bit too,
you know, on the industry onthe whole, that'd be great. Yeah.

(11:26):
Well, I don't know. Comparedto the initial draft that the Government
Affairs Committee came out with This isa far better outcome, but it's still
extremely restrictive on a bunch of youknow, kind of interesting levels. You
know, the three milligram cap iskind of a compromise, I guess between
the point five milligram that they hadinitially done and five where you know,

(11:52):
the industry likes to see it becausethat is considered like a single dose and
to kind of like put it inperspective. And this is what we did
for the committee as well in testimony. You know, your best selling thing
and a dispensary is a pre rolejoint that's got you know, between one
hundred and fifty to two hundred milligramsof THHC and you can, you know,

(12:16):
conceivably just smoke that whole thing byyourself. But to get that same
effect from beverage, you'd have todrink thirty five miligram drinks. So it's
a much different product. It's gotdifferent use cases, and it fits into
kind of drinking culture and habits.It's fast acting, it's not like some
of the gummies that are you know, you might wait an hour and a

(12:37):
half two hours to feel you mightforget it. This is something you know,
our product you feel in ten tofifteen minutes, so it's much more
of an alcohol comp So, youknow, these regulations make it very difficult
for out of state operators. Theyhave to make a judgment call on whether
or not they want to reformulate,change their can size, or you know,

(12:58):
even even bother doing that to stayin Connecticut. So there's going to
be less choice. Also, theyhave prohibited, you know, shipping e
comm orders into the state. Iwas going to ask that, Okay,
I'm not sure how they're going toenforce that unless somebody at DCP is going
to be ordering from sites and youknow, following up on that, but

(13:22):
you know, it's it is lessconsumer choice. You've got a also a
five hundred dollars certification fee that thesepackage stores will have to pay just to
sell these products. So right nowyou've got over thirteen hundred package stores in
the state, and you know thatis probably I don't know, I don't

(13:43):
know how many of them are goingto be willing to pay that, but
probably a bunch of them considering howthese products are moving when other alcohol sales
are down. You know, Inaddition to that, in Connecticut, there's
a very small group existing that isproducing right now. You know, Connecticut

(14:03):
Valley Brewing Company is producing. They'vegot a line of seltzers, and I
know there's a bunch of other onesthat have been waiting to have like this
legislative session be over to even considergoing into the space. And you know,
whether they do that this summer ornot, or wait until DCP rolls
out the full licensing structure before October, we shall see. But there will

(14:30):
be kind of a void for mostof the summer as out of state brand's
kind of adjust and we try toget our stuff to market as quick as
possible. Okay, so do youanticipate the companies local here in Connecticut,
who are you know, potentially stoppingsales or kind of how are they going
to switch their models? Do youthink with all these changes? Yeah,
so you know Connecticut Valley, forexample, they're going to have to drop

(14:52):
their per cands down to three.And then you know, for us,
we we've got a lot of productsthat is specifically formulated under that. To
begin with. You know, ournon OUTC light beer is a two and
a half milligrams of THC. Withthe idea of like hey, you could

(15:15):
have a bunch of these. It'sa thing that could fit very easy into
your you know, fourth of Julybarbecue afternoon hang and it's never going to
get you too high, but it'llbe nice and floating, fun and like
an approachable thing. Exactly exactly,Okay, fantastic. So looking at all

(15:35):
of this and the impact on consumers, and Sarah you kind of touched on
this a little bit, but wouldappreciate each of your your thoughts here and
really you know, kind of whatwhat can a consumer expect and and you
know, you know what consumers maybe happy about and may you be looking
for some changes. Well, thereally big one is the dollar per can

(15:56):
tex that is going to be paidby consumers at checkout. So this is
uh this was put into the billto fund uh DCP having to build out
another uh you know, a regulatorybody staff and figure out how to well
one write the new regulations and thenhow they're going to enforce it. But

