CBD Compliance: Smoke and Mirrors

CANNABINOID SYSTEM

The 1960s were a time of unparalleled scientific discovery and social experimentation. It seems fitting, then, that in 1964 Δ9-tetrahydrocannabinol (THC) was isolated and defined. Since then, significant progress had been made in the discovery and understanding of the endogenous cannabinoid, or endocannabinoid, system.

Endocannabinoids are incredibly diverse in function. The numerous identified endocannabinoids are known to undergo various methods of metabolism, with many byproducts themselves being active. Receptors are found on many cell types and can vary in effect based on factors as mundane as species, muscle sub-type, and diet. Research has shown both positive and negative effects of endocannabinoids – they both promote and fight heart and liver disease; reduce bone development in fetuses and neonates but reduce osteoporosis in the elderly; and improve female fertility but decrease sperm quality. To complicate matters further, the effects of plant cannabinoids, or phytocannabinoids, appear to overlap only partially with endocannabinoids. Our understanding of the delicate balance in the endocannabinoid system is in its infancy.

It is not difficult to appreciate the therapeutic promise of endocannabinoids and their related phytocannabinoids, most prominent of which is cannabidiol (CBD). There exists a large, complex, untapped pharmacological target with many effects. However, it would be prudent to not outpace our understanding of the endocannabinoid system. Few in vivo studies have been performed in humans and even fewer in our core veterinary species. From what we do know of our veterinary species, cannabidiols may be metabolized differently and into different metabolites and CBD has low bioavailability with oral administration in dogs likely due to poor absorption and a large hepatic first pass effect. The argument should not be if CBD has therapeutic effects but if CBD products can and should be recommended or sold.

FOOD AND DRUG ADMINISTRATION

The only FDA (Food and Drug Administration) approved CBD product is the seizure medication EPIDIOLEX®. Although found to be effective and safe enough for approval, the FDA noted many unknowns in the summary review of the approved new drug application. Animal models used for toxicology studies may have been inappropriate as their metabolism of CBD produces different byproducts than those of humans. Peak drug concentrations could be up to five times higher if the product is taken with a high-fat meal. Product usage increased liver enzymes in a dose-dependent manner. There was limited review of concomitant drug interactions.

The pharmaceutic industry seeks to assure the identity, strength, quality, purity, and potency of drug products. The FDA is tasked with assessing investigational new drug applications (INDs) and new drug applications (NDAs) for safety and efficacy. Pharmaceutical companies submit an IND after completing research, development, and pre-clinical toxicology testing. After approval of an IND, the company can begin testing on humans: Phase 1 clinical testing for safety, Phase 2 for efficacy, and large-scale Phase 3 for population and dosage variation with consultation from FDA. Should the drug continue to appear promising, the company will submit an NDA for FDA review. The FDA will assess the data, labelling, and production facility prior to granting approving for the new drug. The new drug will be approved only at specific dose(s) for specific condition(s) under certain manufacturing conditions.

While the FDA thoroughly reviews drug products, oversight of supplements is more limited. In fact, supplements, in most cases, do not need approval prior to being sold. There is no review process to ensure quality and efficacy, determine appropriate dosages, and ascertain interactions and side effects. FDA resources are not leveraged against supplement manufacturers unless they are investigating adverse effects, reported issues, adulterated products, or false claims. A supplement may not “claim that it will diagnose, cure, mitigate, treat, or prevent a disease” – by making those claims a supplement becomes a drug in the eyes of the FDA. Additionally, the FDA does not recognize animal supplements – only animal drugs and foods.

CBD PRODUCTS

FDA personnel have been closely monitoring the CBD industry. Manufacturers are claiming CBD supplements are entirely legal because the Farm Bill removed hemp, or cannabis with less than 0.3% THC, from the Controlled Substances Act. Manufacturers neglect to realize that the Farm Bill did not change the FDA’s duty to regulate drugs and supplements, nor the definition of a supplement. Adding a substance approved as a drug – in this case, CBD – to a supplement means the supplement has either been adulterated, and should be removed from the market, or it is truly a drug product that must seek FDA approval.

