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Nalu Bio raises $12 million, Trulieve layoffs, potency taxes, and more

Here's what you need to know in cannabis today.

February 28, 2023

Good morning readers,

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💡What’s the big deal?

Cultivated exclusive: Nalu Bio, a San Francisco-based startup that produces CBD and other cannabis compounds known as cannabinoids through chemical synthesis, closed a $12 million Series A funding round, co-founder and CEO Caitlyn Krebs told me.

The round was led by Intrinsic Capital Partners, and includes investors like Flybridge Capital Partners, Bonaventure Equity, and others.

The sizable chunk of capital comes as funding has mostly dried up for cannabis startups — as well as a downturn in venture funding more generally. 

Nalu Bio produces CBD through chemical synthesis

Think of Nalu Bio as a biotech startup that works with cannabis compounds rather than a cannabis startup first, said Krebs, who has a long background in biotech and pharma.

Nalu Bio doesn’t use hemp or any actual cannabis plants to extract the desired compounds, whether CBD or other non-psychoactive cannabinoids such as THCV or CBN.

The startup has a process to chemically produce pure CBD from organic inputs, which Krebs says is more consistent and impurity-free than CBD derived from hemp.

It’s similar to how vitamin supplements are produced at an industrial scale.

CBD and other cannabinoids are thought to have numerous therapeutic applications for things like sleep, pain, anxiety, mental focus, and weight loss, though further study is needed to evaluate both effects and consumer safety.

B2B not B2C

Nalu Bio sells its CBD to brands that use it to make everything from chocolates and gummies to beverages and skin cream.

In Krebs’ view, using synthetically-produced cannabinoids is the only way to ensure that products remain pure and that large, complex supply chains remain consistent as the demand for cannabinoids grows among both mainstream consumers and pharmaceutical companies.

With the fresh capital, Nalu Bio plans to launch new cannabinoid products including the aforementioned THCV and CBN, along with CBC and CBG and expand globally.

🌿 Jer’s take

As demand ramps up for cannabinoids as ingredients, rather than products themselves, it’s my view that chemical producers like Nalu Bio will ultimately own the most valuable parts of the supply chain.

Here’s why: Chemical synthesis is closer to how supply chains work in other more established industries, like vitamin supplements.

It creates less headaches for firms that might be wary of the stigma of cannabis and want to ensure reliable supply chains free of contamination.

Over time, chemical synthesis will become cheaper and more reliable than using raw material production, like any new technology.

Cannabinoids, outside of THC and CBD, are mostly found in low concentrations in hemp and therefore are expensive to produce using raw materials. Often, the end result isn’t 100% pure and free of THC either.

One of the FDA’s primary concerns with cannabis-based ingredients is purity and consistency, and chemical synthesis could be a pathway for ensuring the level of consistency that both federal regulators and multinational firms need.

It also allows for easier clinical trials to generate much-needed data to support therapeutic claims about CBD and other cannabinoids.

Perhaps most importantly, chemical synthesis reduces the risk that companies violate federal laws around THC.

Take South Korea, for example.

THC remains highly illegal, but there’s an increasingly strong demand for skincare products containing CBD and other cannabinoids.

Big companies will want ways to give customers what they want without even a remote chance of violating the law.

💬 Let’s talk about it

Do you think chemical synthesis is the future of the cannabis industry? Why or why not? Are you a devoted hemp-derived aficionado?

Leave a comment below or reach via DM or email to tell me why I’m wrong.

📉 Market moves

What’s happening: Earnings season begins in earnest this week, with Green Thumb Industries kicking things off tomorrow after market close.

On that note, Trulieve is rescheduling its call from March 1 to March 8 at 8:30 AM.

Why it matters: Wall Street analysts expect a muted earnings season as cannabis producers struggle with macroeconomic headwinds like inflation as well as cannabis-specific issues like a decline in wholesale prices, demand, and a more general, persistent “blegh” feeling most core cannabis consumers have about corporate weed.

Trulieve also laid off dozens of employees at a call center in Clearwater, Florida though the company seems to be tight-lipped about the actual number, reports The Tallahassee Democrat.

It’s the latest round of layoffs for the Florida-based medical cannabis company, following a round in December. If you want to learn more, The Young Jurks podcast spoke with workers at the company.

If you work at Trulieve or another large cannabis company and you have information to share, reach out: [email protected].

🧪 Science & research

What’s happening: A new study found that daily cannabis users were 34% more likely to be diagnosed with coronary artery disease than non-cannabis users, CNN reports.

People who consume less than once a month had no significant risk.

Why it matters: The study is yet unpublished and was first presented Sunday at the American College of Cardiology. The authors screened for other risk factors for heart disease, like age, sex, blood pressure, obesity, and smoking tobacco, among others.

While previous studies have shown the risks of smoking cannabis on the heart, the authors say their statistical analysis suggests the link between heart disease and smoking cannabis may be directly causal.

The study did not distinguish between consumption methods, like consuming edibles versus smoking.

The American Heart Association has previously warned against the risks of smoking cannabis.

🌿 Jer’s take

This is a consequence of cannabis legalization: It’s easier than ever before for researchers to study the drug’s effects, so we’re going to get a lot more information about the positives and negatives on our bodies and brains.

As a consumer myself, I’d love to see further research into different consumption methods.

If smoking increases the risks to my heart more than eating an edible, that’s useful information and something I’d use to change my behavior. And beyond myself, it’s something policymakers could use to write more effective legislation as more states and countries around the world weigh the pros and cons of legalization.

