This week on Clearly Cannabis, we were joined by Gary Tucker from The House of Green. We experienced a few technical difficulties with the video chat, so this kicks in about 10 minutes into our discussion.
What made you move to the Isle of Guernsey?
Right before California became legal, before the vote even happened, I knew that California was going to pass it (Prop 415) because they created a department of cannabis even before the election happens, so I was like alright California is going to get cold legal. I don’t care how the vote turns out; it’s going to go legal.
So, I jumped back down to California from Oregon. I moved to Northern California to get myself established, knowing that a frenzy is about to happen as far as licensing and regulatory bodies. I try to get something established before everything starts to take off, and prices begin to skyrocket, so I went back to California in 2016 right before 2017.
It was just difficult for the county. I was in Trinity County; they were so slow to do anything. But there was a lot of potentials. With that, the County finally set up the Bureau of Cannabis in California that was the very first town that they went to, before the entire state, they went to a town of 2,000 people because it was projected that County alone the largest producer of cannabis in the whole state. Despite this, the county supervisors were so slow to act and get any type of regulation in place. It fell to the wayside, and they’re still having issues with licensing there.
So, after a couple of months of trying to work with them realizing and it was going nowhere, I found myself jumping down into Southern California where regulation was getting established. We were seeing lots of licenses being applied for. I was working down in Southern California, but it was still just a nightmare to get anything set up.
I was trying to work with different groups of people and teams trying to find a proper facility. We looked at the regulation for every single town then the county level and then the state level to see which properties can technically be cannabis licensed.
But, because California was several states down the road as far as establishing a legal recreational market – the real estate guys are kind of catching on to the game. The next thing you know, when you saw a property that was had the potential of getting a license – the value of it was three to four times that of other properties. I saw some places in the Long Beach area, where the site was just an empty half-acre plot of land with no buildings on it being used to store truck trailers. Shouldn’t have been worth very much, but because it was in an area that was the potential of having a cannabis license, it was listed at 1.25 million dollars. You still needed to build a building and get all your plants. It was getting insane, so the cost to industry in California just quickly skyrocketed, so it was tough to find a place that could get a license.
What was being established was by huge players with vast sums of money trying to move quickly.
I was doing more on the equipment side and consulting at the time, and I had a guy Charley Murray who came to me looking for equipment. He was actually from this side of the UK. He was trying to set up a vertical farming operation on Guernsey because he has some family back in the Guernsey area, but he saw that the payback period for that was just which was too long. Meaning it was going to be hard to raise investment for that project.
But after talking with me, he felt like it was possible. So, he called up Paul Smith to tell him they could do cannabis; there’s potential in this whole vertical farming operation.
It was right at the same time that Guernsey did change the regulation to allow cannabis licenses, so we kind of talked about it, and the project kind of developed from there.
What attracted me to Guernsey was the fact that the climate was suitable for cannabis. There are 200 acres of these greenhouses from the 70’s sitting about, being used for car storage or something, just sitting here asking to be used. The prices on them were much lower than what I saw in California, and I knew that the greenhouse is the best way to go.
A lot of people trying to establish indoor grows, especially in California, are just dropping millions to build these facilities. But the cost of production is so high that they can’t be profitable. And at the same time, with everyone pushing on climate control and lowering one’s carbon footprint, indoor growth is not the answer.
There’s a huge burden on that type of system because of your power costs and all the other aspects of it. I believe the greenhouse is the right hybrid model. You can control your climate while using the power of the sun to reduce your operational costs. That’s a piece that attracted me to Guernsey.
The tax level was another attraction. Compared to the US, which has relatively high taxes. Of course, that varies from state to state. But you have your federal tax, corporate tax, state, tax city tax, cannabis tax, and a considerable sales tax. California was taxing this thing to death, which is what the world did back in the early nineteen hundreds during Prohibition.
That was another good aspect to Guernsey, and its unique position as far as trade between the UK and EU was pretty attractive. This enables us to move goods with proper licenses.
So, it was like you knew a mix of all of those things that made Guernsey attractive for me to come in and move my entire family. I saw what the potential of Guernsey was. We can bring a model that we know works, along with my experience on the extraction side, to make the cultivation attractive. To make cannabis viable, you need to have an extraction facility that you’re feeding into. Especially when there is no flower market, which is we are experiencing across Europe.
Europe’s flower market has not been established as it has in the US. There are a lot of CBD needs – creams, balms, salves, and stuff, so that what makes the market viable. Having such an extraction facility makes you viable. An extraction facility is needed. Otherwise, Guernsey will be faced with the same issues that it saw here in the tomato days. You have a whole bunch of people growing crops, but if you can’t get those crops off the island, you’re in a world of hurt. This requires a massive logistics operation that involves a bunch of containers continually going out.
However, if you have an extraction facility where products can be processed, now you can ship goods all over the world. Shipments are much smaller. They can go on planes or ships and still hold a lot of value. This makes Guernsey much more viable.
Can you tell us more about the hybrid model with its eco-friendly focus?
Being green-friendly is the way to go.
