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California Manufacturing Technology Consulting (CMTC) California

Written by: Craig Scharton, CMTC Solutions

The first two questions that I am often asked are:

1) What is CMTC?

CMTC is a 501(c)3 nonprofit organization. We are primarily funded through the U.S. Department of Commerce and the State of California. We are part of a national network of organizations (Manufacturing Extension Partnership) that is focused on helping manufacturers. CMTC is the entity that is focused on connecting California’s manufacturers to resources.
President Reagan and Senator Hollings helped to create this network because they found that there were many programs to help the manufacturing sector, but few knew that these programs existed. Just as there are extension agents in agriculture, we are client advisors for small to medium-sized manufacturers.

2) What is a manufacturer?

People often imagine big industrial buildings with welders and conveyor belts. But really, a manufacturer is a business that makes a product. Wineries and breweries are manufacturers. An almond farmer who packages her own seasoned nuts is a manufacturer. We have clients who make a product in their garage or kitchen and we have clients who make parts for fighter jets. Sometimes we even have clients who didn’t know that they were a manufacturer like a restaurant that makes salsa or salad dressing as a side business.
The first thing that I recommend to any manufacturer is to set up an Assessment and a Plan of Action with one of our two incredible, local experts. The assessment takes 1-2 hours of the business’ time and is free. One of our resources has a financial background and the other has an operational background. The manufacturer can choose whichever they think would be the most helpful. Our financial expert is a C.P.A who is also a Chief Financial Officer for several companies. The Operations expert has run manufacturing plants around the world and is a mechanical engineer, with an M.B.A. in Management and is a Black Belt in Lean manufacturing. We are very fortunate to have this level of expertise available to help our local manufacturers.

Regions of Service

My region is the Central Valley, from Tulare County up to San Joaquin County, and over to the Nevada state line. I have experienced colleagues that can help if you are in another part of the state, I’m always happy to make the introduction. It’s a great group of people who, like me, really enjoy helping our businesses.

Beyond the 60+ people who work for CMTC, we also have over 150 trainers and consultants who also help our manufacturing clients. We’ve added quite a few in the Central Valley so that we can pair local professionals with our local businesses. As I look up at my dry erase board, I see local companies who will be using local consultants and trainers to help with: ISO 9001 certification, High Performing Teams training, English as a Second Language, Lean Manufacturing, SQF/HACCP for food safety and audits, SolidWorks training, and forklift safety. Those are just the ones on my current To Do list!

In Fresno County, I work very closely with the Fresno Regional Workforce Development Board (FRWDB). The FRWDB has prioritized training for manufacturing businesses. This business-focused organization works closely with our clients to help their businesses to grow by helping to underwrite the cost of improving the skills of their employees. This is a huge win for our community because the businesses are stronger, and their employees have more skills that can help them to grow in their careers.

CMTC also has formal partnerships with two outstanding local organizations, the San Joaquin Valley Manufacturing Alliance and the Water, Energy, Technology (WET) Center at Fresno State. The SJVMA and WET Center provide many great resources for their respective (and often overlapping) members. We work with many other agencies from EDCs to community colleges, the SBDC and city and county economic development departments.

While I like to find resources to pay for some or all of the training or consulting costs for a client (depending on the business location, size and sector) I often provide other services to help our businesses. I helped one client to find a lender to help them to buy their building. I’ve helped others by connecting them to a consultant to help them get a Research and Development Tax Credit. Often I help by connecting two local manufacturers who can help each other meet supply chain needs locally.

Many manufacturers also use our services as a neutral, third party provider. We can analyze a business’ cyber security needs or which types of technology will help them to become more automated. We often evaluate which type of ERP system a manufacturer needs. Because we aren’t selling a product or software, we can assess a company’s needs and make recommendations and present options.

Love of Local


Hopefully, you can read my enthusiasm for helping our local businesses. It’s been a passion of mine for over three decades. Many of the problems that we face in our region are the result of the disconnection between the resources and the need. Businesses don’t have the time to start calling government agencies to find out which programs might be helpful to them. The programs are often buried deep inside a division within an agency within a department. Even if the business owner managed to find the programs, they wouldn’t know how to find out which was the right one for their needs. This is where I come in. I learn about the resources so a business can find out which programs fit their needs.

Business leaders are often the type of people who like to forge ahead and solve every problem on their own. They often forget to look around to see how many resources there are to help them, their business, and their employees. But it is important to use every resource to help your business to grow. There are many forces making it difficult to operate a business, so it is imperative to take advantage of the programs and services that are here to help. These resources come and go, so stay informed so that you can use them while they are available and find out what the next opportunities are on the horizon.

Finally, local businesses should be supporting other local businesses, if we want our economy to grow. Consider using a local bank. Look around to see if you could source parts or materials in our region. Use a local web designer or mechanical engineer (we have both). Attend some local trade meetings to find out what other manufacturers are doing, so maybe you could connect them to a customer, too. Find local wine or chocolate to give as gifts to your clients. I believe that we have all of the resources that we need, it’s up to us to figure out how to make them work for us effectively.


I’m happy to schedule a zoom meeting with any manufacturers in our region to see if CMTC can be helpful. Please send an email to me at cscharton@cmtc.com

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Managing the Coming Clash Between Solar Development and Environmental Protection

Written by Robert Selna, Selna Partners, LLP

Solar panels continue to drop in price, generate power more efficiently, and attract private developers who consider solar a good investment and pro-environment. As a result, it appears likely that the State of California will reach its goal of generating sixty percent of its electricity with renewable energy sources by 2030. 

It is also clear that large solar projects that generate the most power at the lowest price, require large amounts of flat, undeveloped property proximate to power substations. In California, the property meeting this criteria tends to be agricultural.  This reality sets the stage for conflicts between groups that share similar goals: on one hand are renewable energy proponents hoping to reduce the state’s reliance on greenhouse gas-emitting energy sources; the other is environmentalists and open space advocates, including those concerned about the state’s declining acreage of farmland and the native wildlife habitats and species that live and around it. 

The Nature Conservancy estimates that California will need between 1.6 and 3.1 million acres of solar and wind facilities by 2050 to decarbonize the electricity system and support a complete transition to green energy. The Nature Conservancy has noted that “with so much development on the horizon, it’s imperative that energy planners incorporate impacts to nature when making decisions about a clean energy future.”

Some of California’s local jurisdictions that feature large swaths of agricultural land and open space have started to address the inevitable clash between renewable energy development and nature conservation. They have identified areas for solar development where there is “least conflict” with productive farmland and imperiled plants, animals and natural habitats. For example, Santa Clara and Contra Costa Counites have conducted studies and UC Berkeley completed a similar analysis focused on the San Joaquin Valley. 

The counties that are not working to address the coming conflicts associated with the expected boost in solar development are doing so at their own peril and, instead, may see such disputes resolved by the courts, potentially at a high cost to taxpayers. 

There are a few common sense actions that county governments can take to help avoid clashes, but local government agencies and elected officials must give the actions priority to get them done in a timely fashion, as the demand for solar land rapidly expands. Examples include 1) completing solar mapping studies to understand least conflict areas; 2) executing general plan and zoning code amendments and related environmental reviews to provide solar developers and the public with more certainty about where large solar installations may be sited; and 3) educating agencies and the public about renewable energy, the state’s goals and the best approaches to achieving such aspirations. 

I have seen firsthand how the failure to prepare for the inevitable tension between solar development and land preservation can lead to bad results. My law firm currently represents an association of 250 property owners, cattle ranchers, environmentalist and proponents of good government called Save North Livermore Valley (“SNLV”). 

For more than six months, SNLV has been at odds Alameda County over the County’s decision to process solar development permit in eastern Alameda County. The developer proposes to place approximately 460 acres of ground-mounted solar panel facilities and storage batteries in North Livermore Valley, situated between the City of Livermore and the Altamont Pass. 

Alameda County features hundreds of thousands of agriculture acres on its east side and provides an example of a jurisdiction that has publicly committed to the laudable goal of providing more renewable energy for residents and contributing to the state’s renewable energy goals. Unfortunately, the County essentially ignored the coming battles that pit solar developers against farmers and environmentalists. The county is a cautionary tale for counties that fail to address the tension that occurs when solar companies set their sites on developing ag land and open spaces. 

One County’s Commitment to Renewable Energy 

The tension could have been avoided. A decade ago, Alameda County started down a path to provide clear guidance to solar developers and conservationists, but never completed the work. Now, the 460-acre project, called, Aramis, is causing the very tension the County sought to once avoid. That’s because the project is proposed for North Livermore Valley, which has long been the site of ranchland and is subject to a voter initiative intended to protect agricultural land, wildlife habitats, watersheds, “and the beautiful open space of Alameda County from excessive, badly located and harmful development.” 

