Living the Dream: Seth Oxhandler
Chief Science Officer
Santa Fe, NM
We’ve been working on it for some time now, but I can finally announce that High 5 has achieved a first for the global cannabis industry. Utilizing a close working relationship with Fruit of the Earth Organics in Santa Fe, New Mexico and the Organic Alcohol Company of Ashland, Oregon, we have created the first vape cartridges using specialty, 190-proof organic alcohol made from lychee nuts for extraction.
The unique solvent lent itself brilliantly to the extraction process. The plant material strain named “24K Gold” was provided by Fruit of the Earth Organics for the experiment. High 5 CEO Brianna Oxhandler hoped that the name would be a prelude to the clarity and purity that she has seen from truly high-end material. The testing and corroboration of the experiment was provided by Rio Grande Analytics, a state-approved testing lab.
Being a single-solvent facility, our team is used to the somewhat acrid scent of ethanol, and there are often some stinky moments during the post-extraction refinement process.
But on extraction day for this project, the facility was blessed with a soft, sweet scent. It wasn’t a strong smell, but every now and again you would get a scent and it would make you pause until you remembered: it was lychee!
During the refinement process, we had the same soft scent in the lab and were astounded by the clarity. We attributed the clarity to the quality and freshness of the material, along with our “power cold” protocol.
The idea, originally formulated by Brianna, myself and Bobby Townsend, vice president of the Organic Alcohol Company, was to impart organic, natural terpenes to distillate through the extraction process. We established the standard operating procedures for the process that I carried out with lab tech Aiden Luna and oversight from Brianna. The success of this experiment can be found at Fruit of the Earth Organics’ dispensary in Santa Fe. This one-of-a-kind application of imparting terpenes through the extraction process has yielded an inhalable product that is unparalleled. The light, sweet hint of lychee is absolutely astounding.
This establishes the infusion of flavor at the beginning of the process and is carried through to the end product. While most manufacturers are adding terpenes afterward, High 5 has proven again that beginning-to-end thinking produces a unique and superior all organic product with patient health as the first and foremost focus.
Preparing for legalization in New York and New Jersey
It is no secret that New York and New Jersey — two of the nation’s most populous states — are racing to legalize adult-use cannabis in 2019, and experts predict that Illinois, Connecticut, New Hampshire, New Mexico, Rhode Island and Minnesota are strong 2019 contenders as well. While prospective operators await the enactment of regulations and issuance of applications, there are steps they may take now to prepare.
First, form a new business entity. A separate legal entity will have the power to enter into contracts and provide its owners with limited liability (to protect them and their other entities from incurring individual liability for business debts). Typically, cannabis entities select either an LLC or a C corporation. While owners of both structures enjoy limited liability, there are significant state-specific differences between LLCs and C corps with respect to, among other things, taxation, who may be shareholders, the manner by which corporate responsibility may be allocated among owners and managers, and the scope of fiduciary responsibilities that owners and managers owe to each other and the respective shareholders. Once a cannabis business is formed as a distinct legal entity, prospective operators should apply through the IRS for a corporate employer identification number (EIN) and endeavor to open a bank account.
Second, secure real property. In every state in which adult-use cannabis has been legalized, licenses have been location-specific. In some existing adult-use programs, including Massachusetts and California, priority licensing may be given to prospective operators who identify locations as in-need of economic development, or in an area largely populated by socio-economically disadvantaged members of society or those disproportionately impacted by the failed War on Drugs. New York and New Jersey are signaling a similar intent.
While it may seem counterintuitive to invest in real estate before a license to operate is awarded, it is advisable to scope prospective properties, minding zoning requirements (such as farm or agriculture for cultivation uses; manufacturing for processing uses; and retail for dispensing uses) and prospective distance requirements (typically a 1,000-foot buffer between the cannabis business and a school, playground, daycare or other facility where children may congregate). In densely populated areas like New York City, such locations may be difficult to find. Once a site has been identified, work with the landlord or seller to enter into an arrangement that is contingent upon regulations and/or licensing. And it’s important to develop positive relationships with prospective neighbors. A cannabis business is infinitely more valuable and successful when it is viewed to be a job-generating value-add to the neighborhood, as opposed to an entity likely to attract crime.
Third, raise capital and solidify your team. While barriers to entry in adult-use markets tend to be dramatically lower than in highly restrictive medical markets, the successful buildout of a cannabis operation still requires a significant investment in capital — both financial and human. And in this stage of the game, many well-capitalized, multi-state operators are already positioned to deploy funds quickly and employ experienced talent. Prepare a business plan, identify how much capital and talent is needed and obtain commitments using letters of intent and term sheets that have regulatory and licensing contingencies.