We see a lot of big production being done outdoor. We noticed that in Oregon as well as California. All of my friends back home – we’re all outdoor farmers. They were growing these plants that were 15, 20 feet tall that would take six people to handle once it was ready for harvest.
Octoberfest is a big deal. On the west coast, where everything comes down in October, all the outdoor farms harvest. It is a lot of work and means only getting in one crop in that year unless you’re doing some type of derivation, such as developing polynomials or other methods to get potentially two cycles in your year.
Whereas with an indoor grow, I could grow all year round as long as there are the right controls in place, and I will realize four grow cycles. But again, there is the cost of powering and managing such a facility.
Another consideration is terpene value, which is still kind of starting to make its way to the forefront of the industry. You get much better terpene production in an outdoor model using natural sunlight and soil versus an indoor model. To compensate, growers are using synthetic nutrients not all the time but most of it and then also the light spectrum that’s being used. There’s a big difference between LED versus natural sunlight. So, we believe the greenhouse is hybrid – you’re still using sunlight and soil, but you can control your environment. As a result, growers can potentially get growth year-round.
The greenhouse model doesn’t allow you to do medicinal is that correct as far as GMP?
There are a few greenhouse setups that can be GMP compliant but have a more significant cost structure. So, we are still going back and forth on that one. We will see how it goes.
I think the industry will push back on the GMP requirements and the consumer market as far as having to meet all of these rigorous cleanroom environments for flower production. It goes back to the cost of these types of GMP productions, with costs that soar through the roof.
If the goal is to get medicine to people that are cost-friendly, something has to change. We can’t keep growing indoors. That’s not going be the long-term answer, in my opinion. If we hope to drive down that cost, we will have to be more of a hybrid model.
In the discussions we had the last time, we spoke to these cost structures and how they limit who can enter the market.
The prohibitive costs of GMP production for medicinal cannabis is not a motivating factor for local economic development. It limits the competitive landscape of who’s controlling production. Without driving down the cost, it allows only big producers to control the market. With the high upfront costs and no one’s going to be able to compete against those players, because they can’t.
So, you know what will happen because we see it in other markets. In every industry where there’s always these big players that seem to control the market, local economies don’t benefit. Job creation isn’t a consideration. Product quality is second to profitability. An old saying we have in California is – “It’s a race to the bottom.”
You had all of these huge firms setting up, driving prices down by trying to implement whatever technique they had to keep prices at a minimum. I remember a guy at Coachella saying he could drive prices below a dollar. You can’t sell it for that price because you won’t make any money because of the taxes. But this mentality impacts the market. Big companies use economies of scale to drive down costs, further pushing smaller players out of the market. Their capital structures allow them to operate at a loss to gain market share. Small and local producers can’t operate that way.
And while I think there’s always going to be a sense of that, I think the recreational market can be different. There’s a big part of the consumer market that kind of understands how these guys operate. Instead, they want an organic, naturally grown product. Outdoor growing is always going to be part of that. Furthermore, people don’t want synthetics. Ultimately, the consumer is going to dictate where this market goes.
When we talk about this, we sort of consumer demand, we can equate it to the craft beer model, where consumers are willing to pay for organic, locally-sourced smaller grows. This could potentially stimulate the demand for local growth. How did this potential to support economic-development opportunities influence your negotiations with local authorities?
Other parts of Europe are beginning to realize the economic benefits. That’s when most governments are open to legalization. I think the Guernsey officials were able to see the commercial potential.
I think they also saw as a chance to diversify because they rely so heavily on the Finance markets as a means of income for the island, whereas there was the potential to start to break away from some of that. This cannabis stuff was the potential just to start to wean themselves off of the financial sector a little bit. It also potentially allows them to bring some horticultural industry back to the island because they have an infrastructure here for it.
But the need extends beyond the existing infrastructure. Smaller communities still struggle to meet the regulation requirements and funding sources to build facilities.
Can we use the US as an example of economic development?
We can use the US as a positive example of economic development and opportunities for lessons learned. We can look at California and see why it didn’t work. You can take pieces from a lot of different areas account the US. There are always lessons to be learned.
You can look at many different states that have developed cannabis industries and how they’ve gone about it. How did they go about establishing regulations? Taking from what works and trying to see what didn’t work and not repeat the same mistakes.
You have to put some regulations in place. You can’t just leave this market to run itself because, like any industry, it’ll try to find its shortcuts and ways to go about -lying, cheating, stealing – if they can to save a couple of dollars.
I see a lot of people that have succeeded in this industry are driven by being the best, and they saw first hand that this is the thing that’s their driving factor.
How important is it to be able to reach throughout Europe, given the complexity of 28 different member states with a whole bunch of various regulations and laws, to have a single standard to follow?
Yes, a global standard would be ideal. One set of rules that everyone can kind of follow to see what works and what doesn’t work. That is one of the hard parts of this business. It reminds me of a lot of the US, where every state has different regulations or protocols. We see that same challenge across Europe, where every country seems to have a different way to go about doing it.