(16:19):
that is a very very high tax. You know, we initially put forward
to the committee to tax us likebeer, you know or you know,
which would be an excise tax taxon the producer. I think beer is
taxed at six uh six bucks perbarrel produced. But there, you know,

(16:42):
as I said before, a lotof out of state companies doing this,
so they wanted to put a taxon the sale because there's not a
lot of in state producers right now, which will change, but you know,
for the time being, Uh,they thought that, well, I
don't know that dollar taxes. Idon't know how it's going to play out

(17:02):
for us. It's going to bereally tough for us and for the consumer
to swall right, Definitely, it'sa big number. It's very big number.
So Sarah, you know, kindof from your angle, you know,
what else are you seeing that couldyou know, kind of impact consumers
with these changes. I think thebiggest change other than the price point based
on this one dollar tax is whereconsumers can buy these products. So now

(17:26):
they're pretty widely available in grocery stores, large retailers, those type of places,
but you know, even gas stationsand convenience stores, and I think
those that was one of the thingsthat DCP and the legislature really wanted to
eliminate with this bill is ensuring thatproducts that were adulterated or had very very

(17:47):
high concentrated doses of THHC were notso widely available and could not easily fall
into the hands of young people,because there have been some instances of that
happening with adverse effects in the staterecently. So as of July first,
you'll only be able to purchase theseproducts in package stores and in cannabis retail

(18:08):
facilities, and in terms of legacyproducts. Initially, the you know,
retailers who were not package stores orcannabis dispensaries and retailers could sell off their
stock until October first, that wasactually cut back, and so only cannabis
dispensaries and package stores can sell offtheir legacy stock that doesn't comply with this

(18:32):
new you know, three mailigram limit, twelve ounce can, four cans per
package, those requirements. So sovery quickly, we're going to see a
much more limited type of store whereyou can get these products. Okay,
and you have to be twenty oneor older. Okay, that's I was
going to ask that, which Iassumed it or I thought that was but

(18:53):
okay, very interesting. So inthe next really in the next several weeks,
you're going to see you know,I don't want to say lash sales,
but you know, people looking tomove inventory, you know from many
of these retail locations. Yeah,okay, interesting, so kind of looking
at this, you know, inthe competition and here in Connecticut, but
also state to see and actually,let me take a step back there,

(19:14):
Sarah, is how do the lawshere in Connecticut compare or contrast to other
states around the country. Now,with these changes, some of the most
restrictive in the country in terms ofTHHD content, how they define THHC,
where you can buy these products,the packaging and the label those were the
packaging and labeling restrictions were already someof the most stringent in the country,

(19:37):
and now with these new product specificationlimits, we're definitely up there, if
not some of the most restrictive.And there's an interesting legal question about how
much the state can restrict the interstatemovement of these products that are technically federally
legal, and again that may change. There are some changes being considered to
the federal Farm Bill that effectively makesthese products federally legal, these hemp based

(20:02):
products. However, those changes haven'toccurred yet, and the products that a
lot of the products that are nowillegal in Connecticut as of July first,
are still federally legal, so youknow, what authority does the state have
to restrict the mailing into the stateof such product. The law specifically excludes
the movement of these products across thestate, and even I think the manufacture

(20:26):
of these products in the state forshipment out of the state. What's actually
restricted is the manufacture of products thatare intended to be sold in this state.
Okay, okay, if that makessense. It does, it does.
I'm picking a pause, so letthat all sink in. And you
know, Gordon, your perspective onhow do you see this potentially shifting the

(20:47):
industry on you know, kind ofwhere manufacturers set up and let me confirm
you're in Massachusetts, correct, Yeah, I currently live up in western mass
but we are going to be well, we're setting up shop and infield redical
border and you know, from ourperspective, you know, we are very
focused on a ct first distribution planfor our ready to drink products, but