When raising capital, operators need to decide whether they are seeking a buy-in from prospective equity investors (a private placement or simple agreement for future equity), to take on debt (a loan/promissory note) or a combination thereof (such as a convertible note or a loan with warrants). Conduct background checks of prospective partners and investors, as those with certain types of felony offenses — including financial crimes and, perhaps, certain types of drug trafficking offenses — may be excluded from ownership or from controlling operations. Also, assure that each team member is deeply committed to regulatory compliance. A team is only as strong as its weakest link, and one weak link could result in the loss of the entire license.
Fourth, develop and protect intellectual property. Emerging markets, particularly in New York and New Jersey, are going to be competitive. Intellectual property assets, such as patents and branding, are likely to set prospective operators apart from one another. Further, investors prefer to visualize something tangible. That could mean patents pending, a well-developed brand identity or a well-defined ethos, backed by a relationship with a qualified and respected brand developer who has been retained to design the vision. Speak with a patent attorney to understand if any assets are sufficiently unique and useful to qualify for patent protection.
Anyone seeking to be first to the table to produce and sell adult-use cannabis in an emerging market should not wait until regulations are issued and applications are posted. It is never too early to consult with legal and accounting advisers in order to develop a sound game plan. Preparedness will be the key to early success.
Lauren Rudick represents investors and startup organizations in all aspects of business and intellectual property law, specializing in cannabis, media and technology. Her law firm, Hiller, PC (www.hillerpc.com), is a white-shoe boutique firm with a track record for success and handling sophisticated legal matters that include business and corporate law.
Living the Dream: Seth Oxhandler
Chief Science Officer
Santa Fe, NM
My wife and CEO Brianna started High Five as a licensed processing company in New Mexico, the first thing we did was secure a commercial kitchen on the back of a defunct restaurant, thinking that would work since restaurants are required to have their kitchens approved by the state before they open. But there were some very critical things that were not considered that summer, like heating for the coming winter.
Our extraction method utilized extreme cold, as in cryogenic. Working with alcohol at minus-125 degrees, in the dead of winter on a concrete floor, you get chilled to the bone and stay that way until you can get home and take a bath. We tried to get the 40-year-old overhead heaters working, but the parts required were no longer being manufactured. We called the landlord for help. He suggested that we turn on the burners of the commercial stove.
We explained that we really needed the heat to work and that an open flame with flammable vapors was not the best idea; he suggested we stop complaining.
What happened next was the unfolding of a few lessons. First, it’s important to read — REALLY READ — your lease and look for the usage clause. We thought that since we didn’t have heat we could withhold the rent. Because we didn’t deeply read through the lease we didn’t realize that the landlord was within his right to lock us out. The only solution to a degrading situation was to either give up on the business and go back to Corporate America or relocate to a new facility. I like pot too much to go back to IBM so we went in search of a new location.
That brought us to our next lesson: Don’t needlessly limit yourself. At first, we were set on owning a building, believing that would protect us from future landlord issues. We nearly bought one facility but then were snaked out by a higher bid at the last moment, which was actually a thankful turn of events since we were able to leverage the sellers guilt to secure a better spot that we could rent long-term with all the right zoning and room for expansion.
Now we have been in our new facility for just over a year and are about to start a five-figure electrical upgrade. The facility’s electrical infrastructure was fine for where we were a year ago, but we knew that as we grew we would have to add capacity and this facility was set for growth.
Seth Oxhandler is no stranger to high-flying excitement.
The former IBM engineer has completed more than 3,000 successful sky-diving jumps, but he’s also experienced a few hard landings along the way and acquired a medical marijuana authorization along the way to treat the various injuries suffered as a daredevil.
However, when he brought home some cannabis-infused chocolate bars to show his wife, Brianna, she was appalled — not by the cannabis, but from the quality of ingredients being used in the treats. So she insisted on infusing and baking the edibles herself.
Oxhandler admits he’s biased when it comes to his wife’s baking, but says her cookies were better than anything he could find at a dispensary — or anywhere else on the planet, for that matter. When a local dispensary offered Brianna a position as its head cook, she turned down the offer — and the accompanying non-compete agreement — so the couple could pursue their own processing license. They started High 5 Edibles in Santa Fe, New Mexico in September 2016 and the company took off from there.
“It’s been a fast trajectory,” Oxhandler says. “We put our first products on the shelves in November and we’re already in 10 dispensaries.”
After a brief stint at a defunct restaurant, High 5 relocated to a 1,600-square-foot commercial space in Santa Fe. The Oxhandlers immediately gutted the building, leaving behind a two-story warehouse shell for all of High 5’s business operations. They designed the facility to include a large production area for packaging, shipping and receiving in the front, while a commercial kitchen and extraction lab divide the back half.
High 5 is perpetually refining its operations to increase efficiency and stay ahead of the competition.
“At the end of the day we’re in the service industry and if you’re producing something that is going into somebody’s mouth, then I would think that you would want it to be as fresh as possible,” Oxhandler explains.
The company maintains an inventory of extracts so it can fulfill orders from retail partners quickly.
