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2020
From The Print Last Week

Lead gardener Kasandra Taylor examined marijuana plants in the vegetative part of their growth cycle at Cresco’s Yellow Springs cultivation facility. The company recently learned it had received a processing license from Ohio’s medical marijuana program, setting it up for further expansion. (Photo by Audrey Hackett)

New processor license for Cresco Labs

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Yellow Springs’ cannabis company is, well, growing.

Cresco Labs learned in June that it had been awarded a provisional processor license under Ohio’s medical marijuana program. The license allows the company to expand into extracting oils and manufacturing products from cannabis at its Yellow Springs facility, where it already cultivates the plant for medical use.

Based out of Chicago with operations in nine states, Cresco secured the license through an appeals process that began after the company applied but was not approved for an Ohio processor license in 2018. Cresco was previously awarded a medical marijuana cultivator license as a “level 1” grower, the larger of two designations by the state.

The processor license turndown was a disappointment and surprise for the company, which in 2017 purchased eight acres of land at the former CBE site on the western edge of Yellow Springs with the stated intent of cultivating and processing medical marijuana at that location.

State documents previously obtained by the News indicate that the company’s security plan failed to meet the minimum required score, leading to the turndown.

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Cresco appealed the state’s decision, with a hearing in April 2019. More than a year of back-and-forth with the state culminated with the license being awarded this spring. The company announced the license in a press release on June 8.

“The expansion of our cultivation and production facility, along with the closing of four additional operating dispensaries, sets up an exciting year for Cresco Labs in Ohio in 2021,” Cresco CEO and co-founder Charlie Bachtell said in a statement included in the release.

In May, Cresco announced the purchase of four medical marijuana dispensaries in Ohio, bringing its total dispensaries to five, the maximum allowed by the state. The closing of the purchases is expected by the end of the year, subject to approval by the Ohio Board of Pharmacy, which regulates dispensaries under Ohio’s medical marijuana program.

Cresco, which began trading publicly on the Canadian Securities Exchange in late 2018, has shown “astounding” overall revenue growth this year, thanks to expanding marijuana markets in Pennsylvania, Illinois and California, according to one popular investment site, Motley Fool. Analysts for the site also note that Cresco’s Ohio weekly cannabis sales grew 33% from February to April 2020.

Company spokesperson Jason Erkes declined News requests to provide Ohio sales or production figures, citing Cresco’s status as a public company.

More production, more jobs

Cresco’s flurry of activity could translate into more production and more jobs at its Yellow Springs facility.

“It’s great news,” Karen Wintrow, executive director of the YS Chamber of Commerce said last week, adding that she had been notified by company officials last month regarding Cresco’s approval for a processor license.

“They’re probably our most stable and long-term business right now,” she added.

How quickly the company will ramp up production remains to be seen. Under Ohio’s medical marijuana program, companies have six months after receiving a processor license to build out their facility and prepare for inspection, according to a spokesperson for the state program, Jennifer Jarrell. Extensions are possible in some situations, she added. Once a facility has been built, inspected and found to be in compliance with state requirements, companies are awarded a certificate of operation, which allows them to begin manufacturing medical marijuana products.

Cresco may have a jump on buildout, however, as its facility already includes framed but unfinished processing areas. Leading this reporter on a tour last Friday, facility director Ari Greenwald showed off lab and kitchen areas, currently being used for storage, which will be reconfigured and brought into use for manufacturing concentrates, edibles and other cannabis products.

“We’re trying to get it up as soon as we can,” Greenwald said, adding that the company first has to gain approval for updated designs from the county and state.

The new processing space totals about 3,500 square feet, adding to the local facility’s existing 25,000 square feet of cultivation space.

Cresco plans to eventually add about 30 new jobs in areas such as extraction, food production and packaging, according to spokesperson Erkes this week. The timeline on that is unclear.

The Yellow Springs facility currently has 63 positions, all full time. Six are in the process of being filled, and one top position, director of cultivation, is presently open. The previous Yellow Springs cultivation director was promoted to a position in one of Cresco’s Illinois facilities, according to Greenwald.

At least six positions are held by people who live in the village, about 10% of the workforce.

Following state rules, Cresco requires a series of background checks for all potential hires. In addition, prospective workers must be approved by the state medical marijuana program. All told, the hiring process can take up to three months, according to Greenwald.

“It’s lengthy and not always smooth,” he said, adding that the company has a “good relationship” with state regulators.

While the company sees turnover in entry-level positions, employees who stay around and advance do so because they believe the product helps people, according to Greenwald, who was hired last April from a position with Campbell Soup Company in Wisconsin. He also noted that many employees, himself included, are patients under Ohio’s medical marijuana program and have experienced the medical benefits of cannabis first hand.

Packaging agent Andrew Gunderson is one of these, who told the News that cannabis helped him eliminate pharmaceutical drugs for Crohn’s disease and back pain. Having moved from Florida to work at Cresco in Yellow Springs, he said he was passionate about the company’s products and sought to “reduce the stigma” associated with the plant.

