Introduction: John Knapp is the founder of Colorado-based Good Meds Network, a medicinal-grade cannabis business, of cannabis consulting firm GMC & Associates, and of Gro|Quip, a gardening equipment distributor. John was previously senior marijuana design engineer for a top cannabis consulting firm for three years. John is the Chief Operating Officer for PharmaCielo Ltd. He is a trained industrial engineer, entrepreneur and expert in the field of cannabis business, supplychain management and logistics. A pioneer in the legal cannabis industry, he has consulted on over a dozen cannabis projects in seven states, Canada and South America.
Anthony Wile: Hi, John. How's the world of legal cannabis – still seem slightly like a dream-state?
John Knapp: The momentum is continuing to build and we are well past the point of no return. Colorado just had its first $100 million month, California is finally going to regulate their industry, Canada is on its way to full federal legalization and the US presidential candidates are taking their positions on full legalization. There's no stopping this train now!
Anthony Wile: How is business with your company, Good Meds? You produce and provide medicinal cannabis products only, correct?
John Knapp: Good Meds currently produces medicinal cannabis only, yes. However, we are exploring the possibility of expanding a small piece of our production into the adult-use wholesale market. Our roots really lie in the medicinal space so we will continue to operate medicinal-only storefronts since there is still such a need for high quality medicinal-grade, low-taxed cannabis products.
Good Meds is doing great right now with the exception of one problem that we can't seem to shake, and that is, we can never produce enough cannabis. We have doubled our production every year for the past six years and more than doubled it this year thanks to new lighting and feeding technology we have employed. Even with all that expansion and enhanced efficiency it is still a struggle to keep up with the booming demand. I guess you could say it's one of those good problems and a great indication that this wave is nowhere near cresting.
Anthony Wile: Since we last spoke you've also founded a new cannabis consulting firm, GMC & Associates. Tell us about that. What kind of work are you doing?
John Knapp: Consulting is a quickly growing sector of the cannabis industry, and as the industry matures it will be looking for more sophisticated turnkey solutions. Who better to provide those than a company that has been doing it since day one and is continually pushing the limits of commercial cannabis production in its own 90,000-square-foot production facility?
GMC & Associates has so far assisted in license acquisition projects in New York state and Florida, and we are currently working with a group in Maryland to submit an application in the beginning of November for production and retail sales.
Anthony Wile: Since you're based in the US we'll ask mainly about the industry there, but please feel free to chime in on issues in other countries, as well. Recreational cannabis has been legally sold and taxed in Colorado now for about 22 months and, as you just mentioned, monthly sales just surpassed $100 million, and the state's revenue from cannabis sales have now surpassed revenue from alcohol sales. What's your overview of the state of the industry there now, for medicinal cannabis patients, adult recreational users and for businesses?
John Knapp: The industry here in Colorado could not be stronger. It is difficult to say where the line is that separates medicinal and recreational cannabis and it will take much more time and research to better define on what side of the line many users fall. With that being said, I think it is clear that this experiment here in Colorado has been an overwhelming success for all stakeholders. Teenage cannabis use is down, prescription pill overdoses are down, crime is down, some have suggested that fatal car crashes are down (although much more data is needed), countless jobs have been created, and taxes are up. The most optimistic experts could not have predicted this outcome five years ago.
I think it just goes to show that if you educate people about the genuine risks of something, instead of lying to them and trying to scare them away from those risks, you will find that people in general can be trusted to make better personal decisions.
The world is watching and we are beginning to see movement around the world as it pertains to recreational cannabis. It looks like the two frontrunners in Canada's election next week will both move to implement recreational cannabis if elected. Britain is beginning to change their tune as well. The UK recently came out with a study saying that legalized cannabis would decrease law enforcement costs while raising taxes, with little to no impact to public health. We are near the tipping point and it is only a matter of time before the world wakes up.
Anthony Wile: Have there been significant changes to Colorado's regulations from those that were in effect when recreational cannabis was first legalized? Any changes to the regs pertaining to medicinal cannabis?
