Cannabis / Marijuana, EXCLUSIVE INTERVIEW
John Knapp: A Pioneer in Medicinal Cannabis Shares Valuable Insights in a Profitable and Fast-Growing Field
By Anthony Wile - February 08, 2015

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: Hello, John. Thanks for speaking with us. Tell us about your businesses. You started Good Meds Network and Third Wave Enterprises, which are both medicinal cannabis businesses in Colorado, the first state in the US to legalize cannabis.

John Knapp: Good Meds was born in a small basement in Colorado, initially as a caregiver-based service, operating under a 2001 Amendment to the state's constitution, Amendment 20. Good Meds adapted with the introduction of the state's new medical marijuana (MMJ) regulations, HB1284, and quickly grew to include three MMJ dispensaries and several MMJ production facilities. We have experienced many of the ups and downs of the newly developing industry from partnership issues related to the "shotgun weddings" forced by the new regulations to banking restrictions to unfair federal tax structures like 280E imposed on our pseudo-legal industry. Over the past four years Good Meds has consolidated its retail acquisitions and six commercial cultivation facilities. Good Meds currently operates two MMJ dispensaries in the Denver metro area along with a large multi-license production facility in Denver.

Third Wave was started in the summer of 2013 with the goal of obtaining a MMJ license in Illinois's new MMJ regulatory framework. We began by taking the first logical steps any business should take when trying to gain a foothold in a new MMJ state. We hired lobbyists and market consultants, began attending meetings with state officials, identified suitable real estate options and met with potential investors. We were traveling weekly between Chicago and Denver for almost a year while the regulatory framework was being constructed. By the summer of 2014 the rules to apply for licensure had been established and we quickly realized that the barriers to entry were very large. Businesses would have to show around $10 million in cash just to apply for a license and risk around $500,000 for the application itself. Good Meds was not positioned to meet the application requirements and didn't see much value in partnering with the big-money groups for very small equity positions. Instead, we decided to cash out by rolling our year's worth of work into a consulting package, which we then sold to a group to help them apply for licenses with Good Meds's support.

Anthony Wile: You also consult in the industry. Tell us about that. What kinds of companies are you working with, and where?

John Knapp: In 2013 I began working with Quantum 9, a leading provider of end-to-end technology solutions for the cannabis industry, to help the many people looking for hard-to-find answers in an unclear space. As their senior engineer and design consultant my goal is to help our clients understand the immense challenges and expenses associated with building a world-class cultivation facility. I assist the local engineers in understanding environmental controls and equipment, lighting and power needs, work flow, space requirements, etc.

We have worked with fairly simple designs and builds under $2 million ranging from 60- to 200-light operations in Toronto, Nova Scotia and British Colombia, to medium-size builds in Colorado and California between 300 and 600 lights to a super massive, ultra-sophisticated, multi-stage, multi-year project consisting of 4200 flowering lights with an estimated cost in excess of $50 million, which is currently ongoing and located near Halifax, Nova Scotia. We have worked with a range of clients from mom-and-pop groups to very sophisticated investment bankers and venture capitalists.

For me, consulting is a very rewarding facet of this industry not only because of all the different people I get to work with but also the wide range of unique challenges each project presents.

Anthony Wile: How did you originally come to be involved in the cannabis field? Your education is in industrial engineering.

John Knapp: I have always been intrigued by the cannabis plant and its amazing potential as a medicinal treatment, and when I moved to Colorado six years ago I decided to become a medical marijuana patient and take up growing as a hobby, which was legal under Amendment 20. While I was working for an oil company in Denver I quickly realized that I really enjoyed the mechanical side of growing, like picking out the equipment and trying to integrate all of the systems to control the many variables in my garden. I closely followed the laws and as the industry began to snowball I realized there was an incredible opportunity to create a business out of my hobby that would benefit many people.

After only six month of growing as a hobby I decided to quit my job and take the leap into the cannabis industry. If it wasn't for my engineering training I don't think I would have had the confidence to do so. I barrowed some money from a friend and leased a small industrial cultivation space. Since then, I have designed and built six industrial cultivation facilities in Colorado ranging from 2000 square feet up to the 90,000-square-foot cultivation facility that we currently operate in Denver. There was a complex web of events that took me from one facility to another but that is for a different interview.

Anthony Wile: Recreational cannabis use is legal in Colorado but you've chosen to offer medicinal cannabis. Why?

