Startups with West Coast, Wall Street ties eyeing Arkansas’ medical pot market

Before taking a leap of faith and deciding to invest in one of the more unusual Arkansas startups, Little Rock pharmacist Brandon Thornton said he spent at least a half year educating himself and studying the medical marijuana industry.

After that due diligence, Thornton and former Alltel and Windstream executive Brent Whittington made the decision to open Arkansas’ first full-service cannabis testing lab with Berkeley, Calif.-based Steep Hill Labs, which opened the nation’s first commercial cannabis testing operation in 2008.

Thornton said it was he and Whittington who sought out the California company because if its reputation in the legal marijuana industry. Tthe Arkansas partnership be the first that Steep Hill has announced in the Southeast U.S. To even be considered for such a partnership with the California cannabis lab, accredited investors must have earned income that exceeds $200,000 over the past two tax years and net worth of more than $1 million.

On June 1, Steep Hill President and CEO Jmîchaeĺe Keller announced it was expanding to Arkansas, now one of seven states that the privately-held California cannabis testing firm has expanded to since 2008. For Thornton and Whittington, the partnership with Steep Hill allows the Arkansas investors and cannabis industry novices to learn from a company located in a state where medical marijuana has been legal since 1996 and recreation use of pot was approved by voters in the November 2016 election.

“We can kind of lean on their experts,” Thornton said.

And by deciding to enter Arkansas medical marijuana industry as a cannabis testing lab, Thornton said the central Arkansas startup doesn’t have to go through the extensive application process that began June 30, which includes a $15,000 applicant’s fee and other host of other regulations that pot growers, dispensaries and cultivation facility operators have to abide by.

Still, Steep Hill and all other medical marijuana testing labs must meet other state and federal regulatory requirements, including the rigorous international Organization for Standardization’s (ISO) so-called “17025 accreditations” that includes protocols for testing on cannabis or cannabis-derived products, such as flower, concentrates, butter/waxes, drinks, tinctures, hash oil, edibles and more.

“It is pretty tough, and it’s a long process,” Thornton said of the international certification process for top testing laboratories in all industries, ranging from biotech and forensics business to cannabis testers and pharmaceutical companies. “We’ve started that process, and it is equivalent to (Arkansas’) really difficult application for that our dispensaries and cultivators are going through.”

THE CROWDFUNDING APPROACH
Steep Hill and its West Coast influence are not the only investors interested in Arkansas’ fledging cannabis market. A crowdfunding company with Wall Street roots also announced its intent to participate in Arkansas medical marijuana industry by offering compliance consulting services.

On Jan. 26, a company called Herbal Compliance Co. incorporated in Arkansas as a for profit corporation in tiny hamlet Horseshoe Lake, located on the eastern edge of Crittenden County on the Mississippi River. Chuck Carpenter, president of the Crittenden County cannabis company, said his consulting firm is partnering with New York City-based GrowthFountain to raise $1 million in funds through a unique form of investor funding called Regulation Crowdfunding, which was first introduced by the Obama administration in May 2016.

Under the new rules implement by the U.S. Securities and Exchange Commission (SEC), the limit was raised by 7% on how much individuals and early-stage companies can raise through so-called “crowdfunding,” the alternative financing vehicle used by many startups to access venture capital through small monetary contributions from a large number of people. The new rules approved by the SEC bump up the maximum amount a user can raise through crowdfunding platforms from $1 million to $1.07 million. For individuals, the top amount an investor can give on the platform jumps from $100,000 to $107,000 in a 12-month period.

The SEC also approved inflation adjustment of the income threshold for businesses qualifying as “emerging growth companies,” eligible for benefits under the Jumpstart Our Business Startups (JOBS) Act of 2012. The commission approved the new rules March 31.

Carpenter told Talk Business & Politics that Herbal Compliance is using the new regulations to allow small, non-accredited investors to participate in funding with a private, early-stage company. Herbal Compliance’s crowdfunding campaign began June 6 and will continue through Oct. 4, 2017, Carpenter said, with an ultimate goal of raising between $100,000 and $1 million with a minimum buy-in of $100 per investor.

“We want to be well-funded … with Arkansas being our primary (operations),” Carpenter. “If we are able to raise $1 million, and I think we will, we will be able operate in all the state where (medical marijuana) is legal and the District of Columbia.”

Carpenter said his firm has access to a staff of attorneys, accountants and other administrative professionals that specialize in providing consulting services to the cannabis industry.

“Understanding the laws governing medical marijuana and hemp is our core competency,” said the West Memphis native. “But we also offer other types of business consulting like inventory management, branding, and employee education. Our mission is to help companies in this new area of American enterprise to grow and thrive.”
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Editor’s note: This story is the fifth in a series of stories on implementation of medical marijuana in Arkansas. Link here for the first story in the series, link here for the second story, link here for the third story, and link here for the fourth story.