John Knapp: Pesticides are one aspect of state regulation that is undergoing significant change, and it is a very tricky subject. All commercial growers of any crop use some form of pesticide, either organic or synthetic. Those pesticide products have all been evaluated by the federal Environmental Protection Agency for their efficacy and safety on a particular crop and can only be used in a manner and on a commercial crop that that has been specified on the label.
Now, because it is a federal agency that evaluates these pesticides, and since cannabis is a federally illegal plant in the US, these evaluations have not been performed on cannabis, and all pesticides are federally illegal for use on cannabis crops. Well, growing cannabis is federally illegal in the first place so who would ever need to use a pesticide on a cannabis crop?
Colorado has taken a very responsible first step by creating a short list of organic pesticides that can be used on cannabis crops, and although it directly violates federal law, it is the first real guidance the industry has received on this subject to date. Today, both medicinal and recreational producers are required to stay within the approved list but only recreational producers are required to test every batch for pesticides not found on the list.
As the state has moved from creating the list to enforcing the list you may have seen that in the past couple weeks there have been several businesses in the news for failing pesticide tests. It is very concerning that these businesses have been failing their tests because they are some of the largest and should be the most responsible operators out there. However, when millions of dollars are on the line and responsible people are not always in place to make the right call then poor decisions are sometimes made.
We at Good Meds decided many years ago not to use any chemical pesticides on our crops and have adhered to the approved organic pesticide list since its inception. As a result, we have had to destroy some product from time to time but we have learned from the mistakes that lead to outbreaks and have been able to enhance our procedures to prevent those mistakes from occurring again. At the end of the day we will always be a medically focused business and I personally will always be a consumer of our products, so there is no way we would ever allow ourselves to compromise the safety and quality of the Good Medicine we produce.
Anthony Wile: What other changes seem likely or are already in the works?
John Knapp: Banking is one area where we are likely to see change, albeit very slowly. Good Meds just recently opened an account after several months of intense auditing of our books and state inventory records. It is extremely expensive and feels a lot like extortion, but in this industry we are used to feeling extorted.
The Fourth Corner Credit Union we discussed in the last interview was denied their application for federal charter and is now in the process of suing the feds. It is looking like a long road for them but their efforts will no doubt drive progress. In the end, for us to be treated as a real industry we will need change at the federal level and that will take at least this next election cycle to happen.
Anthony Wile: Given this is a highly regulated industry, like it or not, are there other regulatory changes that would be beneficial if implemented, in your view?
John Knapp: As of now, the pesticide issue is the biggest regulatory change. It may be difficult for some businesses to rise to the challenge but at the end of the day one of the founding principles of this industry is safe access. Taking the transaction out of the back alley and to the storefront was the first step. Now we must continue to make safe access a priority by making sure we can certify exactly what is in the products we consume, just like every other consumer product out there.
It doesn't stop with only testing for contaminates, either, especially when we are talking about medical cannabis. We need to continue to do a better job when it comes to dosing as well. As time goes on, standardized products like oil and the devices that deliver them will, I predict, become more popular and trusted than the flower products that exist today.
Anthony Wile: There's been pretty extensive coverage in the media about negative environmental effects of cannabis cultivation in the US, especially when it comes to strain on the electric grid and excessive water consumption. What's your take on how those problems will be addressed over time?
John Knapp: Certainly there is a lot of blowback against the industry regarding the high electricity usage as well as water consumption requirements, both of which environmental groups and government agencies have been quite vocal about. As time goes by, these will become even more important issues. We live in an age where "greenness" is a frontline consideration. When you can grow product outdoors naturally using free sunlight and water, which you can do in Colombia and other equatorial nations that have a cannabis-friendly 12 hours-on/12 hours-off natural light cycle, eventually you can see that being another consideration for why consumers and responsible distributors will be seeking those sources for their cannabis products, oil and flower both.
Anthony Wile: Washington State, Alaska, Washington DC and Oregon legalized recreational cannabis in the 2014 general election, and sales in Oregon just commenced at the beginning of the month. What's your take on the industry in those locations?