The County’s support for solar originated in 2009. That’s when Alameda County Supervisor Scott Haggerty spearheaded the start of East Bay Community Energy (“EBCE”), a non-profit that contracts with clean energy projects to provide more renewable power for residents of the East Bay. Haggerty represents East County, which includes Livermore and is, by far, the County’s most agricultural area. According to County staff reports, “EBCE has brought greater levels of renewable energy at competitive prices to residents of Alameda County….A major goal of the EBCE is to encourage and invest in renewable energy, including solar at the local level.” (citation?)

In East Alameda County between 2008-2012, developers proposed two utility-scale solar projects on land historically used for cattle grazing before the County completed studies on the best locations to site large solar facilities in east county. In 2012, the Supervisors instructed to the County’s planning staff to complete the studies and a general plan amendment before any new large-scale solar projects were approved in east county. Unfortunately, that direction appears to have been ignored. 

Common Sense Steps Can Avoid Conflict

A general plan is county’s most fundamental planning document. In Alameda County, a general plan amendment could have clarified locations where solar installations were allowed and provided a map to reflect the locations. For instance, a general plan might have permitted large solar installations in East County except for in areas identified as scenic routes, or where wineries concentrated vineyard land. 

Zoning divides counties into districts and applies different regulations in each district. Within the districts, zoning dictates the specific uses that are allowed and dictates the scale and scope of those uses. Zoning also includes the uses that are permitted as of right, or conditionally permitted – meaning permitted if they meet certain conditions. In Alameda County, a zoning amendment regarding large-scale solar installations might have limited the contiguous acreage of solar facilities so that they did not occupy a disproportionate amount of land. An amendment also could have dictated that solar projects compensate for any land they occupy by preserving an equal amount of rangeland elsewhere. 

Under the California Environmental Quality Act, general plan and zoning amendments require an environmental impact report (“EIR”). An EIR is intended to help understand the ecological implications of the proposed amendments.  As an example, if a proposed zoning amendment allowed utility-scale solar in an area known for migrating species, the EIR would alert the county and the county might modify the locations to avoid the conflict. 

Mapping studies indicating solar installation locations least likely to impacts the environment have helped counties amend their general plans and zoning districts. In one example, UC Berkeley completed a mapping study throughout the San Joaquin Valley using four mapping components:  1)  Areas that allow for the movement of species; 2) Occupied or potential rare species and communities; 3) Conservation lands that already prevent or restrict development such as dedicated conservation lands and federally-designated critical habitat; and  4) Expertly-identified conservation priority areas.

Finally, given the State of California’s necessary efforts to transition to renewable energy and a corresponding interest from developers to install solar facilities on California ag land, governmental agencies’ decisions must be well-informed. It is not enough for a county agency to know that more solar is needed. A more nuanced understanding is required to evaluate circumstances in which renewable energy development goals conflict with other environmental priorities. 

The Transition to Renewable Energy 

Currently California is transitioning from fossil fuel power sources to renewables including solar, but the transition cannot happen overnight. To be a truly reliable source of energy, solar requires battery storage, otherwise the state’s power grid loses its renewable power at night. Battery storage technology needs more work to work effectively for the grid, but advances are being made. 

Since 2015, California’s solar generation has increased by 350% and accounts for fifty percent of all green energy sources in the state. In recent years, California has actually produced too much solar power during the day and has had to “curtail” the solar power by off-loading it to other states. 

State statistics show that more solar is on the way. According to the California Energy Commission, 9,460 solar facility projects have obtained permits but have not yet completed construction. Many of those are expected to come online in the next five years. As a result, the nascent clash between solar developers and those advocating to preserve agriculture land and open space is only expected to increase. 

County governments can better manage and possibly avoid some of these disputes with timely least-conflict studies and mapping, land use amendments and education. They should not delay!

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Why Safety Should be Proactive Instead of Reactive

James Boretti, CSP, President / CEO of Boretti, Inc.

In today’s COVID-19 environment, people may think this isn’t a great statement to make: having safety makes sense. In the safety profession, the following question has always been a challenge: “Why safety?”

There are many reasons why organizations embrace safety, such as complying with OSHA regulations, minimizing the impact of insurance rates, reducing injuries, or minimizing risk exposures. And on the surface, it appears that most companies pay attention to safety to avoid something: recurrence of a recent serious injury; OSHA penalties; high insurance rates. While all of these are good reasons, these actions are reactions: in each case safety isn’t planned, it’s a reaction to something that happens.

In the past, the assumed answer is “because it’s required;” however, today we see safety is all about creating confidence: confidence that our food supply is safe, confidence that our workplaces are safe to work in, and confidence that it’s safe for customers to return. And that confidence comes with success. A safe environment allows customers to feel confident to visit and buy from you, talent to seek employment at your organization and remain, and stability for the organization. Over 30 years of experience has shown that to build this confidence, businesses must follow five steps to embrace safety.

5 Basic Steps to Embrace Safety

  1. Assess

Ask yourself “What is of risk to the organization, and how can I possibly control it?” You’d be amazed at all the wasted effort you’ll find if you spend a little time asking these questions. Knowing these risks helps you know how to address them.

OSHA lists absenteeism, change in commerce patterns, and interrupted supply chain are potential risks to businesses from the COVID-19 pandemic. And, if we are to assess for risk, OSHA’s assessment for risk fall into three major categories:

  • Job duties involving close (within 6 feet), frequent contact with the public, customers or workers, especially contact with infected people or other sources of the virus.
  • Social conditions in the population area have ongoing transmission.
  • Traveling to areas that are highly affected by COVID-19.

Considerations would be given to proximity (closeness to others); frequently touched surfaces that may be found in a common area such as a lobby, customer waiting room, breakrooms, restrooms, and time clocks; and layouts such as open spaced work areas and airflow.

  1. Process –

Once you know risks you need to address, you can know how you’re going to control them, and you’ll want to put them into a written process. OSHA has outlined a process to reduce exposure risk for employees by addressing both workplace-specific and non-occupational risk factors to determine the best prevention measures for your operation. As always, ensure you are following federal, state, local, tribal and/or territorial recommendations

Applying this to the COVID-19 situation, capturing the efforts you make into a plan ensures your efforts are on track and documented, and that they are working well. The key is to ensure everyone knows who is going to do what by when. Elements of a process would include the following:

ElementsExpectations, Better Practices, Application
Responsibilities / RolesLists who is responsible for what by when
AccessWho can access the facility / job-site /  when (i.e., employees, contractors, visitors), working from home, screenings, PPE and distancing expectations, etc.
CleaningHow is this done, frequency, what surfaces (hard vs. porous), post-COVID suspected or confirmed, etc.
PrecautionsSocial distancing, PPE, washing / sanitizing, staggered shifts and breaks, etc.
TravelIf necessary / approved, precautions to take, etc.
Carpooling / Vanpooling / RidesharingIf necessary, cleaning and disinfecting after each ride, self-screening, barriers / PPE, ventilation
ResourcesItems the company will provide to employees, customers (within its ability)
CommunicationFor confidence on cleaning, following suspected / confirmed COVID cases, etc.
  1. Educate –

Educating and including your people in the process, including the risks being controlled and why, will help them engage and contribute to the success, making it more valuable.

Applying this to the COVID-19 situation, education would cover the following elements at a minimum: 

  • What COVID is and How it Transmits: this provides the “why” we are doing what we’re doing.
  • What to do:
    • Cover coughs and sneezes
    • Wash hands
    • Wear face coverings
    • Frequent cleaning
    • Stay home if sick / exposure
    • What’s changed in the workplace
    • Your program / what’s expected
  1. Implement –

Implement the process and watch it take off. For the current COVID-19 pandemic, the Centers for Disease Control (CDC) and OSHA suggest implementing frequent handwashing and shifting policies or practices to include more flexible worksites and work hours. Workplace changes such as workstation distancing or use of barriers, and one single point for entry and a separate single point for exit are also some ideas to consider COVID prevention.

  1. Investigate –

Not everything will be perfect the first time: if something goes wrong, investigate to find out why, then make a change to improve the process.

OSHA uses the following investigation technique for a COVID situation to determine if it is possibly work related or not.

  • COVID-19 case is likely work-related if:
    • Several cases develop among workers who work closely together
    • Contracted shortly after lengthy, close exposure to customer or coworker who has a confirmed case of COVID-19
    • Job duties include frequent, close exposure to the general public in a locality with ongoing community transmission
  • COVID-19 case is likely NOT work-related if:
    • The person is the only worker to contract COVID-19 in vicinity and job duties do not include having frequent contact with the general public, regardless of the rate of community spread.
    • Outside the workplace, the worker closely and frequently associates with someone who (1) has COVID-19; (2) is not a coworker, and (3) exposes the employee during period in which the individual is likely infectious

The answers to the investigation would trigger immediate actions to do with regard to communication, quarantining and cleaning, and how the process can be improved, if needed.