John Knapp: A patient-focused business has always been founding the principal of Good Meds. We have a finite amount of production and sell 100% of what we produce. Quality is very important to us and we refuse to sell anything other than what is produced in our facilities under our direct quality control. As such, taking on new recreational customers would only limit our supply of high-quality medicinal-grade product to our patients. If we ever get to a place where we have excess product we would consider stepping into the recreational side of the industry but at this point that place is nowhere in sight.

Anthony Wile: Good Meds now has two dispensaries, one in southwest Denver and one in Lakewood. Does this meet the need at the moment, or will you be opening more? Do you expect to expand beyond Colorado?

John Knapp: At this point in Colorado we are nowhere near satisfying the medical demand even at our two existing shops. Because of this we are focusing on expanding our production by increasing efficiency with our current lights as well as adding additional lights. Currently, I believe we will need to at least double and maybe even triple production before we have to start looking at additional outlets in Colorado.

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We are always closely following industry developments in other states and because each state has different laws the opportunities can be complex. We are always evaluating opportunities and are ready to take advantage of the best.

Anthony Wile: We've read about a credit union opening in Colorado that will cater to cannabis businesses. It was applying for a charter, last we saw, and seemed to be making progress. How is that coming? What kinds of challenges do you face when it comes to the financial aspects of your business?

John Knapp: It is coming, slowly but surely. It seems as if there is a little bit of pushback behind the scenes. We expected the credit union to have received their routing number a couple weeks ago but it has not happened yet so we are cautiously optimistic it will happen very shortly. While we wait we will continue to manage the many challenges of not having a bank account. The biggest problems are security and traceability but it is also very expensive to manage cash without a bank. We currently have a full-time employee that counts money every day, multiple times per day. She stands in line for hours getting money orders while payroll takes her the entire day. It is a huge waste of a talented resource. It is funny because we are required to pay our federal payroll taxes by electronic ACH from a bank account but are prohibited from having a bank account.

Anthony Wile: Let's look at the legal status of cannabis for a moment. Following the "marijuana midterms" in November, medicinal cannabis in some form or other is now legal in a majority of US states. However, the regulations vary widely. In some states, it's restricted to only patients with very limited list of conditions, in others, it's legal but because there are no dispensaries patients cannot purchase any medicine and in some the delivery method is prohibitively restricted. Do you see that becoming more uniform over time? How do you see that evolving?

John Knapp: The industry in incredibly fractured right now and this is because the federal government has chosen to stand back and let the states figure it out on their own. On one hand, that is great for us because it creates a very slow and controlled boom that allows companies like Good Meds, that come from humble beginnings, to be big players in this space. While we take market share and develop best practices, big conglomerates like those in the tobacco industry are on the sidelines waiting for change on the federal level before they can go all in. States each have a different set of rules and a different application process so it allows more people to be involved and creates a very long and sustained boom.

On the other hand, patients have different rights everywhere. It can be very frustrating for people who really need the medicine to not be afforded the same rights and opportunities where they live as patients who are well taken care of in states like Colorado, for example. Federal action must be taken and I think it is coming quickly. Patients shouldn't have to move to another state because their home state is slow to set up its program. They should be allowed to purchase safe, regulated medicine from other states that have an established and proven industry. However, that will only happen when the feds de-schedule marijuana.

Anthony Wile: How soon so you expect federal government action, and what so you think that action will entail?

John Knapp: I believe the feds are getting ready to make a major move and de-schedule marijuana within the next two years. I think that for several reasons. First, the UN is holding a special session of the general assembly in New York in a year that will specifically address how countries will deal with the changing views of cannabis. It is widely believed that they will be loosening their policies on cannabis, which will pave the way for the feds to do the same – in the US and everywhere, for that matter.

Second, Fourth Corner Credit Union, the cannabis bank set to open in Denver, is only receiving a routing number because of a loophole in the application process. The rules state that when an applicant applies the feds have up to two years to review the application. In the meantime, the applicant may be issued a routing number to begin taking deposits but will not be allowed to lend money since it will not have been granted its federal insurance, FDIC – or in the case of a credit union, NCUSIF. FCCU will be operating in limbo for the next two years while the federal bankers wait on the federal government to make a change. Once there is a half a billion cannabis dollars circulating in the central banking system I think it will be very hard to reverse that and a change in federal law will be the only solution.

Anthony Wile: In a number of states, such as Florida, parents of children with severe illnesses that can be treated with medicinal cannabis have made the choice to move to Colorado to access medicine for their kids. It seems to have been shown to be an effective and safe treatment for some of these children. Or has it?