Some manufacturers push the envelope further by making explicit or implicit therapeutic claims of their supplement products. Recall, therapeutic claims can only be made for approved drugs. A quick internet search of animal marketed CBD products yields claims such as “alleviating allergies”, “treating a range of disorders”, “does no harm to the kidney, liver, or GI tract”, “stimulate deep tissue healing”, “reduce itchiness and rashes”, and “reduce the anxiety experienced by many animals.” Some products do not have claims but vaguely suggest a product may be good for an animal with a certain condition. There does not appear to be a well-defined line in the sand of how much you can say, but keep in mind that the FDA defines a drug this way:

  • A substance recognized by an official pharmacopoeia or formulary.
  • A substance intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease.
  • A substance (other than food) intended to affect the structure or any function of the body.
  • A substance intended for use as a component of a medicine but not a device or a component, part or accessory of a device.
  • Biological products are included within this definition and are generally covered by the same laws and regulations, but differences exist regarding their manufacturing processes (chemical process versus biological process.)

The FDA is quick to act, however, when obvious and distinct claims are made of CBD products. Take as an example Curaleaf, who received a warning letter from the FDA in 2019 regarding claims made for both human and animal CBD products. The FDA determined that based upon therapeutic claims made the CBD products were unapproved new animal drugs. These claims included “pain relief”, “relief of muscle spasms”, and treating “diabetes.” Claims were not only made in product descriptions, but also on company blogs and social media accounts. Other warning letters include quotations from consumer testimonials and claims that may appear vague.

The legality of CBD products is further muddled on a state level. In decriminalizing and/or legalizing hemp or marijuana products for people, states have presented a message inconsistent with the FDA’s. Some states believe that regulatory changes will lead to agricultural gains. Manufacturers and suppliers may feel sheltered by state or local laws and look to market products with therapeutic claims. In fact, the FDA itself states that it may consult with state partners prior to pursuing enforcement against offending products and that it “supports researchers who conduct adequate and well-controlled clinical trials which may lead to the development of safe and effective marijuana products to treat medical conditions”.

States that have approved human medical usages of hemp or marijuana products were obligated to ensure human physicians could determine a patient might benefit from the product. Human physicians became sheltered under select state laws and are now able to openly discuss and recommend or prescribe CBD products. In some instances, states may require a human physician provide written documentation for patients.

However, veterinarians and animals were excluded in state medical marijuana laws. California attempted to fill the legislative gap in 2018 by allowing veterinarians to discuss CBD within a valid VCPR (veterinarian-client-patient relationship) but forbids administrating or dispensing any product for an animal patient. The AVMA (American Veterinary Medical Association) notes FDA approved product usage is allowed in an extra-label fashion under AMDUCA (Animal Medicinal Drug Use Clarification Act) in select circumstances. Should the patient be a food producing species, veterinarians must attempt to determine withdrawal times.

Veterinary medical associations are aware that veterinarians have been placed into a difficult spot. Clients can obtain products for themselves – sometimes at their doctor’s suggestion – and know of animal CBD products. Clients want to discuss CBD with their veterinarian and veterinarians want to provide their professional opinions. Medical associations have tried to cautiously weigh in on the topic. The AVMA dodges the discussion, stating that non-FDA products are not known to be safe or effective. The Colorado Veterinary Medical Association notes an increase in toxicities but suggests conversations can occur within a VCPR. Unsurprisingly, the California Veterinary Medical Association allows veterinarians to discuss CBD products, noting that administration is still illegal. The Michigan Veterinary Medical Association vaguely states there may be increased legal risk if things go wrong and that they will not recommend something until the FDA says it is safe. Some states – such as Connecticut, Missouri, and Tennessee – are attempting to prevent medical board disciplinary action if a veterinarian discusses CBD. Ironically, the FDA advises consumers interested in pet CBD products to consult with their veterinarian.