But we need far more studies.

Justin Leiby, a professor of accounting at the University of Illinois, said on Twitter that the statistical analysis employed by the paper’s authors is “far from a silver bullet,” and called into question the authors conflating correlation and causation in their analysis.

Regardless of the merits of the study’s methods, or the end published result, it’s probably still a good reminder that everything’s better in moderation.

🗽 Spotlight on New York

Last month, at a City Council hearing to address the issue, Lynn Schulman, chair of the Committee on Health, reported lab findings that showed “prohibitive levels” of E. coli, salmonella, nickel and lead in 40 percent of smokable marijuana, edibles and vape cartridges purchased from a sampling of 20 unlicensed smoke shops across the city. More troublingly, they contained amounts of THC — the primary psychoactive compound in cannabis, the effects of which are especially harmful to the developing brain — “inconsistent” with what was advertised. Other products were colorfully packaged, “imitating candies such as Rice Krispies and Skittles.”

Well, it’s probably not news to any of you that New York City has an illegal weed problem.

I’m not going to use this newsletter to throw stones at the Office of Cannabis Management (there are more than enough people doing that at the moment) but I will say this: When it takes over two years from legalization to open legal weed stores, you’re going to have a problem with the illicit market.

And now, cannabis — some of it contaminated with pesticides or containing way more THC than on the label — is getting into the hands of children. That’s specifically what the state wanted to avoid by legalizing.

So what’s there to do about it?

For one, the state doesn’t want to penalize cannabis sellers and basically restart the War on Drugs. But it has levers to pull.

Here’s Bellafante again:

After years of overly aggressive policing of marijuana merely at the level of possession, the state law legalizing it was designed with equity as a primary goal, giving small businesses in neighborhoods that had been devastated by the punitive tactics of stop-and-frisk an opportunity to build wealth selling safe, uncontaminated weed to adults. What was not supposed to happen was an undermining of the legal market by off-book vendors selling cheaply to the most vulnerable while making private equity landlords richer.

Fine the landlords!

Make it their responsibility that their tenants are obeying the law, and use large fines to do so. Instead of throwing people in jail or forcing small-scale shopkeepers out of business, go where the money is.

I don’t see another way to ensure the legal market gets off the ground when there are still only three legal stores open in a city with nearly 9 million people across the five boroughs.

The illicit market remains persistent, even in Canada

The OCM’s coming delivery program will surely help, but it’s far from perfect.

Even in Canada, where cannabis has been federally legal for almost half a decade, around 40% of cannabis purchases are still illegal and untaxed, according to StatsCan.

Chris Alexander, the head of the OCM, acknowledged in a recent interview with the Commercial Observer that the illicit market remains the biggest impediment to a successful cannabis industry and the office is working on hiring more employees to “take enforcement action.”

At the end of the day, what matters for both cannabis businesses and consumers is opening more stores, and opening them fast — something that Alexander seems well aware of.

“We have to open more stores, as we’re committed to doing, we just have to pick it up in the next couple of months,” Alexander said.

💬 Let’s talk about it

What do you think should be done about illicit sellers? Will going after landlords work? Why or why not?

📜 Policy moves

What’s happening: A new bill filed in the New York State Assembly by Democrat Phil Steck would limit the potency of cannabis flower to 15% and to 25% in other cannabis products like edibles.

Why it matters: Potency limits are controversial, to say the least. There is some compelling research that super high potency cannabis — upwards of 25% per strain — can increase the risks of psychosis, paranoia, cannabis use disorder, and other mental health issues.

Health economists like USC’s Rosalie Liccardo Pacula have called for potency limits as a key way to make the commercialization of cannabis safer for consumers and for society.

🌿 Jer’s take

For frequent users, the vast majority of whom don’t exhibit any signs of psychosis, addiction, or other mental illnesses, potency limits can be a drag.

For one, consumers who have a tolerance will need to buy more cannabis — and if they can’t get the stronger stuff legally, they might turn back to the illicit market.

Think of it this way: If the federal government listened to scientists and other public health officials who correctly deemed that banning hard liquor and keeping beer and wine would be a net benefit for society, what do you think would happen?

The illicit market would fill the gap. And isn’t getting rid of the illegal sales one of the primary purposes of this whole legalization experiment?

Taxing high potency cannabis products would be a more effective mechanism to disincentivize use than banning them entirely. Just make it much more expensive than your run-of-the mill weed, and most people will choose accordingly.

We already do this with alcohol — liquor is taxed at a much higher rate than beer in many states.

💬 Let’s talk about it

What’s your take on potency limits? Is it a smart move to protect consumers, or will it bolster the black market? What are some other ways to disincentivize the use of high potency cannabis?

More things happening:

  • Legal cannabis sales in Virginia have stalled indefinitely, Marijuana Business Daily reports.

  • Tumblr will allow cannabis ads in several legal states, including California, Massachusetts, and Illinois. Tumblr follows Twitter’s similar announcement earlier this month.

🛑 What else is happening?

Maybe don’t buy sketchy, unregulated Delta-8 gummies, per CBS News:

Officials tested more than 100 products seized through search warrants, and Steele said in a release that the presence of one or more controlled substances, including fentanyl and heroin, showed up in a "significant number" of Delta 8 THC gummies but not all of them.

Context: Delta-8 gummies were linked to two overdoses — both people have since recovered — in Pennsylvania’s Montgomery County, with fentanyl the expected culprit.

📚 What I’m reading