Proposal to the CDTFA
The Vapor Cartridge Technology can revive the legal cannabis market, starting with California.
Author: Timothy McCullough
Inventor and owner of Vapor Cartridge Technology LLC
Let’s face it, the current legal cannabis market is a ‘mess” consider these documented facts. Many legal growers, especially smaller farms, can’t make a profit… while illegal cannabis growers are profitable and expanding…. and worse, the illegal growers are harming the environment and sowing fear. Justification for these bold statements can be found in attached list of References.
Here is how the Vapor Cartridge Technology can enable the legal cannabis market to flourish over the illegal market.
In this current business model, small legal farmers struggle to be profitable. Many are not. Large legal growers can generate enough sales volume to overcome the overhead and tax burden and can be profitable in the legal market, but the legal market’s product (flower) cannot compete with the illegal market’s product (also flower) because, in a commodity market, products compete primarily on price. Here is a proposed new business model, enabled by the Vapor Cartridge Technology, whereby all legal growers can effectively outcompete the illegal growers.
Consider this. The total cost of doing business includes taxes, regulations, shipping & handling, and retail. So, cutting taxes alone won’t enable legal growers to compete effectively with illegal growers, because there’s still the cost of regulations, shipping & handling, and retail. These supply chain-dependent costs are far less for the illegal growers. Furthermore, cutting taxes deprives the government of needed revenue. There needs to be a new business and supply chain model where the legal market is very robust (profitable and growing) and generating the kind of tax revenue the State desires. To develop that model, let’s start with first business principles:
What does the consumer want and what is the most cost-effective way to deliver it?
The customer wants the physiological benefits derived from ingesting cannabis extracts. Which includes pain mitigation and other medical uses (like relief for our veterans suffering from PTSD) or the customer may simply want to feel euphoric. They desire to purchase the physiological benefits at the lowest price possible, and in a manner that is safe, convenient, and pleasant. Vapor Cartridge Technology was designed to accomplish all of that and more.
So, now let’s develop an optimal business model to give the customer what they desire. Consider this wine model. There is an explosion of California wineries that own no vineyards.
Consider a similar model where Certified Cannabis Distilleries, that only purchase their botanical cannabis from legal growers, efficiently extract the cannabinoids and store precise amounts of the extracts in each Vapor Cartridge. The science and many benefits of this technology are described on this website. https://vaporcartridgetechnology.com/
Bottom line: Utilizing a patented drug delivery device, Vapor Cartridges are designed to safely and accurately deliver, the lowest retail price for ingested cannabis extracts measured by $/mg in the bloodstream (where the consumer will determine the value of this method of ingesting the drugs based on the physiological benefits experienced. Because, after all, that’s what they desire… the physiological benefits.) They can compare the physiological benefits derived from a Vapor Cartridge to the physiological benefits derived from smoking or vaporizing flower. The Vapor Cartridge will win hands down and quickly replace flower as the source for deriving the physiological benefits that the customers desire.
When you have low manufacturing costs producing a product that is in very high demand, it results in a large gross margin. Certified Cannabis Distilleries can easily afford to set the prices that they pay for cannabis crops from certified legal growers which encourages growers to step back into the legal market because it will be profitable, low-risk, and sustainable. The growers’ primary focus will be on growing high-yield healthy crops. Furthermore, skilled breeders can develop, and patent, new strains that meet customer demands for a variety of different physiological benefits. And having more legal growers is in the best interest of Certified Cannabis Distilleries because the legal market is the only source for the botanical cannabis required to produce Vapor Cartridges, a highly profitable product that is in VERY HIGH DEMAND.
This is by far the most efficient, lowest cost, and safest method for delivering cannabis extracts to the consumer’s bloodstream. And the tax structure is clear and fair. Each business entity sets aside a percent of the Payment for Goods Purchased that they receive. This will be the tax that they pay to the CDTFA.
Here is how the movement of goods will flow in the new supply chain versus the current CDTFA regulated supply chain.
There are also significant advantages of the packaging. It can meet the packaging requirements to be allowed to distribute and sell through the highly efficient and already well-regulated supply channels for adult beverages. (Note: Sales can begin through retail cannabis dispensaries and then migrate over once FDA approval is received).