For additional resources regarding COVID, visit the following links:

OSHA Risk & Hazard Recognition: https://www.osha.gov/SLTC/covid-19/hazardrecognition.html#low_risk

OSHA Return to Work Document: https://www.osha.gov/Publications/OSHA4045.pdf

Centers for Disease Control (CDC): https://www.cdc.gov/coronavirus/2019-nCoV/index.html

American Society of Safety Professionals: https://www.assp.org/resources/covid-19/latest-resources

These five simple steps will create the confidence needed for success. Contact a safety professional to provide you guidance and support.

About the Author: James Boretti is the President and founder of Boretti, Inc. James has over thirty years of environmental, health and safety management and consultation experience. He is a Certified Safety Professional, a prestigious designation he has held for over 25 years. You can contact him at (559) 372-7545 or james@borettiinc.com.

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The Complexities of Enforcing Cannabis Contracts in Federal Court

By Robert Selna, 
Selna Partners, LLP

Since California legalized commercial cannabis in 2018, the expected “green rush” has fallen short of expectations. Forecasts of enormous profits have given way to the reality that the state’s cannabis industry is confronted by unique challenges, which have curtailed revenue and caused many businesses to close. A well-documented short list of industry hurdles includes disproportionately high taxes, a shortage of local business permits, competition from a thriving black market, and commercial banking limitations.

A lesser known, but equally important hurdle is the difficulty of enforcing cannabis industry contracts in federal court. As an alternative to state court, federal court is attractive for many reasons, including generally faster case resolutions, judges who never face election, and more exacting expert evidence standards. The federal court option took on new relevance in March when state courts began to close due to COVID-19. Superior courts recently began to hear cases remotely, but the courts’ backlog is enormous and is expected to stay that way for some time. 

For the cannabis industry, enforcing a cannabis industry contract in federal court – even when a defendant contractor has clearly violated an agreement – is not simple. Instead, it is nuanced, and depending on the specifics of the subject matter in dispute, may not succeed, even though the party seeking to enforce the contract may be in the right. 

The well-established California cannabis industry hurdles noted above, and challenges associated with enforcing cannabis contracts in federal court, have collided in a single case that our law firm, Selna Partners LLP, filed in the San Francisco-based federal Northern District court. 

California Cannabis Industry Hurdles

We represent a large, vertically-integrated California cannabis company that cultivates and distributes cannabis, and sells products at retail outlets in several cities. The company, which started its operations in 2010 under non-profit medical regulations in the existence at the time, is now fully-licensed and compliant under California law. As such, it has been hit hard by regulations and taxes. The company pays a city gross receipts tax, and state excise, sale and cultivation taxes, making the company’s effective tax rate approximately 40 percent. In addition, the company’s ability to expand has been limited by the fact that only one-third of California’s 540 cities and counties permit commercial cannabis (state law dictates that personal use is legal everywhere). An added dilemma is competition from the black market, which is estimated to sell eighty-percent (80%) of the cannabis cultivated in California. 

Adding to the companies’ woes is the absence of standardized commercial banking for the California cannabis industry. Despite our client’s compliance with all state and local laws, and a business model that has had more success than many, through 2019, the company had not been able to maintain a banking relationship with a traditional bank or credit union. This forced our client to hold revenues in a steel vault and deliver cash tax payments to government agencies in armored cars, among other workarounds. The company also often paid vendors and employees in cash. 

Cannabis Industry Banking is in Short Supply

The reason for the traditional banking shortage is straightforward:  marijuana (the federal government’s term for cannabis) is listed as a controlled substance, and is therefore, illegal to grow, import, possess, use, or distribute in the U.S., despite the fact that 43 states have legalized medical and/or adult-use cannabis. Meanwhile, the vast majority of banks and credit unions are regulated by the federal government.

Recognizing the expansion of state-legal cannabis, the U.S. Treasury Department, has issued guidance for banks that want to serve cannabis companies while avoiding prosecution. The guidance directs banks to provide on-going “suspicious activity” reports to the Treasury Department regarding the practices of their cannabis clients and whether they appear to comply with state laws, or instead, are illegal operators. The number of banks and credit unions willing to take on these responsibilities is incrementally increasing, but the conventional wisdom is that there still are only 300-400 such institutions in the U.S. 

In 2019, our client sought a solution and was introduced to a payment processor in Seattle, Washington, where, similar to California, commercial cannabis is regulated. A contract was signed for executing payments to vendors, employees and the State of California taxing authority and our client deposited approximately $8 million with the Seattle-based payment processor. 

Things went as planned for several months, but then the payment processor began delaying payments or failing to make them altogether. Lacking a viable alternative, the cannabis company stuck with the payment processor despite its poor service. The company hit a tipping point when the processor claimed to have made a $1.2 million tax payment to the California Department of Tax and Fee Administration (CDTFA), which the CDTFA documented that it never received. 

Confronted with proof from the CDTFA that the $1.2 million never arrived, the processor vowed to clear up the problem, but failed to do so. Our client finally demanded its remaining $3 million (including the $1.2 million returned). The processor stopped making payments and returning phone calls altogether. 

The processor’s refusal to return the $3 million left our clients with few options for getting their money back or paying the state and vendors. State court justice has been slow in most jurisdictions for decades. COVID-19 has only made that situation worse. Also, filing a lawsuit in state court against an out-of-state operator made the case vulnerable to the Seattle-based defendant’s motion to remove the case to Washington. 

Reporting the issue to law enforcement was an alternative, but when recouping funds is the top goal, a California company asking the Seattle police department to investigate what could be described as a contract dispute, did not appear to be the most efficient solution. 

Cannabis-Related Contract Claims and the “Illegality Defense”

In the end, our firm and our client believed that the best bet for getting the $3 million back efficiently was to file a breach of contract and fraud case in federal court. But while federal court was the top choice available, we knew it would not be easy. 

It is hard to argue that the processor did not breach the payment processing contract. It had our client’s money and failed to make payments that it agreed to make. But the analysis does not end there, because the processor, like defendants to cannabis contract disputes before it, is relying on the so-called “illegality defense.” In short, the defense is that, because cannabis is illegal under federal law, a federal court cannot enforce a contract that involves a cannabis company. In essence, the argument is as follows: “the merits of the case do not matter because the parties contracted to do something illegal and a federal court cannot review a case involving an illegal contract.” 

If the illegality defense were iron clad, our client’s case would have been dead on arrival. Fortunately, the reality is far more subtle. While there are older federal cases standing for the principal that federal courts cannot enforce “illegal contracts,” judges interpreting those cases have inserted a key exception to that baseline rule. The now well-established exception is that a federal court may enforce an illegal contract (or parts of an illegal contract) if, in doing so, the court fashion a legal remedy that does not compel future unlawful conduct. 

At first blush, it may seem hard to imagine how it would be possible to enforce a contract that involves an “illegal” company and not compel future illegal conduct. But, as it turns out, such circumstances are common in the cannabis industry, in which cannabis companies are paying vendors and individuals to perform services that are not inherently unlawful. Our case provides examples of potential orders that would not compel unlawful conduct:  a requirement to pay the CDTFA taxes that are required under the state’s cannabis laws and payments vendors such as PG&E. Returning  a company’s so that it can make such payments also would seem to pass the test. 

So, what are the key issues that courts consider when deciding whether to enforce an illegal contract? Based on California federal cases, it appears that the court’s top consideration is whether the court’s order would further a specific violation of federal law. In the case of cannabis, the law in central law at issue is the Controlled Substances Act (CSA) and its prohibition on manufacture, importation, possession, use, and distribution of marijuana. Other relevant laws include money-laundering statutes, which prohibit transactions in which the funds involved in the transactions are derived from illegal activity. The definition of “transaction” is key to this crime and would require a much longer explanation than is appropriate for this article. 

Given the context, in cannabis breach of contract cases, where defendants have raised the illegality defense, courts have mulled whether they can order a remedy that makes the plaintiff whole, such as restitution, for example, but is neither derived from – nor results in – the manufacture, importation, possession, use or distribution of marijuana. 

A few examples where the court found that it could not enforce a contract involving cannabis are as follows: Tracy v. USAA, where the court ruled it could not require an insurance company to pay for the replacement of the plaintiff’s marijuana plants; J. Lilly v. Clearspan, in which the court determined that awarding lost profits from a marijuana cultivation operation would further violate the law; and Hemphill v. Liberty Mutual, in which the court ruled it could not require Liberty Mutual to pay for the future use of medical marijuana expenses, because doing so would violate the Controlled Substances Act.

In contrast, federal courts have enforced cannabis-related contracts (or parts of them) where the result would not violate the CSA or other federal statutes. In Bart Street III, a case that involved financial transactions, the court said it could enforce parts of two promissory notes between a lender and a cannabis cultivation company because each note included provisions that directed defendants to use the loaned funds for solely legal acts (paying off prior lenders and purchasing property).