(21:11):
at the same time, there isopportunity on the e commerce side to be
you know, producing product that wouldnot be spect for Connecticut, but we
can ship elsewhere. Okay, youknow, so that is something we're definitely
going to pursue, especially with ourother product, which I didn't bring with
me today, but we have wellthat's it over. It's pretty cool,

(21:36):
so I'll have to get you someafterwards. But we have a basically we
figured out and have a patent pendingway of pre infusing a just a party
cup, so your single use cup. So the idea is, you know,
you just pouring whatever beverage you're drinkingand boom infused. You know,
we're specifically looking at targeting venues andyou know, on premise in states where

(22:03):
that is protected. But you know, it is mostly doing B to B
at first, but that is definitelygoing to be a big part of our
business. Okay, certainly. Andnow one of the things I want to
transition a little bit is you workwith the CBI and kind of doing a
lot of work there. If youcould kind of touch on some of the

(22:26):
work that's being done there and yourrole within that. Yeah, So I
am the founding chapter member for Connecticutfor the Cannabis Beverage Association, which I
have to be honest, when Ifirst saw CBA, I was like,
oh, the Connecticut Bar Association bars, and I was like, wow,
they're all tied in together. Andthen awsome thing to go. There's scene
could stand for a lot of otherthings here, So right, thank you
for clarifying that. Yeah. So, you know with the CBA, I

(22:48):
sit on the Government Affairs Committee andwe are very much trying to just stay
on top of this constantly changing rollercoaster of a state by state landscape.
You know, things are especially thistime of year when the legislative sessions are
all coming to an end and thingsare getting voted on. You know,

(23:11):
Louisiana, which prior to Connecticut hadthe most strenching sort of testing and labeling
and product registration, you know,requirements of any state. They had a
bill which was going to kill everything, and then at you know, at
the very last minute, a compromiseskated through which has some similar stuff to

(23:34):
Connecticut, but you know caps itat five milligrams. They have the same
twelve ounce four pack, you know, maximum syllble unit. And then they
have created a program to allow forlegacy on premise because you know, if
you've ever been to New Orleans,it's all about getting a drink and then
walking around in the street with it. And I was just down there last

(23:56):
week for the National Independent Venue AssociationsConference, and these drinks are everywhere,
so I think in Louisiana they didn'trealize how many places were already selling these
things and how big of a businessit was and where it was growing.
So that kind of checked things andthey were able to skate through with you

(24:17):
know, a viable path forward tokeep that going. But you know,
it is it's very hard to keepabreast of everything. So being a member
of the CBA and pushing on,you know, and supporting individual state efforts
and working together with producers, youknow, other supply chain companies that are
you know, maybe providing water solublesolutions or you know, other supplies.

(24:42):
It's a great group of people thatI'm working with. There also a member
of the Hemp Beverage Alliance, whichis you know, pretty much doing the
same thing, just a little bitmore focused on hemp so that it's not
as much the adult use space indifferent states, which the CBA straddles both.
But you know, there is aton of I don't know, I

(25:04):
feel like we're getting a shutdown noticefrom a different state every day, whether
it's New Jersey with a really restrictivebill coming through or you know, I
don't know, it's a roller coasterA lot, definitely a lot, and
is the majority of kind of what'sstemming behind this all from a safety perspective,
you know, from states or isit numerous things? I think it's

(25:26):
definitely numerous, but it is alsoyou know, really unknown, and that's
kind of you know, part ofthe problem and also where the opportunity lies.
You know, this this is relativelynew, you know, solubility technology
that you can take oil, makeit water soluble and make it a fast

(25:48):
acting delivery system and not there's nota lot of these products in companies out
there right now. So you know, we look to states like Minnesota,
which legalized and made it very easyfor all sorts of whether you're brewery or

(26:10):
whatever to manufacture and then sell hempdrive TC products. And they did this
prior to their legalization of cannabis androlling that out. But what that has
done for a state with like asimilar population to Connecticut, you know,
has been a huge boon to allthe breweries that have jumped into this.