The label itself adds value to the product because it provides the consumer valuable information about dosage, strain, and appellation. The customers familiar with popular strains can do a direct side by side comparison: Flower vs Vapor Cartridge. The Vapor Cartridge Technology logo generates trust and loyalty. Additionally, the product label supports the Origins Council vision for legacy cannabis producing regions.
Origins Council
“Appellations are legal standards-based geographic designations awarded to products of place that are exceptional and unique because of their origin of production.”
“Appellations legally protect and promote the collective genetic resources and intellectual property of historic producing regions.” Reference https://originscouncil.org/
Legal cannabis growers (the only ones allowed to supply crop to Certified Cannabis Distilleries) will be profitable and service a sustainable and growing market. Vapor Cartridges will quickly take over the flower market (most of which is illegal). This will provide sales growth for Certified Cannabis Distilleries for several years as current consumers migrate from flower to Vapor Cartridges to service their demand for cannabis extracts. The convenience, high value, and safety of Vapor Cartridges would also likely grow the number of consumers, allowing for additional market growth. However, at some point, the consumer demand will be fully met by the legal cannabis market. The market will be huge alright, but growth will slow significantly. The California cannabis industry will be faced with the fact that California growers can produce more crop than California customers can consume.
For the legal cannabis industry to flourish there needs to be a legal means whereby states that produce FDA-approved Vapor Cartridges can legally service their customers anywhere in the United States. I see this being a bipartisan goal given the benefits to both red and blue states.
So now, let’s begin. The critical player in establishing the alternative supply chain is the Certified Cannabis Distillery. Here are items to consider when evaluating the certification of a cannabis distillery.
Certified Cannabis Distillery: Requirements
- Must be able to demonstrate, through a lab prototype, that they understand the technology and have the resources in people and capital to successfully commercialize the technology.
- Must be able to meet ISO 9000:2000.
- Must have the accounting systems to collect and pay the required taxes.
- Must be transparent and demonstrate that there is no linkage to illegal operations and all flower is purchased from legal growers
- Their plant is in one the following counties: Humboldt, Trinity, Mendocino, and Sonoma.
- Must have a license from Vapor Cartridge Technology LLC to produce and sell Vapor Cartridges.
Certified Cannabis Distillery: Primary responsibilities
- Provide payment for the botanical cannabis purchased from a Certified Legal cultivator. Reserve a percent of that payment as cultivation tax.
- Prepare the botanical cannabis for the Thermal Distillation Coating process (clean, dry, grind).
- Process the prepared botanical cannabis into Vapor Cartridges in accordance with ISO9000:2000 as shown below.
- Design and manufacture the drug delivery device.
- Sell the Vapor Cartridges and drug delivery devices to retailers. Pay excise tax on the payment received from the retailers.
- Market branded products promoting the appellations and the strains used to produce the Vapor Cartridges.
- Apply for and, eventually, obtain FDA approval for the Vapor Cartridge.
Call to action for the CDTFA
Here are some key CDTFA action items to discuss.
- Establish a program for certifying cannabis Distilleries.
- Send out a public notice that the CDTFA will, initially, issue certification for
three Distilleries in each of the following counties: Humboldt, Trinity, Mendocino, and Sonoma.
- Issue a tax incentive to the Certified Cannabis Distilleries for an appropriate number of years to encourage the investment by the potential cannabis distilleries.
- Manage the program.
Please contact Tim McCullough, inventor, and owner of Vapor Cartridge Technology LLC.
Email: TLM.VCT.144@comcast.net Mobile: 651- 491- 2115.
Mr. McCullough can answer your questions and help the CDTFA put together a program, including policies, to create the alternative supply chain exclusively for the legal cannabis market players.
References
Many legal growers, especially smaller farms, can’t make a profit…
Washington Post
The casualties of California legalizing pot: Growers who went legal
A blue state’s taxes and regulations have boosted corporate producers, leading to the near-death of the small cannabis farmer.
“The once-mystical heart of the nation’s marijuana industry is dying, fast, strangled not by law enforcement but by the high taxes and baffling regulation that have crushed small farmers since state voters approved legalization almost six years ago.”