A court used a similar analysis in Ginsburg v. ICC Holdings There the court stated, “[E]ven if a contract is illegal, it is not automatically unenforceable. Under federal law, the illegality of contract defense involves a balancing of the ‘pros and cons of enforcement,’ taking into account the benefits of enforcement ‘that lie in creating stability in contract relations and preserving reasonable expectations’ and the ‘costs in foregoing the additional deterrence of behavior forbidden by the statute.’”

Ginsburg appeared to be influenced by a line of cases starting with Bassidji v. Goe. Bassidji, did not involve marijuana, but its analysis was followed by a Northern District case, Mann v. Gullickson, which involved a contract between two companies that served the cannabis industry. Both courts opined that “[A] court only needs to dismiss a claim for breach of contract when the contract is “illegal” if the lone remedy available would, itself be illegal.

The case between our client, the vertically integrated California cannabis company, and the Seattle-based payment processor is on-going. Central to our argument is that a court order, in which our clients’ funds were returned,  or which compelled payments to the State of California and legal vendors, such as PG&E would not violate the CSA or federal statutes. 

The story of our case is to be continued, but any California cannabis company which is considering suing for breach of contract should give serious consideration to the pros and cons of both state and federal court. Filing a case in federal court, while likely more complex, may still be the best choice. 

Robert Selna is a founding partner of Selna Partners, LLP. The law firm serves clients across California combining specialized practices in the real estate and cannabis/hemp industries with decades of experience handling complex commercial litigation, class actions and product liability litigation.  Rob has built upon his real estate work and experience with local and state government to represent clients in the real estate and cannabis industries. He advises developers on zoning, environmental and subdivision laws and the many other legal details that complicate nearly all projects. His transactional work includes leases and purchase and sale agreements. Rob specifically advises cannabis clients on licensing, regulatory matters and legislation, entity formation, contracts, real estate transactions, litigation and taxes. He can be reached at robert@selnapartners.com, (415) 601-5385.

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Forage Kitchen – Local Food Economy Evolving in a Global Epidemic

Written by Callie Waldman, Forage Kitchen

First Friday at Forage Kitchen in Oakland, Calif., Friday, Oct. 5, 2018. Photo by Alison Yin/Alison Yin Photography

INTRO

Forage Kitchen is a commissary and shared incubator kitchen in the heart of Uptown Oakland. Nestled amongst retail locations and maker warehouses, we exist to support the local food economy by supporting its producers. Our community members find this support through our physical shared kitchen space, business support & promotional help, and through our network of like-minded food business owners. We’re a lot of other things as well. Beyond just our commissary, we’re also a small batch copacking facility as well as an event space for both private bookings and community gatherings.  Attached to our kitchen we have a small cafe that houses rotating up-and-coming restaurants, offering low rent to minimize risk as they transition towards moving into their own permanent space. 

HISTORY

Though we officially opened our doors in 2016, leading up to that moment took years of thoughtful decisions and physical build-out.  In 2012, cousins and co-founders Iso Rabins and Matt Johansen began their journey in building Forage inspired by their own experience as food entrepreneurs. Their driving motivation was to create an experience and a kitchen for others that they wished they’d had themselves while navigating the industry. 

Iso, having worked in shared kitchens for years while hosting his Wild Kitchen underground dinners, had seen all the ways shared spaces fell short, and the destructive impact that had on the community. This experience was motivation enough to want to create something better. Iso’s focus had always been food and food makers; launching Forage Kitchen just felt like the right next step.  

If you ask the cousins, Iso will tell you that getting Matt onboard took some courting.  Matt’s expertise in business management, his previous partnership in opening SF’s still-thriving Hayes Valley Biergarten, and his effortless knack for connecting with just about anyone, balanced Iso’s vision and made him the perfect co-founder.  Iso knew he needed Matt onboard and over a handful of beers and long talks at family reunions, the motivation and the dream was mutual. 

Once established and open, Iso and Matt needed someone to flesh out programming and act as a direct line of support for the growing community, and so they introduced a third partner, Callie Waldman, to run daily operations. Callie also came from extensive food industry experience but also brought with her the relationship building component, having overseen employee engagement and company culture during the early stages of Imperfect Foods. Focused on honesty, communication and trust, this small but mighty trio oversees all aspects of the business.  

STRUCTURE

When operating at full capacity, Forage congruently runs four arms of business: membership, small batch co-packing, events, and a cafe. Each functions as an integral piece of the puzzle, harmoniously interwoven to support our community at a multitude of crossroads.

Membership

Our primary focus and the reason Forage exists, is to support our members. Each of our members own and operate their own small food business and have 24/7 access to our kitchen through reserving tables using our online booking system. Pricing is tiered and ranges from $21-28 per hour depending on frequency. Additionally, we offer an $18 per hour rate between 10pm-6am to accommodate those chefs who prefer off-peak schedules.  Once in the kitchen, members have equal access to our industrial equipment as well as the option to rent storage depending on their needs. Folks are surprised to hear that we typically fluctuate between 40-50 memberships at a time, however the variety of scheduling needs means that we hardly see conflicts in booking or overcrowding. Our members range from pastry chefs to soul food caterers, bagel producers to homemade pickle and boutique sauce companies. A vast majority are women-owned. The kitchen is equipped with a gamut of industrial equipment in order to accommodate many types of businesses. We have grills and deep fryers, 4 convection ovens, a total of 12 burners, a 30qt standup mixer, and an entire rack of smallware equipment available.  

Small Batch Copacking

Through our small batch copacking program, we lay out a pathway for businesses to grow with us. Once companies are a little further along, this program enables food producers to scale even bigger, while we take care of everything operationally from sourcing ingredients to label compliance to packaging.  For small scale food producers, outsourcing production allows for their time and energy to focus on sales and marketing so that they can get one step closer towards their dream of large scale distribution. We’ve worked with a wide variety of clients but our areas of expertise mainly focus on bone broth, cookies, sauces and spice blends.  

Events

One of the joys of running Forage is to foster our growing community. We find significance in this not just among our members, but within the greater community of Oakland. Our central location and spacious outdoor area makes Forage ideal for bringing people together. We’re a short walking distance from bars, cafes, and venues in every direction, and BART is just a 10 minute walk down the street, making us accessible to the rest of the Bay.  Outside of the current covid circumstances, our summer calendar is typically stacked with all kinds of events. We host weddings and rehearsal dinners, holiday parties and cooking classes, birthdays and anniversaries. In the warmer seasons we offer monthly outdoor movie nights and we partner with Sofar Sounds, hosting regular live music nights. Every First Friday of the month, we open our doors once again and participate in the city of Oakland’s monthly First Friday event where our members are encouraged to set up vendor tents and sell their food; an excellent opportunity for their own exposure and testing out the market. 

Cafe

Connected to the kitchen and facing the street, our cafe serves as a rotating space for new restaurants to launch their temporary home and gain traction as they test menu concepts, hire staff, and work out operational kinks before moving into their permanent retail location. Some of these restaurants include:  Smokin Woods BBQ, World Famous Hotboys, and Shawarmaji. Regardless of who’s serving food, patrons can enjoy patio seating and a cold, local beer on tap. 

HOW WE FOSTER INNOVATION AND ENTREPRENEURSHIP

Under most circumstances, the production and sales of food in California requires the use of a certified commissary kitchen. At the most basic level, this is what we provide. In addition to that, there’s a lengthy list of permits and licences that producers need to apply for, some which come from the county, others which come from the city or state. There’s a lot of red tape and often, even knowing where to begin with the administrative side of this industry can be daunting enough to cause roadblocks. This is again where we come in. As part of our onboarding service and at no extra charge, we offer additional support with new members by identifying and helping complete all the applications they need. 

Undeniably, our biggest avenue of support exists through our active community. It’s inspiring to see members helping one another as some have been in the industry for decades, while others are stepping foot into a commercial kitchen for their very first time. We’ve seen collaborations emerge, like Gourmet Puff (a Nigerian doughnut company) popping up with Shawarmaji (a Jordanian Shawarma restaurant). Internally, we use slack as a way to make sure all members can easily connect with one another and we have a couple channels specifically intended for companies to post things like kickstarter campaigns, new product launches, or simply to spread the word that they’re hiring. In the last few months we also set up a little shelf in our cafe where patrons can purchase shelf staple items, all made at Forage. We sell products like The Final Sauce, Goldi’s Spice Blends, and Claudine Hot Sauce.  In this sense, we find ways to interweave the various components of Forage such that our members’ businesses are amplified. 

CURRENTLY

Since the pandemic began affecting California in mid March, It’s no secret that small food businesses have suffered. As event cancellations soared and remote work within the bay area tech scene became status quo, most of the catering companies that worked out of Forage suddenly had nothing to cook for.  In an effort to get creative, we worked with members to develop a ghost kitchen model, offering our space as a pickup site for any catering companies willing or able to shift into strictly pickup & delivery. We’ve seen several companies successfully make the switch, however with the exorbitant percentage that corporate delivery platforms take from each ticket item, relying strictly on the apps is hardly feasible. In this vein, we’re huge proponents of encouraging customers to pick up food directly from the restaurant whenever possible.