John Knapp: The jury is still out as to what the rate and degree of effectiveness is for these children. Cannabis, CBD-rich oils specifically, has had a good track record with these children; however, everybody reacts differently to cannabis and the only way to truly know is to do clinical trials. Unfortunately, that cannot be done in the United States until we change the law federally. Until then, the only option for most parents is to do whatever it takes to explore the possible solutions for their children.

Anthony Wile: What will it take to open the door for that to happen, in your opinion? Are there particular organizations that are effectively working to make that happen? Can you project a timeline?

John Knapp: I think we just need a little more time for things to gain momentum on the federal level. The National Cannabis Industry Association (NCIA) and the Marijuana Industry Group (MIG) both bring an incredible amount of credibility and organization to this effort. With more than half of the public in favor of legalizing medical marijuana the writing is on the wall. I think we are guaranteed to see federal change by 2020 but, as I stated earlier, with the new marijuana credit union opening in Denver and the UN special session next year, it is my personal opinion that we will see federal change by the end of Obama's term.

Anthony Wile: Tell us generally about the strains you grow at Good Meds, your extraction process and the kinds of products you provide to registered Colorado medical marijuana patients.

John Knapp: We grow a wide variety of strains because everyone has a different experience with each strain and we want to be able to provide a product that works for everybody. About 70% of our sales are flower so that is our main focus but the consumer is quickly beginning to make the shift to concentrates. Concentrates sales have grown from less than 5% two years ago to over 25% today and are continuing to grow. We currently offer concentrates made from a number of different solvents like butane, alcohol, and supercritical CO2, concentrates made from mechanical processes like water hash, edibles in almost every form imaginable like cookies, candies and chocolates, as well as topical creams, salves and transdermal patches. At the end of the day it is the exact same thing only in different delivery vehicles. Each person has their own personal preference on how they would like to use cannabis and it is our job to help them figure that out.

Anthony Wile: Good Meds must have a significantly large team, to provide all that.

John Knapp: Our 90,000-square-foot cultivation facility in Denver, which I mentioned, is about two-thirds built out at this point, and between our two retail locations and the warehouse we employ just under 50 people.

Anthony Wile: We're interested in understanding the oil extraction process better. Let's start with the pros and cons of using the various forms of cannabis you mentioned.

John Knapp: The most common form of cannabis use is still smoking. We all know that smoking is not very healthy but it is a way to quickly get cannabis into your body and will probably always be a choice for some recreational users because of the social components to it. Until recently, eating cannabis was the next most common form of taking it. Eating it requires much less cannabis but it takes a long time to kick in and it is very easy to ingest too much if the dosage is not clearly labeled or known.

Concentrates, or oil extracts, have recently become very popular because they can be used in many different delivery vehicles and make it much easier to segment a consistent dose. Concentrate can be smoked with flower cannabis to deliver a much more potent dose than a user typically can get from cannabis flower by itself, or can be smoked by itself, which is usually referred to as "dabbing." It can be eaten, infused into edibles or beverages.

Concentrate can also be absorbed transdermally, infused into creams and balms, or it can also be used in vaporizer devices called "vape pens" typically modeled off the e-cigarettes that are gaining popularity. I think these have the greatest potential for mainstream utilization because the user can take a larger or smaller hit depending on how much of an effect they want to feel, it only smells for a few seconds, it takes very little oil (between 250 and 500 mg) and the oil cartridges last for a very long time. The downside to concentrates is similar to edibles in that if the user is not paying attention they can take too much.

Anthony Wile: You mentioned that to make concentrates you use a variety of extraction processes. Tell us about those. Is any one preferable to the others?

John Knapp: We use several different extraction methods including mechanical separation, polar separation and super critical CO2 separation. The CO2 makes the cleanest product but it is a little more expensive because of the longer extraction cycle times. The CO2 oil is best used in vape pens because it tends to come out more viscous and so flows better inside the vape cartridge. CO2 extraction is also less dangerous because it does not utilize flammable gasses.

Anthony Wile: What are some of the benefits of extracts as compared to loose flower?

John Knapp: The number one benefit to using concentrates over loose flower is being able to ingest a standardized dose. Flowers vary from bud to bud but oil extract is a homogenous mixture of cannabinoids, terpenes and waxes from the plant without all of the plant material. Think of it like juicing; you get all the good stuff from the plant without all the filler.

In addition to that, there is obviously a higher concentration of cannabinoids in extracts compared to flower so you have a more potent product. Extracts can be used in many different delivery vehicles and finally, my own favorite reason: extracts taste better because the flavor is more concentrated.