“As a result, the state is now awash in tax revenue, much of it from the industrial-scale farmers and retailers, and in marijuana, a market glut that has gutted wholesale prices and left farmers such as Barber unable to break even. The state rules and omissions have also empowered a still-thriving black market for marijuana — once a chief target of state regulators — whose growers sell their product illegally across state borders and still fetch a lucrative price. Reference:
https://www.washingtonpost.com/nation/2022/08/21/california-marijuana-farms-failing/
KCRW
CA cannabis is in sticky situation despite high hopes of Prop 64
“The plight of the cannabis cultivator is a symptom of a much larger issue: Problematic regulations. Right now, California’s legal market is drowning. Most of the state’s outdoor cannabis farms are going out of business. Legal dispensaries rarely turn a profit, and businesses are shuffling debt bubbles up and down the supply chain. This isn’t exactly how cannabis legalization was pitched five years ago when voters approved Proposition 64, which created the nation’s largest legal cannabis market.” Reference:
POLITICO
Why weed companies can’t make any money
High taxes, siloed state markets, and lack of access to capital make it very difficult to turn a profit.
“Arguably the biggest barrier to making money is the sky-high taxes weed companies pay because they’re treated like illegal narcotics traffickers under the federal tax code. The goods also cannot cross state lines, and that lack of interstate commerce means companies must build separate farms, factories, and stores in each state where they do business and navigate a rapidly evolving patchwork of state regulations. Finally, raising capital is extremely expensive due to a dearth of financing options, an issue both Republicans and Democrats in Congress recognize but have yet to address.” Reference:
https://www.politico.com/news/2022/09/04/weed-companies-cant-make-money-00054541
North Bay Business Journal
California legal cannabis crop value drops 40% amid industry ‘tumult’
“The value of California’s legal cannabis crop dropped 39.7% last year while tonnage increased 12%, another sign of how the licensed industry continues to struggle to survive competition from the illicit trade and regulatory challenges, a new report said.” Reference:
NBC News
California’s small cannabis growers face extinction as taxes, bills, and snow pile up
“I don’t want to be dramatic, but the survival of the legacy small-craft businesses in California is at stake,” said the executive director of the Mendocino Cannabis Alliance. Reference
while illegal cannabis growers are profitable and expanding….
CNBC
Marijuana’s black market is undercutting legal businesses
“Thriving, unregulated marijuana businesses across the United States are undercutting legal markets awaiting banking and tax reform.” Reference:
https://www.cnbc.com/2022/12/23/marijuana-black-market-undercuts-legal-business.html
NPR News
5 years after California legalized weed, the illicit market dominates
“Five years later, cannabis is selling in record amounts, but fully legal weed makes up just a fraction of the state’s marijuana market, with some experts estimating that 80 to 90% of cannabis sales in California still fall into a legal gray zone. In other words, the industry is, quote, “a mess.” Reference:
ABC10
‘Taxes in California are insane for cannabis’: Has Prop 64 delivered on its promises?
“Cannabis business owners in California say high taxes and burdensome regulations are not only killing their profits but causing the illegal market to thrive.” Reference:
Cal Matters
California cuts cannabis taxes to heal ailing industry CAL Matters
“tax will pause at 15% for three years, after which regulators could raise the rate to recoup lost revenue from discontinuing the cultivation tax.” Reference:
https://calmatters.org/politics/2022/07/california-cannabis-tax/
and worse, the illegal growers are harming the environment and sowing fear.
Los Angeles Times
Why legal weed is failing in one of California’s legendary pot-growing regions
“The regulated market was supposed to provide a stable economic foundation for this county with a population of about 16,000 that is among the poorest in California (with a poverty rate of 18%, significantly more than the state average), while ousting the unsavory characters who had abused the land and sowed fear among residents.”
“Some illegal growers have diverted streams, poisoned the land with toxic chemicals, destroyed wildlife habitat and threatened people who stray near their plantings.”
“Local law enforcement agencies are outnumbered and outgunned.” Reference:
https://www.latimes.com/california/story/2022-12-09/legal-weed-failing-california-county