FUTURE

Though business has been undeniably slow for the first several months, our kitchen remains open, 24/7 as it’s always been. And, as it’s become increasingly clear that we’re in this for the indeterminable long haul, we’re starting to see some shifts. We’ve started hearing from folks who’ve completely changed direction to make ends meet; A previously touring musician who decided to bottle and sell chili oil; A furloughed Pastry Chef who shifted her focus to participate in a national bake sale, benefiting the Black Lives Matter movement. When outdoor dining opened in Oakland, that enabled us to once again capitalize on our outdoor space after months of it laying dormant. We replaced our large picnic tables with wine barrel seating designed to fit 2-4 people instead of 8-10. Our cafe extended its hours, and we folded in a Happy Hour to encourage customers to stay and have a drink rather than just taking their food to go. 

In all honesty it’s hard to say exactly when we’ll be operating at full capacity again, or what that will even look like as it’s a constant moving target. That said, we’re optimistic. We’re seeing the beginnings of private event inquiries for 2021, and we’re also starting to talk about hosting small, distanced gatherings. Additionally, we’re working on launching our own cafe concept in the fall of 2020, focused on maximizing our outdoor space. While uncertainty is always the case, covid has been an abrupt and potent awakening to this truth and so we move forward with flexibility, creativity and patience; committed now more than ever, to offer a space and a community that supports our local food economy. 

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African American Farmers of California (AAFC)

“We need to make sure African-American farmers are visible because, for a long time, we’ve been invisible. We, as a people, have played a tremendous part in agriculture throughout the U.S.”  – William Scott Jr., AAFC President

According to the 2018-2019 California Agricultural Statistics Review through the California Department of Food and Agriculture (CDFA), California is home to over sixty nine thousand farms. The United States Department of Agriculture (USDA) 2017 Agriculture Census noted that, of those farms, only 429 were run by African American producers–operating over seventy five thousand acres. That is barely over a half percent of farms in the state–and less than two percent nationally, due to historically discriminatory practices within the USDA causing black farmers to lose 80 percent of their farmland from 1910 to 2007, from lack of access to loans or insurance needed to sustain their businesses.

A non-profit in California’s Central Valley hopes to combat that historical discrimination by empowering African-American growers to provide their communities with fresh, wholesome food.

“We take care of the land, the land will take care of us. Then we’ll take care of the community.” – William Scott Jr., AAFC President

Tractor tilling soil at the AAFC demonstration farm.

Tucked behind Kearney Park on the outskirts of Fresno, California, at the intersection of California and Fair, a sixteen acre farming demonstration site serves as the homebase for African American Farmers of California (AAFC.) Established in 1997, founders William Scott Jr. and Ken Grimes started by doing door-to-door outreach for members in the nearby west Fresno neighborhoods. In the past twenty years, they’ve built a community of over twenty farmers to support current growers through agro-tourism, farmers markets, and educational awareness, while training future farmers in operating equipment and basic farming skills. To further this cause, they have begun the process of becoming a healthy soils demonstration project in collaboration with the Fresno State UC Extension, which will qualify them for additional equipment to manage the land, train their members, and more efficiently grow their crops under the program’s grant funding.

“If we can get the message across about supporting a variety of farmers, and get more people interested and taking quality food to where it should be, then I’ve done my job. This is what I was born to do.” – William Scott Jr., AAFC President

Line of crops at the AAFC demonstration farm.

Scott and Grimes have been pivotal in reintroducing Southern specialty crops, which have long been a part of the traditional African-American diet, into the central valley. These crops grow seasonally, with summers bringing black-eyed, crowder, and purple hull peas, okra, turnips, and tomatoes, while winters serve up mustard, turnip, and collard greens, spinach, broccoli and carrots. The AAFC hopes to provide their growers with an outlet to distribute these crops via the USDA Farmers to Families Food Box program, next year.

If you are interested in attending their monthly meetings‒starting at 5:30pm every second Tuesday‒you can reach out to their Vice President, LaKeishia Martin, at africanamericanfarmersofca@gmail.com. Follow them on Facebook to stay tuned for their field day showcase next year.

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Volt Institute

Written by Tyler Richardson and Kevin Fox

It’s an exciting time at VOLT Institute. Two years of planning for scaled-out manufacturing training is finally coming to fruition. New equipment is arriving and being assembled. Additional instructors are coming onboard. Guided by an advisory board comprised of local employers, the organization seeks to adjust and move forward quickly. This includes changes to allow for operations amidst a global pandemic.

While the debates over masks, indoor dining, and county-specific guidelines continue, VOLT Institute never missed a beat. VOLT staff developed and implemented a comprehensive plan to keep students engaged and progressing toward in-demand careers in manufacturing with higher wages and job security. When school closures began in late March, VOLT had remote learning in place and students transitioned seamlessly. By April, other VOLT Institute training opportunities also moved into the virtual realm. 

The Supervisor Development Academy operated in partnership with Ag Safe began meeting online with workshops adjusted to two hour time blocks instead of four. Admittedly, there were concerns that this training for frontline supervisors to tackle real world situations while managing teams would not be as effective in a virtual space, but Ag Safe trainer Angelina Ceja reported that feedback from participants in this workshop remains positive. Volt’s Supervisor Development Academy gives supervisors a foundation to develop skills essential to furthering their personal and organizational success. The program addresses leadership, communication, conflict resolution, planning, and team building with an emphasis on building peer-to-peer relationships.

VOLT Institute’s popular efficiency training, Career Accelerator Program (CAP), taught by Beaudette Consulting INC. was made available remotely as well. This valuable curriculum focuses on organizational change management, continuous improvement, employee engagement, process improvement, and critical thinking problem solving are the “soft skill” training industry demands. Student survey results indicated that the length of time for each of the online training sessions was appropriate and engaging and either met or exceeded expectations. 

VOLT Institute campus reopened June 15 it was with strict COVID-19 protocols in place including mandatory wearing of masks. To ensure social distancing, students comfortable returning to the downtown Modesto campus continued their training on campus by appointment. One-on-one instruction is being offered by VOLT instructors to help students make up time lost during the mandatory shutdown.

Through it all, VOLT administration continues developing new partnerships with regional manufacturers such as the new internship program with Flowers Baking Co. This partnership gives VOLT students an opportunity to receive valuable work experience. Recently, two VOLT graduates have been accepted into E. & J. Gallo Winery’s maintenance apprenticeship program. Other VOLT graduates have started new careers in manufacturing at California’s oldest family-owned dairy, Crystal Creamery and the world’s largest plastic pipe manufacturer, JM Eagle.  Reports from VOLT alumni about promotions and wage increases are too numerous to list but VOLT is especially proud of its 96% job placement rate. 

VOLT also partnered with Valley First Credit Union to provide loans to students. This allows students looking to improve their long-term wage outcomes to apply for funding with most payments deferrable until the program is complete. The application process is online and very user-friendly. In addition, students get to participate in financial wellness training. Before the availability of the loan program, some potential students were deterred by the cost, which is low compared to similar programs of VOLT’s caliber but still represented a modest financial investment.

VOLT’s Senior Leadership Series in partnership with Next Gear Consulting is back. The series is designed to teach top level manufacturing and other executives important skills in strategic planning, building a positive company culture and leadership. Taught by Kristi Marsella, CEO of Next Gear Consulting, and former VP of Human Resources at G3 and E. & J. Gallo Winery, this series is a great opportunity to improve leadership skills. 

One of the most in demand technical skills for plant maintenance mechanics to have as the fourth industrial revolution progresses is a solid understanding of the internet of things. The implementation of complex automation has become the standard throughout industry. VOLT Institute’s partnership with Automation Group to teach both introductory and intermediate Programmable Logic Controls (PLC) courses as part of the award-winning industrial maintenance mechanics programs in a 20-hour boot camps are efficient and helpful for participants. Three boot camps are being offered for the summer session through August and September with assistance from California Manufacturing Technology Consulting (CMTC). Reduced student capacity for the training helps accommodate social distancing protocols.

As VOLT continues to receive deliveries from Amatrol, unpack and install new mechatronic, process control, and advanced electrical training equipment from the shipping crates, the vision first conceived three years ago starts to fall into place. Unskilled or semi-skilled workers have the opportunities to acquire the aptitude and the attitude to be competitive in a fast-paced manufacturing environment. They can earn higher wages with job security while fueling a vibrant, healthy economy in the Central Valley Region by strengthening each company’s most valuable asset: their people. All this happens while simultaneously hearing the voices from the advisory board and responding to the needs of investor partners in a rapidly evolving manufacturing industry. Training in electro-mechanical work with advanced programmable logic controls experience and access to nationally-recognized certifications such as National Institute for Metalworking Skills (NIMS) coupled with the new technology training are a pathway for long term sustainability for California’s Central Valley manufacturing industry. 