John Knapp: Oregon and Washington State are certainly the most mature out of the bunch but they all still have a long way to go, and that includes Colorado as well. Until we get access to banking, the 280E taxation issue and the de-scheduling of cannabis sorted out things will continue to progress slowly. Think about it. Because each state has to set up its own industry, independent of the infrastructure and regulations that exist in other states, it's basically like reinventing the wheel every time. The need for new costly and inefficient production facilities, which take a long time to build out, only acts to underserve the consumer and artificially inflate the prices before demand is met. As a result, it does nothing to eliminate the black market, which was one of the main goals to begin with.
If cannabis was de-scheduled today these new states coming online would no longer have to wait years for production to catch up to demand. Instead, they could source their products from anywhere in the world where production is strong and costs are low, just like every other agricultural product is sourced today. There is a reason wheat is grown in Nebraska, oranges are grown in Florida and bananas are grown in South America. If Washington State had to grow their own oranges indoors because the feds didn't think oranges should be legal you would have expensive oranges and a black market that would smuggle them north from Florida.
Anthony Wile: Cannabis legalization is certainly a hot-button issue when it comes to politics, and not just in the US. As the presidential campaign moves forward, do you see most candidates taking a pro-legalization position? Do you expect any particular candidates to be more or less welcoming of the idea of a regulated, taxed cannabis industry for the US as a whole?
John Knapp: Most politicians pander to their base and with the majority of people overwhelmingly supporting medical cannabis and most supporting full legalization, I think you will see candidates around the world continuing to come out in support of cannabis. The Canadian elections taking place next week are a perfect example. The NDP has come out at the last minute in support of full legalization because they are a few points behind the leader, Justin Trudeau, who has been a long-time supporter of legalization.
The US elections still have a ways to go. I am a bit disappointed that Hillary Clinton has not officially taken a stance on legalization. I think we all know what her position is going to be. Fortunately, we have candidates as diverse as Rand Paul and Bernie Sanders that have supported medical and recreational cannabis from the get-go, and although they may not be ahead in the polls, they are certainly catalysts for driving this discussion into the open and forcing the rest of the candidates to define their positions. It is impossible to predict who will win at this point but I am confident that whoever wins will only do so if they are a supporter of cannabis.
Anthony Wile: What's the likelihood Congress will de-schedule cannabis anytime soon? Will election campaign discussions impact that?
John Knapp: Unfortunately, I do not see this Congress doing anything ahead of this next election cycle. However, not all hope is lost. The upcoming US elections will contain a lot of discussions about cannabis and that in conjunction with UNGASS 2016 next April will only serve to increase the number of people in support of cannabis.
I am hopeful that President Obama has a trick or two up his sleeve as he leaves office next year. Maybe he will hand down some sort of mandate that allows banks to more easily work with cannabis businesses, for example. Being a two-term president, he really has nothing to lose and, in fact, it could even end up being a cornerstone of his legacy. He has already become very vocal about reforming the prison system and the way that we punish nonviolent drug offenders. What he is doing now is a perfect setup to make him the first president to effect federal cannabis reform come this time next year. We will have to wait and see.
Anthony Wile: Anything particularly interesting happening in other countries at the moment, or likely to happen soon? Australia is making moves toward legalizing medicinal cannabis, for instance.
John Knapp: Australia is definitely making moves and Croatia just legalized medical cannabis, which I certainly did not see coming. The UK is beginning serious discussions and, of course, Canada, as we discussed earlier, looks like it will have a pro-legalization government in power very shortly. Just like the states in the US have rapidly begun turning I think we will see the same across the globe over the next few years.
In fact, the one country I am most excited about is Colombia, and there has been a lot of debate there around medical cannabis over the past year. I personally have an invested interest in developments there, as I'm chief operating officer of a private Colombian-based cannabis company. My understanding is that a medical cannabis program is in the works right now. If and when Colombia makes its move it will most certainly be a leader in this space. The geographic location and climate make it one of the best locations in the world to grow flowers – the same conditions that are ideal for growing cannabis, of course – and I will be one of the first ones down there when it's time.