“You can be a responsible cannabis user,” he said.

Greenwald said he expects the new processing license to “open up many new doors” for Cresco, and medical marijuana patients, in Ohio.

As a licensed cultivator, Cresco has been limited to growing cannabis and selling dried flowers. Cresco products are currently offered in 60% of dispensaries in Ohio, including the company’s own dispensary in Wintersville in northeastern Ohio. The company also sells to processors in the state. As a combined cultivation and processing operation, Cresco will be able to process much of what it grows, Greenwald said.

“Processing is the bread and butter in other states,” he said of its importance to the company’s bottom line.

Current activities

Cresco completed construction of its local facility in late 2018 and harvested its first cannabis crop in January of 2019. Since that time, the company has reached full cultivation capacity at 25,000 square feet, the current state maximum for larger cultivators.

The company recently expanded from three greenhouses to five. Four of the spaces make use of natural light, enhanced by LED grow lights, and one is an indoor greenhouse.

The greenhouse expansion followed, and was partly funded by, a $10.6 million sale of its Yellow Springs land and facility to San Diego-based Innovative Industrial Properties, or IIP, as part of a sale-and-leaseback agreement. Cresco now leases the facility from IIP.

Greenwald walked this reporter through parts of the facility associated with different steps in the cultivation process.

Growing begins in one of two “mom rooms,” home to the female plants that originate the company’s Ohio cannabis strains. Cresco currently grows 25 strains, not all of which are on the market. Every plant grown at the Yellow Springs facility is cloned from one of the “moms.”

Asked where the first “moms” came from, Greenwald said the provenance of legal growers’ plants is a “grey area” in the industry, sometimes referred to as “immaculate conception.”

In Yellow Springs, the clones, or pieces of the “mom” plant, are snipped off, treated with rooting agent and other natural compounds and nurtured in a separate growing area. Because marijuana is photosensitive, with certain light lengths triggering the plant to flower, the clones are given a light regimen that prevents flowering for at least three weeks, allowing the vegetative parts of the plant to grow. Once the plants attain a certain size and hardiness, they are transferred to a greenhouse, where under new light conditions they are “flipped to flower,” Greenwald said.

The plants spend up to 60 days in the flower cycle, producing fuzzy flowers with cannabis’ unmistakable part acrid, part aromatic scent. The flowers are harvested after that point, and cured, or dried, in a separate curing room. They are then sorted, graded by size and trimmed. A third-party lab tests samples of the harvest for purity. Most samples pass, and the flowers in the batch are packaged for sale and delivered by Cresco’s van fleet to dispensaries around the state. Flowers are also sold to processors for further manufacture.

According to Greenwald, the company sells out of its inventory in a few days. Cresco would “love to expand” its grow operation, but is limited by state rules, he added.

“We’re maxed out with our current license, and the state isn’t offering expansions,” he explained.

According to medical marijuana program spokesperson Jarrell, the state would have to initiate any expansion based on identified need across the industry. State rules allow for the possibility of doubling grow area, but only after a formal submission and review process at the behest of the state, not by request from individual companies.

“We value and appreciate the feedback from our licensees and will continue to work with them as we evaluate the need for expansion,” Jarrell wrote in an email to the News.

Ohio program update

Operational since January 2019, Ohio’s medical marijuana program grew slowly through that year and much more rapidly during the first half of 2020.

By early May of this year, Ohio saw about $57 million in year-to-date marijuana retail sales, about on par with the amount sold during the entirety of 2019, according to a recent report in Crain’s Cleveland.

In response to COVID-19, Ohio regulators modified state rules to allow for online ordering and curbside pickup, among other changes, actions that gave medical marijuana sales a boost this spring, the Crain’s article reported.

Total product sales volume since the start of the Ohio program reached $142.7 million at the end of June, with over 17,000 pounds of plant material sold, according to a July 9 medical marijuana program fact sheet.

Also according to the fact sheet, there are 33 licensed cultivators in Ohio, with 20 currently operating. That includes 10 larger cultivators, of which Cresco is one, and 10 smaller companies.

Forty-five companies have provisional processor licenses, with 19 currently up and running.

According to program spokesperson Jarrell, 42 companies turned down for processor licenses from a pool of over 100 applicants appealed the state’s decision, resulting in nine licenses awarded to date as a result of findings connected to the appeals hearings. Cresco is one of these.

As of July, Ohio’s medical marijuana program has about 109,000 registered patients, about 81,000 of whom have made purchases through the state’s licensed dispensaries.

The state medical board regularly evaluates medical conditions for inclusion in Ohio’s list of qualifying conditions for medical marijuana use, potentially expanding the patient pool. The board recently added wasting syndrome, which is associated with severe or chronic illness, to a list of over 20 conditions that includes AIDS, cancer, Alzheimer’s disease, multiple sclerosis and post-traumatic stress disorder. Petitions to add autism and anxiety to the state’s list were recently denied.

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