PRUDENT ACTIONS

It is entirely reasonable that a veterinarian seems confused about what prudent actions can or should be taken. It is obvious to the FDA, clients, and veterinarians that there is therapeutic potential in CBD. Veterinarians want to find new ways to care for their patients and assure their position as an authority source. However, they are not legally shielded, and the legality of available products is questionable.

Thankfully, the FDA has committed to clearing the air. The FDA is on the record saying they want to make regulatory approval more efficient for CBD products and are actively considering ways to allow marketing of non-drug CBD supplements and foods. Agency representatives regularly give very transparent speeches which are posted on the FDA webpage. They reaffirm the FDA’s goal of providing a layer of safety and reliability for both the prescriber and the patient in all products and look to obtain the same assurances for CBD products. It would be wise to pay attention to the FDA updates that will surely be coming – the FDA is active on social media.

The FDA is more than willing to partner with research institutions to learn more about the pharmacokinetics and pharmacodynamics of CBD. Veterinary schools are leading the charge to find out how and how well CBD products work for dogs. For example, UPenn’s (University of Pennsylvania) School of Veterinary Medicine is currently performing a double-blinded study on the effects of a CBD product on dog mobility. This study, along with most other similar studies, is sponsored by the product manufacturer. Veterinarians should be skeptical of sponsored studies and thoroughly evaluate study methodology, results, and conclusions, but can look forward to learning more about the efficacy and side effects of specific products.

Despite all the uncertainty, many clinicians are interested in making specific product recommendations or stocking CBD items. Veterinarians need to make themselves aware of the most current information regarding safety of CBD and the efficacy, purity, and stability of the product they promote. It is important the product does no harm to the patient and is not an unwise expense for the client. Consider things such as:

  • How pure is the product?
  • What pesticide residues are present?
  • Are there heavy metals or solvents in the product?
  • What additives are in the product?
  • How does the product need to be stored? Will it go rancid?


The product selected should be reviewed for unapproved claims – on the product, on product packaging and literature, on the webpage, and on social media –to limit risk of product shortage due to FDA enforcement actions or liability.

Many other unknowns plague veterinarians carrying CBD products. State laws and medical boards offer very little protection, but we do not know how this will change in the future. Laws, both local and federal, influence insurance coverage and banking services. It remains unclear if veterinarians assume risks that are not covered under the insurance policies or if other policies, leases, and banking agreements would be violated by carrying and selling CBD products.

Although the prospect of CBD products is great, there remains much that is unknown and unclear. The legal landscape is ever evolving. A prudent veterinarian will watch FDA, legislative, and medical board actions, review current literature, and will consider all risks associated with discussing, recommending, stocking, and/or selling products. They will not be tricked by the smokes and mirrors of opinions but make decisions based upon facts and consideration of risk.