In the midst of a global pandemic, one thing stands out. Strategic planning is how to move forward. The ability to be nimble is a key component to the success of any strategic plan. If the plan doesn’t work, change the plan, not the goal. VOLT Institute is proud to be part of the solution for California’s Central Valley manufacturing industry. Higher wages and job security are very good ways to attract new talent to the California manufacturing industry and grow quality of life for those already living in the area. Whether the talent is new to the area or locals with deep roots one thing is certain: VOLT will continue to thrive and provide the quality of training everyone in the area deserves. 

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Alternatives to Bankruptcy: What Should Business Owners Know?

Bennet G. Young
Jeffer Mangels Butler & Mitchell LLP

The coronavirus pandemic has upended many sectors of the economy in unprecedented ways. Supply chains are disrupted. Businesses that rely on face to face interaction with their customers such as retailers and restaurants, are subject to financial distress. In turn, companies that supply products to businesses impacted by COVID-19 may also experience pressure as their customers delay or cancel purchases or are unable to pay their bills.

These stresses are likely to cause some owners of distressed businesses to explore their legal options. Bankruptcy is only one alternative for a struggling company Two other options are an assignment for the benefit of creditors (ABC) and a voluntary workout. These strategies are available to address a failing company; which can be faster and equally or more effective, at a lower cost, without the publicity of a bankruptcy filing. Business owners should be aware of these non-bankruptcy options and the circumstances in which they can be useful. 

Any discussion of bankruptcy alternatives must start with bankruptcy. Bankruptcy is the most widely known insolvency proceeding and, as the usual course taken by a failing company, forms the baseline. Any alternative should be compared to the likely outcome of a bankruptcy case. The business owner then can balance the bankruptcy and non-bankruptcy alternatives available to him or her to choose a strategy that is the best fit. 

One useful alternative to bankruptcy is an assignment for the benefit of creditors. This procedure, commonly known as an ABC, is a recognized state law procedure to sell the assets of a failing business while shielding the purchaser from liability for the old company’s debts. Usually, a distressed company is running out of cash and has limited runway to sell itself; an ABC provides a non-bankruptcy method to effectuate a prompt sale of the business. 

In an ABC, the company, called the assignor, transfers its assets to a third party, called the assignee, that typically is selected by the company. In legal terms an ABC is a trust in which the assignor transfers title to its assets to the assignee in trust for its creditors. The assignee is a fiduciary tasked with selling the assets and paying the proceeds pro rata to creditors. The assignee must give notice to creditors of the assignment and of the deadline to file claims and creditors can file claims with the assignee.

In California, no court filing is required to commence an ABC. This lowers the publicity dramatically. The proceeding is not secret or confidential, but it is not public in the way that filing a bankruptcy case is. Instead, an ABC is a matter of contract between the distressed company and the proposed assignee. The company’s board and shareholders must approve the ABC. 

The process is fast and flexible. Because the company picks the assignee, an ABC lends itself well to pre-packaging. A distressed company seeking a prompt sale, a potential buyer of the business, and the proposed assignee can negotiate a sale in advance of the ABC occurring on the understanding that the sale will be completed through the ABC. All parties know what to expect and the process can proceed on the parties’ schedule, with no delays imposed by court processes or availability. This enables a sale of a distressed business as a going concern to take place quickly with little uncertainty and minimal disruption to operations. 

Used in this manner, an ABC is a viable alternative to a sale of the business in a bankruptcy chapter 11 case. The speed and flexibility of the ABC process are its chief virtues. Since there is no court the process is usually less expensive than a chapter 11 bankruptcy case and the sale can often be completed more quickly than would occur in a chapter 11. The process provides an efficient method to sell a small to medium size failing company on a going concern basis. 

The ABC process is not without its downsides. A distressed business must weigh these downsides against the speed, flexibility and lower transaction costs of the ABC process. The most important is that the purchaser will not get a court order validating its purchase as it would in a bankruptcy. The purchaser must rely on the integrity of the process to shield it from the distressed company’s creditors. Furthermore, there is no automatic stay to restrain foreclosure as there would be in a bankruptcy case, so the cooperation of the assignor’s secured lenders is essential. Unlike in a bankruptcy case, there is no power to assign leases or contracts without consent. This can cause complications if the company’s contractual relationships are a major asset. Finally, by handing the company to the assignee, the business owner will lose control. This is not necessarily a negative, as it enables the business owner to move on to new opportunities. 

Another useful option is for the distressed company to attempt a voluntary workout with its creditors. This is not a formal process. Instead, a workout is a matter of negotiation between the distressed company and its creditors. The usual concept is to engage in a process that is substantially similar to what would occur in a chapter 11 bankruptcy case by agreement of the parties, without filing a bankruptcy case and without incurring the large legal fees or impact on the business that will result if a bankruptcy case is actually commenced. Chapter 11 thus forms the backdrop for the negotiations. 

Typically, in a voluntary workout the debtor will invite its creditors to a meeting. At the meeting, the debtor will make a presentation to the creditors in attendance regarding its financial condition, how it got there, and what the debtor intends to do to extricate itself from its predicament. The debtor will request that the creditors agree to a moratorium on collection action, similar to the automatic stay in a bankruptcy case, and that the creditors appoint a committee of creditors to negotiate a workout plan with the debtor. In return, the debtor will usually offer to be completely transparent with its creditors, to provide information regarding the business, and to refrain from engaging in any out of the ordinary course transactions. This creates a structure that mirrors what would occur in a chapter 11 case.

The goal of the process is for the debtor and the appointed committee to negotiate a repayment plan on behalf of all creditors. The plan can take whatever form the parties negotiate. Often the plan will consist of the debtor’s agreement to pay a percentage or even all of its profits or positive cash flow to its creditors over a period of time in exchange for the creditors agreeing to discount their debts in some amount. Another common structure is for the creditors to agree to a discount in return for an immediate cash payment funded by new capital contributed by a new investor. 

Once the debtor and committee have negotiated a plan, the plan is circulated to creditors to accept or reject it. Participation is voluntary. Only creditors that accept the plan are bound, so the debtor generally will insist that a high percentage of creditors accept the plan in order for it to go into effect. If a sufficient number of creditors accept the plan, it will go into effect. If the required majority do not accept, the debtor likely will end up in a chapter 11 case. The plan thus needs to provide a result that is at least as good, if not better, than the result would be in a chapter 11 case.

The voluntary workout thus can be a viable alternative to a chapter 11 case. The benefits of the process are its flexibility and reduced legal fees which can mean more funds available for creditors. A workout often is faster than a chapter 11 case, there is no public filing and therefore less publicity, and the business owner remains in control. On the other hand, a workout depends upon cooperation between the debtor and its creditors. If that cooperation is absent because creditors do not trust the debtor or for other reasons, a voluntary workout might not be possible. The process also depends upon creditors cooperating with one another and accepting equal treatment. There is no automatic stay, so creditors are free to pursue collection actions and to attempt to jump to the head of the line. If some creditors pursue collection actions and seek to improve their position relative to other creditors, the process can break down. Finally, creditor participation in a plan is voluntary. There is no way to bind creditors that reject the plan. Holdouts thus can create major hurdles.

The selection of the non-bankruptcy alternative depends upon the result the business owner desires to achieve. If the goal is to sell the business as a going concern, an ABC is a useful tool. Usually a distressed company is running out of cash and has limited runway to sell itself, and the ABC provides a non-bankruptcy method to effectuate a prompt sale. On the other hand, if the business owner’s objective is to retain his or her stake in the enterprise and to negotiate a payment plan with creditors globally, a voluntary workout can be a less costly way to achieve this goal.

Bankruptcy is not a one size fits all solution. There are other routes available to a distressed business which can be just as effective at a far lower cost. Owners of troubled companies should be aware of these options and should evaluate whether one of them might provide a better fit.

Bennett G. Young is a partner at the law firm of Jeffer Mangels Butler & Mitchell LLP. He represents parties in insolvency matters and has extensive experience in workouts, restructurings, bankruptcies, and assignments for the benefit of creditors. Ben is a member of the Bench-Bar Liaison Committee for the United States Bankruptcy Court for the Northern District of California and is a former Chair of the California State Bar’s Insolvency Law Committee, a past president of the Northern California Chapter of the Turnaround Management Association, and has been a member of the Board of Directors of the Bay Area Bankruptcy Forum. He is recognized by Best Lawyers in America® in the area of bankruptcy. Contact Ben Young at BYoung@jmbm.com

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Contents of a Good HACCP Plan & Manual

Written by Safe Food Alliance Team
Originally Published in FOOD SAFETY, HACCP, STARTER SERIES

In today’s food manufacturing environment, basic food safety principles are no longer enough to meet customer and regulatory requirements. The rules have changed, in large part due to the Food Safety Modernization Act (FSMA). In addition to new laws from legislators, the standards and demands of customers now far surpass regulatory requirements. What this means is there is now an expectation to not only master Hazard Analysis Critical Control Points (HACCP) but to go one step further and become Global Food Safety Initiative (GFSI) certified. To gain certification with any of these programs, you need to start in the same place. You start with a HACCP plan.