Anthony Wile: We see extracts as basically the future of cannabis globally, as international and national bodies legalize and regulate cannabis. With extracts, the levels of active ingredients can be measured and labeled precisely, as you mentioned, quality control can be more carefully managed and patients, doctors, researchers and others will be able to more precisely manage the cannabis they're using or prescribing. Agree? Disagree? Are there reasons that may not be the case, or situations in which using the flower is actually preferable to oil?

John Knapp: I could not agree with you more. I think as time moves along you will see that flower will be subjugated to the recreational category of cannabis while extracts will dominate the medical category of cannabis and share equally, with flower remaining the number one choice on the recreational side.

Anthony Wile: Can you share a few stories about some of your patients? For instance, what conditions have they been able to treat with your products, what outcomes have they achieved, have any experienced negative effects from cannabis, etc.?

John Knapp: Sure. I'm happy to share some examples. I could talk for hours about all the people who have experienced great results, but I'll keep it to three who each use a different kind of cannabis product and how it is helping them.

One patient with Ehler-Danlos Syndrome Type III [a form of hypermobility syndrome that can cause chronic, disabling pain] uses cannabis wax daily to help deal with her physical symptoms. According to her: "It is so outstanding for pain relief it's unbelievable. I can say without a shadow of a doubt that in this category of pain relief, you're usually looking at strains that knock you out, but this is amazing, seriously. Pain relief that still lets you feel like doing anything/stay awake."

As another example, an elderly woman with glaucoma started using the CBD tinctures, taking two drops in the morning and two drops at night. The tinctures have been helping to provide immense relief from the pressure. She came into the shop after a couple weeks of use and gave the budtender that recommended it to her a hug, stating that her eyesight had begun to return.

Another elderly woman who comes in has Rheumatoid Arthritis and has been purchasing the Mary's Medicinal CBD patches from our shop. Without use, she wears arm braces and has severely restricted movement. She sparingly uses the CBD patches for relief, and has found that with using those, she can remove her arm braces and enjoy crocheting, one of her favorite hobbies. Her use is mild, so there hasn't been any permanent change. She says she uses the patches when she wants to enjoy doing the things she loves while remaining pain free.

Anthony Wile: That's got to be extremely gratifying. No wonder you work long hours! Where do you see yourself going from here? Any particular directions in which you want to evolve or research you want to undertake?

John Knapp: This wave is going to last for a long time and we are just at the beginning. We are constantly evaluating new ideas and opportunities so we are ready to go in any direction that makes sense. I believe at the end of the day this will be a global trend and for that reason we are shifting our focus to a global approach. We are doing research every day at the consumer level and constantly learning about and refining our products. This is all happening in a very small segment of the population so I am excited for the coming years when more states and countries begin their MMJ programs and we go from a sample size of a few million people to hundreds of millions of people. Then we will start to see the real evolution and research happening. Until then we will strive every day to create the best product and customer experience we can.

Anthony Wile: Thanks for your time today, and for explaining so many details about medical cannabis. We wish you the best.

John Knapp: Thank you. This is my passion and it has been a pleasure sharing it with you and your readers.

After Thoughts

John Knapp tells us about some significant things happening in the cannabis sector and as a result, he said, "I believe the feds are getting ready to make a major move and de-schedule marijuana within the next two years."

He bases that belief in part on something that we have written about, that the "UN is holding a special session of the general assembly in New York in a year that will specifically address how countries will deal with the changing views of cannabis. It is widely believed that they will be loosening their policies on cannabis, which will pave the way for the feds to do the same – in the US and everywhere, for that matter."

Another reason he expects fed action in the near future is the anticipated opening of the Fourth Corner Credit Union cannabis bank in Denver, which we covered in a November Cannabis Sector Report. He explains the feds have up to two years to review such an application and in the interim a bank may take deposits but not lend.

Mr. Knapp points out that while FCCU will be "operating in limbo for the next two years," the credit union's ability to stay open will allow for millions and even billions in deposits, making it unlikely the feds will deny the application. "Once there is a half a billion cannabis dollars circulating in the central banking system," he says wisely, "I think it will be very hard to reverse that and a change in federal law will be the only solution."

Knapp's perspective on FCCU is but one of numerous enlightening points he makes. As a pioneer in the conversion of cannabis into oils, Knapp's company is surely centered on the sweet spot of cannabis cultivation and medicinal repurposing.

High Alert, along with its audience, has a significant interest in this sort of technology and we thank Mr. Knapp for sharing his insights so generously.

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