Works Cited

  • Abernethy, A., & Schiller, L. (2019, July 17). FDA is Committed to Sound, Science-based Policy on CBD. Retrieved from FDA: https://www.fda.gov/news-events/fda-voices-perspectives-fda-leadership-and-experts/fda-committed-sound-science-based-policy-cbd
  • Ashley, D. (2019, July 22). Warning Letter Curaleaf, Inc MARCS-CMS 579289 — JULY 22, 2019. Retrieved from FDA: https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/curaleaf-inc-579289-07222019
  • AVMA. (2019, February). State Legislative Update February 2019. Retrieved from https://www.avma.org/Advocacy/StateAndLocal/Documents/SLU-February2019.pdf
  • Boulder Holistic Vet. (n.d.). HempRx SoftChewz for Cats & Small Dogs. Retrieved from https://boulderholisticvet.com/shop/anxiety/hemprx-softchewz-for-cats-small-dogs/
  • CVMA. (2017). CVMA Position Statement on Marijuana and Marijuana-derived Products in Companion Animals. CVMA Voice, p. 9.
  • CVMA. (2019, September 12). Cannabis and Industrial Hemp FAQ 9-13-19. Retrieved from CVMA: https://cvma.net/wp-content/uploads/2019/09/Cannabis-and-Industrial-Hemp-FAQ_9-13-19.pdf
  • Di Marzo, V., & Piscitelli, F. (2015). The Endocannabinoid System and its Modulation. Neurotherapeutics, 12:692–698.
  • Dixie Brands, Inc. (2019, May 28). Clinical Trial at the University of Pennsylvania’s School of Veterinary Medicine to Study Effectiveness of Cannabinoids to Treat Dogs for Joint Immobility Using Dixie Brands’ Therabis Formulation. Retrieved from https://dixie.mediaroom.com/2019-05-28-Clinical-Trial-at-the-University-of-Pennsylvanias-School-of-Veterinary-Medicine-to-Study-Effectiveness-of-Cannabinoids-to-Treat-Dogs-for-Joint-Immobility-Using-Dixie-Brands-Therabis-Formulation
  • FDA. (2015, August 24). FDA’s Drug Review Process: Continued. Retrieved from https://www.fda.gov/drugs/drug-information-consumers/fdas-drug-review-process-continued
  • FDA. (2017, November 1). WARNING LETTER That’s Natural MARCS-CMS 513302 — OCTOBER 31, 2017. Retrieved from https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/thats-natural-513302-10312017
  • FDA. (2018). CENTER FOR DRUG EVALUATION AND RESEARCH APPLICATION NUMBER: 210365Orig1s000 SUMMARY REVIEW. FDA.
  • FDA. (2018, June 19). FDA and Marijuana. Retrieved from https://www.fda.gov/news-events/public-health-focus/fda-and-marijuana
  • FDA. (2018, August 14). WARNING LETTER Signature Formulations, LLC MARCS-CMS 545017 — JULY 31, 2018. Retrieved from https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/signature-formulations-llc-545017-07312018
  • FDA. (2019, October 16). FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD). Retrieved from https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd
  • FDA. (2019, April 2). WARNING LETTER Advanced Spine and Pain, LLC MARCS-CMS 565256 — MARCH 28, 2019. Retrieved from https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/advanced-spine-and-pain-llc-565256-03282019
  • FDA. (n.d.). Drugs@FDA Glossary. Retrieved from https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?event=glossary.page
  • Leafly. (n.d.). Pet First Aid Spray. Retrieved from https://www.leafly.com/products/details/rxcbd-pet-first-aid-spray
  • Maccarrone, M., Bab, I., Bíró, T., Cabral, G., Dey, S., Di Marzo, V., . . . Zimmer, A. (2015). Endocannabinoid signaling at the periphery: 50 years after THC. Trends in Pharmacologic Science, 36(5): 277–296.
  • MVMA. (2019, March 11). MVMA Statement on Medical Marijuana, Hemp, and CBD. Retrieved from https://michvma.org/news/7217306
  • Neurogan. (n.d.). CBD Horse Massage Oil 1000mg – Topicals for Horses | Neurogan. Retrieved from https://www.neurogan.com/cbd-products/for-pets/horse-massage-oil/
  • ProCon.org. (2019, July 24). Legal Medical Marijuana States and DC: Laws, Fees, and Possession Limits. Retrieved from https://medicalmarijuana.procon.org/view.resource.php?resourceID=000881
  • Pure Hemp. (n.d.). CBD Pet Shampoo – 20mg — Pure Hemp. Retrieved from https://purehempshop.com/products/pet-shampoo
  • Samara, E., Bialer, M., & Mechoulam, R. (1988). Pharmacokinetics of Cannabidiol in Dogs. Drug Metabolism and Disposition, 16(3): 469-472.
  • Schiller, L. (2019, August 13). Remarks at the National Industrial Hemp Council 2019 Hemp. Retrieved from FDA: https://www.fda.gov/news-events/speeches-fda-officials/remarks-national-industrial-hemp-council-2019-hemp-business-summit-08132019

Is Bad Communication Stunting Your Practice’s Growth?