It makes it a lot more complicated as far as what you can do across Europe. I mean, if there was a more unified voice that always makes things easier for everybody. But that also makes it easier for the big guys to come in here and just kind of scoop up market share.
You mentioned extraction earlier, can you talk magnitude of the extract market technologies? I know there’s tabletop extractors, solvent-free tabletop, and extractors for a couple of grand. I’m just curious about what your experience is with the different levels from the industrial so-called big guys. What are the big guys doing for their extractors, and what are the smaller craft business-sized people doing?
Recreational use changed the extraction market. California has this semi-medical market since the late ’90s, but it didn’t cause this industrial boom and extracts until we saw this recreational market. Around the same time, about 2015, most of the extraction market was all tabletop. We saw a variety of everything from small butane extractors and then trying to figure out how to do that in a proper C1-D1 type environment – so that you weren’t going blow up the world from people trying to do ethanol and it smaller CO2 extractors.
Whereas now, we start to see large-scale production coming into place, so some of the more craft-type stuff. Everyone’s got kind of what they feel is the best – whether it’s butane or solving this with an excellent press or it’s CO2. It starts to come down to the cost of what it takes to upscale. We see some very large CO2 extraction being put in place. These are 200 meters/ 5-meter type systems, but the price of those systems is also really high. A lot of players can’t move into that unless they already have some success going on and trying to build off of that.
We do see a move into cheaper methods such as ethanol, whether it’s industrial alcohol or even some of the more significant butane extractions, as long as they can get the safety protocols in place. I mean, you see a variety of everything, but there is this sense of scale. Three have been dominate – the ethanol butane and CO2 with the solvent lipid trying to kind of catch up.
Some of them will be harder to do on a large scale, but it becomes the cost factor CO2 is probably the most expensive to scale up. Ethanol and butane are relatively cheaper. Butane comes with a lot more safety protocols to be put in place, so you kind of offset some of those costs into that.
Whereas ethanol is a little bit safer. You don’t have the explosion risk, so you see a lot of people diving into doing ethanol-based extractions and then fractional distillation right after that.
So, I take it, Gary, that you’ve described assembly line operations primarily as opposed to the solvent lipid tabletop batch size for craft use or the like. I’m interested in what is the quality of the extract coming out of butane CO2 or ethanol versus basically the solvent-less stuff.
What we saw at the smaller scale, doing benchtop tabletop type setups, was that no matter what we were doing – we could see we had a lot more control over the quality and higher quality on smaller setups. Once we started to scale things up, we saw a decline in quality. So, there’s a kind of a trade-off – quantity for quality. It all depends on what one defines its quality. Is it preserving terpenes, or is it getting ninety percent distillates and oils off of your machine?
What I’ve developed for our setup is using multiple extraction methods to target different things so that we can preserve quality in each. We use CO2 to extract one aspect; ethanol could extract another. That way, we can try to maintain the highest quality and bringing these elements back together. We can decide to bring compounds back together, or we keep them separate depending on the product.
You always have some people who say the rosin press is the best quality, whereas some may say that butane offers the best variety or live resin whereas the tree profile of the plants. I mean, it depends on the end product that one’s going for. I have a look at it are you trying to have a smokable oil that people are just loading the oil or are you trying to put that as an ingredient into a cream.
I’ve tried to position The House of Green where we create ingredients for products. It’s more of what product you are trying to make and will give you the proper ingredients.
One question overall, so you’re getting established – you’re looking at the next page – selling to Europe and the rest of the world, what are the biggest challenges you’re facing right now?
It’s jumping through all the different regulations – whether it’s Guernsey, the UK, or Europe. Then, it’s dealing with the import/export laws because it seems that everyone has a different way of going about it.
Finding proper testing facilities can be difficult. We see many different labs and testing facilities set up in the US that would check for a wide variety of pesticides, fungicides, microbials, residual solvents, and do a cannabinoid test well.
Here, you find yourself having to use several different labs to accomplish all that. There’s not too many that offer a complete setup, which limits the potential of getting your export license if you can’t get your product properly tested.
Those have been the most significant challenges getting through the regulations and the regulatory bodies. Each is operating differently, getting your product properly tested, and then being able to move it about.
Would you be able to move your product to another country to test there? Is that an issue at all? Or do you have the proper export license at your target countries, like it is called for in Germany? Or can it be simply you have a German company that has an appropriate import license and other licenses they need to distribute then from here?
We need a proper export license, which means creating a badge, getting that badge, and the like. Then getting an export license and then there’s not a problem, we were one of the first USDA-certified imports of hemp seeds.
In California, we had to get checked off by the USDA, the UK government, and the Guernsey government before we were allowed to move hemp seeds from the US. Everyone’s got the notion that they legally are certified. The reality is if you read the regulations, there are ways to go to bring outside stuff that means you need to get a lot of additional certifications along the way they make it. There’s a limited period to make that happen because you only have a small window – if it’s a natural product – there are many ways those certificates will become null and void, and you have to start the process over.
Join us again on July 3 for the next edition of Clearly Cannabis. We are pleased to announce that Josh Ready, Director of Europe for SovereignPort Europe, will talk about his adventures in international import and export.