12 Steps to a Good HACCP Plan

When building out your HACCP plan, follow this specific methodology involving 12 steps. If you are having trouble, just reach out to your friendly neighborhood Safe Food Alliance team.

One thing to remember as you build out your plan – a HACCP Plan is a living document, and as such, should be revisited often as your processes change, your company grows, and you discover better ways to produce your product. Now that we have that covered, let’s begin.

1. Assemble the HACCP Team

Your plan will typically include a table where all the names of the HACCP Team members are written and signed, and the team leader is clearly designated. The team functions best when it’s highly cross-functional and includes members of various departments such as sanitation, maintenance, production, and quality. It’s essential to have these varied perspectives and background knowledge. 

In this section, you should include a brief description of each member’s current position, background, and experience. You’ll also need to have a copy of a HACCP formal training certificate for the HACCP coordinator, from an accredited two-day HACCP course.  There should be some sort of documented HACCP training for the rest of the team as well, whether conducted internally or by someone like us. The more knowledgeable the team, the better the plan will be.

2. Describe the Product

This section should include a full description of each product or family of products within the scope of the plan. Product descriptions should consist of details that impact the food safety of the product, including (as applicable):

  • the recipe or formulation
  • the packing materials and any other information such as the modified atmosphere
  • the conditions in which the product is to be stored (e.g., temperature, light, humidity)
  • the shelf life
  • distribution conditions
  • any potential for abuse in the distribution chain or by consumers, which may put the product at risk.

The better you define the product before starting the hazard analysis, the more thorough the review will be.

3. Identify the Intended Use

The intended use is based on the usual consumption of the commodity by the final consumer or user. Again, defining intended use helps ensure a more thorough hazard analysis later. This section includes both your company’s intended purpose based on product design, as well as potential other applications. The more you know your consumers, the better you can take care of them. A classic example, in this case, is cookie dough: it’s a product you typically cook before consumption, but in some cases, it’s eaten raw. For this reason, several companies have had recalls on their cookie dough due to consumer illness.

4. Construct the Flow Diagram

The process flow diagram must be clear and detailed to describe all process steps. Use this diagram to help ensure the hazard analysis is thorough and as a visual reference as your team considers potential hazards to the consumer. The flow diagram must include every process step that occurs on-site, from the very beginning (e.g., receiving and preparing ingredients, storing packing materials, etc.) to the very end (shipping, warehousing, etc.) The clearer the diagram is to the viewer, the easier to understand the process. Others may also use the table during site visits (e.g., customers, auditors, consultants, regulatory officials). Hence, it’s wise to design it in a way that it’s relatively clear to others who don’t know the process as well as you do.

5. On-Site Verification of the Flow Diagram

On-site verification of the diagram helps ensure its accuracy.  Again, the purpose of this is primarily to ensure a thorough hazard analysis. The site will need to provide proof that the HACCP Team has verified the flow diagram.  Some companies like to keep the first version of the diagram with hand-written notes on it, indicating changes made and initialed and dated by the participants. Ultimately, however, proof of the verification is best done with a final, updated copy that is signed; or meeting minutes indicating approval of the final version and signatures of participants.

6. Conduct a Hazard Analysis

The hazard analysis is part of the plan that typically takes the most time to review and update. Here the team collects and examines all relevant data to the product’s safety, including process performance, product defects, customer complaints, results of internal and third-party audits, and various other relevant information.  The team must take the proper time to conduct a thorough analysis.

A Hazard analysis can vary in format, but needs to include these common elements:

  • List of all process steps and ingredients
  • Identification of potential hazards
  • Assessment of each hazard, with consideration of both severity and likelihood
  • Identification of ‘significant’ hazards
  • Justification of the assessment (detailed explanation as to the team’s reasoning)
  • Identification of appropriate controls for each hazard
  • Now, under FSMA, the identification of any Preventive Controls as well. For more information on this subject, take a look at this article. For training, refer to the PCQI course.

7. Determine Critical Control Points (CCP’s)

This one is a simple concept. Based on the hazard analysis described above, you can quickly identify all significant hazards and CCPs. Critical Control Points are those essential steps designed to control a specific hazard so that the product will be safe to consume. The team should use a decision tree like this one when determining CCPs.

8. Establish Critical Limits for Each CCP

A critical limit is a critical control point’s “go/no go” or “acceptable/unacceptable” criteria.  For some processes, such as metal detection, it is as simple as testing with certified metal test pieces to ensure proper function. For other types of CCPs, it can be much more complex and include parameters such as temperature, humidity, product viscosity, or chemical concentration. All these variables and values have to be clearly defined, including both lower and upper limits, as applicable.

Documents related to the process and relevant sources used to establish the critical limits must be available to support the limits. These documents could be regulatory standards, guidelines, internal or third-party validation, experimental results, literature surveys, and expert guidance. The stricter the validated limits, the higher the potential efficacy.

9. Establish a Monitoring System

This step is where we define the monitoring method for each CCP.  Monitoring is how we ensure the process has met the critical limit, so the product is safe.  The monitoring procedure should contain the following:

  • What will you monitor?
  • How often shall it be monitored?
  • Who is responsible for performing the task?
  • What instruments will you use?
  • How will you monitor? (method)

The clearer the instructions, the fewer chances of failure.

10. Establish Corrective Actions

Each CCP is required to have predetermined and documented corrective actions for deviations that may occur. The corrective actions plan should comprise at least the following elements: the responsibility for each action, disposition of the non-complying product, the correction of the cause of failure, and recording the event. Keep records of activities readily available. If you need help with conducting root cause analysis for your corrective actions, check out our quick root cause analysis course.

11. Establish Verification Procedures

Much of the discussion in our HACCP courses end up centering around how to conduct verification in the context of HACCP properly.  Verification procedures should be activities designed to confirm that the plan is: 1) being followed; 2) effective for its intended use, and 3) adequately maintained. We are looking for defined procedures here, indicating how we conduct routine verification activities like the sign-off of the CCP monitoring records, as well as how you complete the less-frequent validation. The more exhaustive the verification is, the more confident we can be of the plan.  For more on verification, take a look at our article “The 6th Principle of HACCP: Verification”.

12. Establish Documentation and Record-keeping

This final step includes establishing both record-keeping processes and the company’s documentation system (establishing defined procedures, the company’s methods of document control, etc.). Consider:

  • How will you document your system?
  • What should you include?
  • Who is responsible for doing it?
  • How long are you keeping records? Where are you saving them?
  • Who needs to have access to what documents and how are documents controlled?

A better-documented plan helps ensure better execution.

As you may realize by now, developing and documenting an effective HACCP plan is not an easy task. Training on the methodology, experience, and technical elements are essential aspects of effective HACCP Plan implementation. If you need guidance with training or consultation, Safe Food Alliance is here to help.

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Mitigating Risk through Food Packaging

By George G. Misko and Natalie E. Rainer, Keller and Heckman LLC

Historically, the main function of food packaging has been to safeguard food by providing a physical barrier to help maintain food and beverages in a sanitary condition. Over the years, advances in food packaging technology have resulted in packaging that provides additional protection and other benefits. These more recent innovations include susceptors to aid in the browning of foods cooked in microwave ovens, oxygen scavengers/emitters, ethylene scavengers, time-temperature sensors, and biosensors that can help to prolong shelf life and/or monitor the condition of food.  In fact, it is clear that over the past 100 years or more, packaging technology and food processing equipment has been a major contributor to the manner in which food products of all sorts safely reach the dinner tables of Americans and people throughout the world, while lessening the environmental footprint of this industry.  Indeed, even in these days of the coronavirus pandemic, the U.S. Food and Drug Administration (FDA) has stated that “[T]here is no evidence of food packaging being associated with the transmission of COVID-19.” (1)

(1) See the FDA information sheet, titled, “Shopping for Food During the COVID-19 Pandemic – Information for
Consumers.”

The U.S. and other jurisdictions around the world have implemented food packaging regulations to assure that packaging materials are safe for use and that no off-odors or tastes are imparted from the packaging to food or beverages. And as technological advances in food packaging provide improvements in food quality and safety, some of the regulations governing the composition and use of food packaging regulations have been changed to accommodate these advances. This article will focus on U.S. food laws governing food packaging materials and revisions to those laws necessitated by technological advances. First, though, we provide a brief description of the manner in which food packaging is regulated in the U.S. and the information that is required to assure the safety of food contact materials.