Originally Published in Today’s Veterinary Business December 2019

Is Bad Communication Stunting Your Practice’s Growth?

When you look back at your former teachers, you realize that some people make learning more engaging and can communicate concepts more efficiently than others. They all might have the same degree of knowledge, but not everyone has the communication skills needed to effectively share that knowledge. In the same vein, in a workplace setting, someone can be incredibly knowledgeable and have transformative ideas, but the information must be effectively communicated. Unfortunately, that’s not always the case. Many practices lack proper communication within their team, thus affecting how the practice runs during a normal day.

Imagine the following situation:
Technician A, “Wendy,” and Technician B, “Bill,” have set schedules during the week. Wendy comes from 8 am to 3 pm and Bill comes in from 1 pm until 8 pm. On Tuesday, Wendy writes on the posted schedule that she will be switching hours with Bill for that Friday, as she has a doctor’s appointment that morning. She does not communicate this to anyone, including Bill.

What Poor Communication Does

Poor communication results in a disconnect between parties and it is especially important for an employer to communicate clearly to its employees. When mixed messages are given at a veterinary practice, employees feel more stressed, which can affect how they react to one another and how they treat clients. Life is more unpredictable when misunderstandings occur, especially in ongoing situations. Employees can carry frustrations home with them. If this is happening at your practice, it’s not a good sign for your clinic’s growth and overall success.

When Friday rolls around, the first client has checked in, but there is no technician to prep the room or initiate the exam. The office manager is trying to call Wendy to see what is going on, but she is not answering because she has a doctor’s appointment…and the day starts off in chaos. The doctor isn’t happy, the client isn’t happy, and the receptionist is on the receiving end of the client’s anger.

When someone communicates poorly at work, goals aren’t accomplished effectively or in a timely way. At the end of the day, the clients are the ones who suffer. Additionally, employees may be forced to pick up the slack, leading to rushed jobs and mistakes. In a business dedicated to the care and well-being of pets, there are some serious consequences that can occur.

In this type of environment, employees may feel insecure about their jobs and feel they never have a moment to breathe, which may lead them to seek another job. A lack of communication or poor communication can increase turnover at a practice, which brings with it all the costs associated with recruiting and training new employees. This slows office productivity, which affects the remaining employees and, most importantly, the clients.

Wendy’s co-workers find themselves in the middle of this situation which they did not create. This causes tension. Many are mad at Wendy for not showing up and creating extra work for them, forcing them to work twice as hard to get everything done. Some are also angry with management as they feel a few employees are treated differently than others and are “allowed to get away with it.” A simple lack of communication has left the practice divided. This, in turn, directly affects how the client sees your practice. Staff with bad attitudes? Staff running around at 100 mph? This doesn’t ease a client’s mind when putting their pets into your staff’s hands.

If you find an increasing number of dissatisfied clients, the reason could be poor communication among people in your practice. The reality is that when the level of communication is substandard, simply maintaining the status quo can be challenging and achieving growth is difficult.

Providing Quality Communication

When you think about communication skills, consider everyone who plays a role at the practice — veterinarians, managers, technicians, receptionists and office staff.

It may be easy to pass the blame on Wendy, who should have at least spoken with Bill about switching shifts for the day. However, can this blame also be placed on the practice for not having a pre-determined system of communication for such events? Should the disgruntled employees bring their concerns to management?

Staff Meetings

Having staff meetings to determine how to stop the cycle of bad communication is imperative. One employee may not see the issues of a practice the same way as another. Similarly, employees may not communicate the same way as each other. However, holding an open discussion to decide on an effective way to communicate with each other is only the first step.

Create an open-floor format

During team meetings, make the environment as welcoming as possible. Start off with an open-ended question like, “How can we communicate more effectively” or “what can we do differently?” Give examples of how you, as a practice manager, can communicate better. This will “break the ice” and show vulnerability, which will help employees feel like it’s a safe place they can share their concerns freely. Try to prevent employees from blaming one another, as listening shuts off as soon as tension rises.