(26:30):
Right now. There is a newrevenue stream for you know, breweries that
have been hurting since COVID really andyou know, it's exploded into a ton
of tax revenue for the state,and I think they levy a ten percent
sales tax, so nothing like adollar. Still a tax, but yeah,

(26:55):
a little different, easier to swallow. Okay, thank you so much
for that. And I would liketo say we have a few minutes left
in the show, and I'm goingto pose this question that each of you
is, you know, at ahigh level kind of what do you see
as happening next? And I knowtough to fit that into you know,
a minute or so, but Sarah, I'll pose that question to you first.
Sure, So from a legal perspective, we need to have regulations from

(27:18):
the Department of Consumer Protection that implementall these new changes in the law.
And we just recently hosted a roundtable with DCP at my firm a week
or so ago, and we understandthat that is in progress. There's a
lot for them to do. There'sa lot to line up from the medical
program and the adult use program,and they're trying to harmonize all of those

(27:38):
rules and regulations and specifications for packaging, labeling, ingredients, manufacturing practices,
all those things. So there's alot for them to do. I don't
know when we're going to see thoseregulations, but I know that it's top
priority for them, so hopefully withinthe next few months, and then we're

(27:59):
going to have some type of applicationprocess for companies who don't have cannabis licenses
but want to manufacture these products.So we don't know exactly when that license
period will be. It will likelybe open after October first of this year,
but hopefully we'll have some people whowere making these products now who can
obtain those licenses. Cannabis companies whohave existing manufacturing licenses can apply to DCP

(28:25):
to manufacture infused beverages specifically, butagain, there's a lot of regulatory alignment
that has to happen before these manufacturerscan actually put into practice whatever changes they
need to make in order to comply, so they're really in limbo right now.
And then in terms of the retailside, one thing we didn't talk

(28:45):
about in terms of consumer access isas of now, a consumer could go
into a brewery and get one ofthese infused beverages on tap or purchase them,
but that does not look like it'sgoing to be possible with these new
changes to the law. So that'sa big change. So we're going to
see a constriction of where consumers canbuy these products. I expect this is

(29:08):
going to be a boon for thepackage stores. But those are the big
things we're seeing right now, andI'm sure there's a lot of package store
owners who have questions about these newlaws and regulations as well, certainly,
and for those with questions and tolearn more kind of on what shipman is
doing within this space, where couldpeople go to get more information? Sure,

(29:29):
so, we publish updates pretty regularlyon our website, and if you
sign up for our alerts, youcan receive those in real time through email.
I also try to stay up todate with things happening on LinkedIn,
so you can follow me on LinkedIn, Sarah Westby and DCP also has a
good website. You can sign upfor their alerts. Okay, that's a

(29:52):
good source of knowledge as well.Perfect, Thank you so much, Sarah.
And about a minute, laft Courtand so sorry to crame you in
here, but kind of high level, what do you see next? And
then where can people get more information? You know, for us, we're
trying to just get as many cansin hands as polic best. It is
a you know that the goal ofnormalizing these beverages, showing people they're safe.

(30:15):
It's a good alternative to alcohol,and just getting this brand out there
is the number one priority and Ithink the biggest thing we can do to
kind of change perception, both inlegislatures and you know, on a personal
level, you know, by findingconsumers where they shop, you know,
in package stores. You know weare you know, easily found on Instagram

(30:38):
at Drink float House or at Drinkfloat House and our website is Floathouse dot
co. So yeah, a lotof good stuff. Well, thank you
so much. I appreciate both ofyou kind of demystifying a little bit,
giving a lot of great information,and I'm sure a lot more to come.
So we're going to do a followup on this, I think,
yeah, definitely, thank you good, awesome, Well, thank you both

(30:59):
for being here today, and ofcourse thanks to you for listening. For
all the details about today's show,you can visit Pulseoftheregion dot com. A
big thank you to our show partner, Okill, I'm your host, Kate
Bauman. Go out and make todaya good day here in Connecticut.