U.S. Food Packaging Laws

The history of formal regulation of food packaging in the U.S. began with the passage of the Food Additives Amendment of 1958.  Prior to 1958, customers sometimes insisted on being assured of a package’s safety and utility by asking to see some documentation from FDA or the U. S. Department of Agriculture (USDA) indicating that it had reviewed and found that the intended use of the materials would not adulterate food or, put another way, were safe for their intended use.  

The Food Additives Amendment of 1958 added, in part, a new section to the Federal Food, Drug, and Cosmetic Act (FD&C Act) that defined the term “food additive” as “any substance the intended use of which results or may reasonably be expected to result, directly or indirectly, in its becoming a component or otherwise affecting the characteristics of any food” unless that substance is Generally Recognized as Safe (GRAS) or subject to one of a number of exceptions or exclusions listed in the Act.”(2) As a result, all food contact substances that may reasonably be expected to migrate to food are regulated as food additives. Conversely, food packaging substances that are not reasonably expected to become components of food are not by definition “food additives” and may be used without prior authorization or clearance by FDA.

 (2) See Section 201(s) of the Federal Food, Drug, and Cosmetic Act.

Food contact substances (FCSs) that are considered food additives must be authorized for use in food packaging by FDA through a food additive regulation or a Food Contact Notification (FCN). The food additive petition process entails clearing food additives (including food packaging materials that meet the definition of a food additive) through a notice-and-comment rulemaking process. Information required to submit a food additive petition for packaging materials includes: the identity and composition of the substance of interest; a description of the manufacturing process; information on its intended use (such as food types, temperature conditions at the time of packaging and during use, and the expected duration of contact with food); and chemistry and toxicology data supporting the safety of that food additive for its intended use. The petition should also include test methods used to verify specifications for the raw materials and the finished products. Finally, the petitioner must include an environmental assessment to established whether the manufacture or use of the substance as intended will likely result in any undue impact that will require further study. Once a food additive is cleared through this process, FDA publishes a regulation, which can be relied upon by the petitioner as well as other manufacturers and users of the additive provided any limitations and specifications listed in the regulation are met. 

The FCN process largely supplanted the petitioning process with passage of the FDA Modernization Act of 1997. Data requirements for an FCN are about the same as those for a food additive petition with respect to the need to estimate dietary intake for an additive and establish safety through the provision of toxicity data adequate to support the estimated exposure. In addition, data identifying the FCS, its intended use manufacturing process and the like are very much required as in the petition process. The primary difference between the FCN and FAP process is that FCNs are proprietary, i.e., they can only be relied upon by the manufacturer of the FCS identified in the FCN and by its customers. Third parties who manufacture the same substance are required to submit their own FCN to be enabled to reach the same market. The other major difference is that  where it could take literally years for FDA to grant a petition, an FCN automatically becomes effective 120 days after it has been accepted for filing by the Agency, unless FDA objects in writing prior to the effective date.

Assuring Safety

FDA applies a tiered approach to the toxicity data needed to support safety of food-contact materials. That is, the higher the level of estimated dietary intake to a substance, the greater the toxicity data needed to support safety.  

Another important consideration with respect to safety is the statutory and regulatory requirement that food contact materials be manufactured in such a way as not to result in the adulteration of food, i.e., be of a purity suitable for the intended use, as  required by FDA’s Good Manufacturing Practices (GMP) regulation for food packaging materials. (3)

(3)  See Title 21 of the Code of Federal Regulations, Section 174.5. 

The suitable purity requirement dictates that FCSs may not impart anything to food that may cause it to be harmful or deleterious to health or result in an off-taste or -odor in food. To meet this requirement, the manufacturer must consider the safety of foreseeable impurities in the FCS, including residual monomers, starting reactants, catalysts, and reaction byproducts and degradation products. 

New Technologies

As new types of food packaging are developed based on technological advances, the safety of the materials used in these packages need to be evaluated. In some cases, revisions in food packaging regulations were made to assure the safety of the food in contact with new technology. We will examine some of these technologies and what new requirements, if any, were implemented to assure their safety.

Microwave Susceptors. The introduction of susceptors in microwave packaging resulted in higher cooking temperatures, which could be used to crisp and brown food by cooking it in a microwave oven. FDA food packaging regulations use the term “Conditions of Use” to describe the typical temperature conditions under which food products may be used in contact with packaging materials or articles intended to process or hold food. In April 2006, FDA expanded its list of Conditions of Use to include two additional categories. One of the new categories, Condition of Use J (“Cooking at temperatures exceeding 250°F”), is applicable to microwave heat susceptor materials. The following year, in December 2007, FDA updated its chemistry guidance for preparing FCN submissions. The new chemistry guidance includes specific protocols on testing for dual ovenable, microwaveable, and microwave heat susceptor materials.

Antimicrobial Agents. The safety of antimicrobials used in food packaging is regulated by FDA similar to other food additives; however, they may also require registration with the U.S. Environmental Protection Agency (EPA) under Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). Additionally, antimicrobials used in or on permanent or semi-permanent food contact surfaces, which are not intended to have an ongoing effect on the food contact surface, are regulated by FDA as food additives. If, however, the intended effect is ongoing, that is, intended to preserve the article from microbes or the protection of the user, EPA exercises jurisdiction over the use and food safety issue. 

In all cases, except those involving processed food, the antimicrobial used will be considered a pesticide for purposes of FIFRA and will require registration with EPA regardless of FDA’s jurisdiction over the matter. In addition, antimicrobials added to packaging materials with the expressed intent of migrating into the food to increase its shelf life by retarding spoilage may be considered food preservatives by FDA or USDA, if meat or poultry, and require labeling of the food product.   

Biobased and Biodegradable Plastics. As interest in sustainability has increased, the use of biobased and biodegradable plastics in food packaging is expanding. “Biobased” means related to or based out of natural, renewable, or living sources, while “biodegradable” means capable of being broken down naturally to basic elemental components (water, biomass, and gas) with the aid of microorganisms. “Biobased plastics” are plastics manufactured from renewable biomass, such as vegetable oil, cornstarch, pea starch, and microbiota. Biobased plastics can also be biodegradable.

While biobased plastics are required to comply with the same regulations with respect to food safety as fossil-based plastics, there are several regulatory issues that need to be considered for new biobased material or new applications for existing materials. These include determining the appropriate food simulants to be used to estimate the potential for migration and demonstrating that the substance is stable for its intended use. In addition, it may be necessary to consider the suitable purity of the finished product with respect to the potential presence of organic matter, such as cellular debris, and naturally occurring contaminants (e.g., mycotoxins and algal biotoxins). 

Recycled Materials. The growing interest in sustainability is also behind recent initiatives by a number of food companies to increase the use of recyclable packaging and the use of post-consumer recycled plastic content in food packaging. Recycled plastic in food packaging must meet the same safety standards as virgin plastic. 

Companies may independently evaluate the status and safety of a polymer produced through a recycling process. However, many companies will submit their determinations to FDA for review through a voluntary program. If FDA agrees with the company’s determination that a given recycling process is adequate to produce suitably pure recycled food-contact material, it will issue a no objection letter (NOL). To assist recyclers, FDA has issued guidance on recycled plastics for use in food packaging, which provides information on how to establish the safety of recycled polymers for food packaging. With respect to secondary (physical reprocessing) and tertiary recycling (regeneration of purified starting materials), FDA stresses the importance of demonstrating that possible contaminants from prior use of the plastic are sufficiently removed by the recycling process. To accomplish this, FDA provides specific recommendation on contaminant testing.

Conclusion

We have provided several examples of new innovations incorporated into food packaging. The use of antimicrobial is just one example of active and intelligent packaging, or packaging that interacts with food or its surroundings to prolong shelf life or monitor the condition of the food, slow the rate of oxidation, and prevent microbial attack. As advances in food packaging technology continue, further regulatory considerations may need to be addressed.

About the Authors:

George Misko is one of Keller and Heckman’s Food and Drug practice group leaders. Mr. Misko’s practice focuses on food and drug matters and environmental concerns, including pesticide regulation, right-to-know laws, and toxic substance control regulations. He has extensive experience counseling clients on regulatory requirements relating to chemical substances, plastics and food products in the U.S. and other jurisdictions, including Canada, the European Union, Latin America, and the Asia-Pacific region. He also represents trade associations, including acting as legal counsel to the Global Silicones Council.

Natalie Rainer practices in the area of food and drug law. She advises clients on regulatory requirements for foods, dietary supplements, cosmetics, and food and drug packaging in jurisdictions around the world, including North America, Latin America, Europe, Asia, and the Middle East. Ms. Rainer’s practice includes evaluating the regulatory status of food-contact materials, food additives, and color additives; advising companies on advertising and labeling requirements (including claim substantiation, nutrition labeling, menu labeling and environmental/green claims); and counseling clients on the Food Safety Modernization Act and its regulations.