Listen, listen, and listen some more

A big part of effective communication comes down to actively listening to what the other person has to say rather than spending time formulating what you’re going to say next — or, even worse, interrupting the speaker. In today’s world, when people are rewarded for taking action, spending time listening might feel like a somewhat passive activity, but it’s necessary for quality communication.

Implementation

After each meeting, determine what you’ve learned about your practice’s communication strengths and weaknesses, and figure out the opportunities that exist. Then, create a plan for more effective communication. What can be fixed relatively easily? What improvements will create the most positive momentum? What can have financial benefits? Make the changes steadily, and review the progress regularly.

Let’s say our theoretical practice decides to implement a procedure that all requests of shift switches must be approved by the practice manager. Is this to be done through text, email, one-on-one? Or is there a specific request form that needs to be submitted and signed by all three parties (both technicians and manager)?

The next step is holding all employees to the same standard. There should be no “exceptions” to the rule so other employees do not feel like they are being slighted and “so-and-so” is being favorited and doesn’t have to follow protocol. A doctor should have to fill out this request, as does a technician and receptionist. This will eliminate any tension within the practice due to schedule changes, and thus will keep your practice running smoothly.

Good communication is a necessity in running a successful practice. Although it’s hard to look inward at the problems occurring in the practice, identifying key issues is the first step. Then, decide as a team what can be done to modify these issues, and follow it through. Changes may take a while to be implemented, and that’s ok—“A journey of a thousand miles begins with a single step.”

Welcome, Generation Z

Originally Published in Today’s Veterinary Business October 2019

Millennials are often in the news—and they have been for quite some time now–with countless articles discussing their impact in the workforce. But what about Generation Z? This is the group of people born between about 1995 and 2010. They’re also in or entering the workforce, and their perception of the world and their participation in the workplace is definitely different from that of the Millennials who came before them.

Gen Z, as they’re called, is about 57 million strong in the United States. Other names include Post-Millennials, Founders, Plurals, the iGeneration, and the Homeland Generation. This article will describe, overall, what they value and how they perceive life, with the understanding that not everyone in this generation (or any other generation, for that matter) ever thinks exactly alike.

Core Values & Behaviors

An in-depth survey of this generation conducted by McKinsey & Company determined that Gen Z has several core behaviors in common, each of which center on their search for truth. They avoid labeling; opting to focus more on individuality, honesty and competence of people. Thus, making them more willing to understand different types of people; enabling them to differences of opinion and interact with organizations that don’t match their personal values. They want to spend their energy on causes that matter, such as homelessness, poverty, world hunger, identity, human rights, and gender equality. They want brands to behave in ethical ways, being transparent, and having actions match what company officials say.

As such, it makes sense that diversity is considered the norm by this generation, to the degree that Gen Z often don’t readily think about the demographics of a group, whether that means racially, or religious preferences or sexual orientation. To put this into perspective, Business Insider and Axios predicts that by 2045, the United States will be majority minority; meaning, this may be the last generation where the majority of people in the United States identify as white and, for much of Gen Zs’ lives, the president identified as a black man.

Additionally, Gen Z expresses a desire to be financial stable; this, combined with their aforementioned appreciation for diversity and the changing demographics in the United States, likely attributes to their overall mix of beliefs and can include fiscally conservative points of view combined with socially liberal ones.

Overall, Gen Z can be considered pragmatic, practical, and analytical; believing that most conflicts, including global issues, can be solved through effective uses of communication. Through simple conversations, they are able to learn, strategically gather information, and make highly informed decisions about what their next step(s) should be.

Workplace Values

About 36 percent of Gen Z will be in the workforce by the year 2020. According to statistics quoted by HR Magazine in November/December 2018, 58 percent of them hope to own a business someday (and 14 percent of them already do).