“This way if we get a call we can fill an order within 72 hours,” he says.
Oxhandler says Steep Hill is the fastest and most accurate testing lab in the state, which is crucial for keeping High 5 operating efficiently.
“We can’t do anything until we get lab results,” he says.
As with most manufacturers of infused products, labeling can be a major bottleneck. Prior to working with THC Labels, High 5 had to order labels before testing had been completed and hope everything matched the company’s projections. One miscalculation could leave the manufacturer stuck with incorrect labels, so the ability to print at will has been a game-changer.
THC Labels “are as important as the system and methodology that we use for extraction,” Oxhandler says. “They are the reason our logo looks so good and why we can do short order and specialty items.”
As a relative newcomer in the cannabis space, High 5 had to evolve quickly.
In terms of extraction techniques, the company started out as “cave people,” Oxhandler says. But Ecodyst CEO and co-founder George Adjabeng helped them become “space people.”
“I studied all the methods that are being used in the industry for extraction,” Adjabeng says. “After I read through the articles that had been published and from my own studies, I think in the long run ethanol extraction is going to win over CO2 and butane extraction.”
Adjabeng, an award-winning chemist, worked with High 5 to develop a faster ethanol extraction machine that uses condenser coils to chill ethanol below minus-20 degrees Fahrenheit, drawing out the plant’s terpenes and cannabinoids in less than two hours and leading Oxhandler to give Adjabeng the nickname “Dr. Freeze.”
“For us to have the eyes and ears of someone like George, with his background, having that kind of scientist in this industry definitely helps,” Oxhandler says. “I feel like the deck is stacked in our favor.”
Abjabeng built the prototype specifically for cannabis with the goal of eliminating residual solvents and the need for winterization.
“When I looked at it, the problem with alcohol extraction isn’t the alcohol,” Adjabeng says. “It was the method.”
By cooling the ethanol with a condenser coil, Adjabeng says the extraction can immediately pull the terpenes and cannabinoids from plants without requiring intense pressure, keeping the plant wax frozen in place.
“Ethanol is not able to pull the plant’s wax because it is so cold, but it is able to harness all of the plant’s materials,” Adjabeng says. “You are not leaving anything behind.”
Efficient access to extract allows High 5 to produce edibles for vendors without compromising patient or processor safety and the machine’s ability to continuously recycle excess ethanol keeps processing costs to a minimum.
Naturally Baked …
High 5’s kitchen features necessities such as two 20-quart mixers, a chocolate tempering machine, a Rosin Tech RTP press and a double-stack oven that allows the company to bake 200 cookies at a time.
But while a better extraction machine can lead to better extracts, the same concept doesn’t necessarily apply to cooking, where the chef and the ingredients have greater impact on the final product.
Anyone with professional cooking experience can attest that making the best food requires the best ingredients. That’s why High 5 CEO and head chef Brianna Oxhandler goes to great lengths to source the best available ingredients for the company’s candies, croissants and fruit spreads, among other infused delicacies. Every ingredient has been verified as organic, excluding the cannabis for federal reasons.
“We source from everywhere,” Brianna says. “It seems like almost every ingredient we get is from a different supplier.”
“All the products, recipes, time, effort — that’s all her,” Oxhandler adds. “The amount of paperwork I did to get licensed with the state pales in comparison to what she has had to do to source different ingredients.”
And it’s not just about flavor and potency. For High 5’s popular Vitamin C gummy bears, Brianna had to develop a new recipe to allow them to be transported under the intense summer heat without losing stability.
That attention to detail also extends to the company’s topical products. Having previously worked in the spa industry, Brianna tracked down a distributor that allows her to special order arnica by the gallon. Arnica, a key ingredient in High 5’s topical salve, is typically sold by the milliliter in limited quantities.
“It’s made to order and takes basically three weeks to get here,” she says. “I had trouble for months sourcing that in quantity because I wanted it to be pure. It took me four months to get it by the gallon, undiluted.”
… In Santa Fe
Despite being so passionate about the industry and their products, the Oxhandlers never saw themselves in cannabis — let alone Santa Fe, New Mexico. It was only four years ago that the couple decided to move to Lake Tahoe, but couldn’t find a reasonable location that matched their vision.
“We ended up here because with exception of the water, Santa Fe has everything we wanted that Lake Tahoe didn’t,” Oxhandler says. “When we moved here, we thought we were going to buy government-repossessed houses and flip them.”
Now Oxhandler affectionately refers to Santa Fe as “Mayberry on the Mesa,” taking great pride in explaining how he found a small town in a big city.
“Store owners pick up cigarette butts out of the gutter here,” he says. “It’s amazing.”
Marijuana Venture expands size, scope of magazine
By Greg James
For a little more than a year, we’ve been publishing Marijuana Venture as a strictly-business, highly-focused monthly magazine for the rapidly-changing and exciting world of the legal marijuana industry. (more…)