As we continue to transition into a more cannabis-friendly world, the industry as a whole will go through a lot of big changes and look much different than the young, immature industry that exists today. Cannabis will become interwoven into our lives and purchasing it will be no different than going to the grocery store and buying a banana that was grown in South America.
Anthony Wile: How do you feel about countries like Colombia, when they come on-stream, being able to provide naturally grown, lower-cost and equally high-quality cannabis products to supply the world? Doesn't that pose a threat to your existing business in Colorado?
John Knapp: Well, yes. One of the reasons I'm actually involved with this Colombian effort is because I do see a time when my business and other businesses producing cannabis in unnatural indoor environments will need to transform ourselves to become more distribution oriented than cultivation oriented.
For now, the payback associated with capital cost layout in my area is less than one crop, or 90 days. Therefore, it still makes sense for us to continue along our current path for the time being because it's highly profitable, even if our cultivation operations and equipment some day become better suited for something else.
As I said, though, in the meantime the cash flow in this industry as it is supports a continuation of existing efforts, recognizing with an eye on the future that there's likely to be a shift, with equatorial nations providing the bulk supply of naturally grown cannabis.
Anthony Wile: I guess you could say you have one foot on the ground today and one foot poised to land tomorrow when it comes to the cannabis industry.
John Knapp: Yeah, I guess you could say that. I'm well positioned for both today and tomorrow.
Anthony Wile: Many states have now legalized medicinal cannabis use, some incorporating very specific constraints and others making it more accessible. This wide variation in regulations has created a bit of a jumbled mess in the US. How do you see that shaking out over time?
John Knapp: Let me start by saying I agree that it is a jumbled mess in many states but you have to give the state governments credit for sticking their necks out and risking political failure. The people of Colorado take it for granted now that anyone over 21 can walk into an adult-use dispensary and purchase 28 grams of some of the finest cannabis on the planet for a reasonable price without risk of incarceration or even worse in some parts of the world.
We must remember that the prohibition of cannabis has been in place for a long, long time and although progress is being made it is going to take time to replace, and especially for the older generations to feel like they are making the decision. It's a huge compromise and sometimes you have to go slowly and a little bit at a time, but eventually the free-market forces that exist all around us will inevitably result in the best solution for all stakeholders, even when government tries to stop it.
In the case of cannabis, the government has done a good job at holding it back, but the cannabis revolution has reached the point of no return. So get ready to inhale because there's a big cloud of profitable smoke coming our way.
Anthony Wile: Thanks for talking with us today. We appreciate your insights.
John Knapp: Thank you. It has been my pleasure.
John Knapp is certainly a pioneer in the cannabis industry. At High Alert we also, in the interests of full disclosure, have an interest in the company to which he is referring. I personally have an active involvement in that company, as well.
We share John's hope and optimism that the "whitening" process of the global cannabis industry will continue apace. We also share his enthusiasm for the upcoming UNGASS 2016 conference to shed new light on a path that is more responsible and recognizes that demand can never be regulated away and that there is more to be gained by encouraging and supporting personal responsibility when it comes to drug use in general. It is only through education, which begins at home, that society at large can expect existing and future generations of people to be better armed with information and knowledge so they are more likely to make the right decisions with respect to the usage of any sort of drug, alcohol and coffee included.
Having said that, there's still a long way to go towards ending this ridiculous war on drugs, which has caused so much pain through needless incarceration that's destroyed families and the deaths of millions, leaving in its wake a trail of destruction that has been far from beneficial for society. We will continue at The Daily Bell to follow the global cannabis industry as legalization sweeps the globe and more sensible policies are adopted and implemented, one region at a time.
We encourage you to subscribe to The Daily Bell Newswire and continue following this trend with us. And if you haven't yet read my latest book, Financial Freedom, in which I talk about how to invest intelligently in burgeoning new trends and sectors – of which this is certainly a mega sector that any savvy investor will want to be watching – you should do so now. Click here now to freely download Financial Freedom and my other books.
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