When looking for employment, here’s what matters to Gen Z:

  • Good salary: 35%
  • Enjoyable work environment: 26%
  • Flexible schedule: 14%
  • Opportunity to create new products: 11%
  • Chance to learn new skills: 8%
  • Community focus: 7%

Most have been exposed to the internet and social media their entire lives, making Gen Z very comfortable with the virtual world and with seamlessly crossing from online to “offline” experiences. This ease will certainly have an impact on how technology will continue to evolve in the workplace.

More specifically, Gen Z have always lived in a world where information comes at them, fast and furious: they’ve learned to rapidly process information but may not have long attention spans. They multi-task, shifting from one activity to another, often in a way that people from previous generations may find distracting.

Transforming the Workplace

Millennials have done an excellent job of shedding light on the high costs of higher education plus the student loan debt incurred from the pursuit thereof. From this observation, many from Gen Z may choose to not pursue traditional educational pathways. People of Gen Z may, instead, opt to go straight into the workforce, attend classes online, pursue entrepreneurship, or choose paths that vastly differ from the paths ventured by previous generations.

Assuredly, Gen Z will have a significant impact on the development of workforce, as companies need to manage complex, multi-generational teams consisting of younger Baby Boomers, Gen Xs, Millennials, and Gen Zs. Each generation has different values, workplace expectations, life goals, and more. For example, people of Gen Z have a strong desire for work-life balance and appreciate developing personal, and maintaining, technological connections. In fact, AdWeek recently reported that Gen Z are 1.3 times more likely to buy products if their favorite celebrity advertises it on social media. This is important for companies, as company branding and marketing primarily occur on social media and, as such, if your company has no social media footprint, then your chances of reaching Gen Z diminishes; this represents a significant shift from strategies enacted by past generations’.

In light of this, companies must find strategic ways to take advantage of the human resources they currently have. For instance, employ a strategy that combines mentoring and reverse mentoring; where those who are from Gen Z can educate those from other, older generations and vice versa. Thereby preventing, and potentially wholly avoiding, generational gaps and conflicts that damage productivity, efficiency, and workers’ value.

Alternatively, you can cater to Gen Z’s interest in forming a personal connection. When they work for a company, Gen Z has been shown to prefer regular, in-person feedback from their supervisors; this feedback can be short and sweet, as long as it’s prompt and regular. They also want to interact directly with managers often, even multiple times daily. This shouldn’t be surprising, given that they are used to texting, conversing on social media, and so forth, which can be considered real-time conversations.

When Recruiting

When your practice is recruiting new employees, it can help to think of it as a brand, and then demonstrate your brand visually to attract Gen Z job candidates. Think about what makes your practice unique, what makes it interesting. How can the candidate you’re interviewing contribute to your practice? Make that clear.

People of Gen Z typically read online reviews about companies before they interview with them, and they are attracted to reviews that show how the workplace can be a fun place to be, even when working hard at the job. Flexible schedules and paid time off are attractive to many Gen Zs.

Young adults from this generation often make great employees; especially because Gen Z has the ability to adapt to change in the way that would make most people from older generations uncomfortable. You can consider them to be “radically inclusive”; wherein they value individual expression and don’t readily distinguish their online and offline experiences in the way that other generations do. They don’t differentiate between their friends in the physical world and those they’ve only known online. This is likely true, at least in part, because of the rapidly changing technology that’s always been part of their lives which likely contributes to their ability to quickly learn, their comfort levels with technology, and how much they can contribute to a company’s bottom line.

Although they bring strengths to the workplace, they may need guidance and training on soft skills that previous generations possessed so readily possessed. These are skills like how to handle clients calling your practice and how to respond to them via email, to name a couple. You’ll have to think of other ways to truly address these areas that caters to their inherent abilities like instructional videos, role-plays with co-workers, or even one-on-one training could be appreciated by this tech-savvy generation.

Low-cost Fixes to Prevent OSHA Violations

Does the phrase OSHA violations cause you to shudder in fright? OSHA, the Occupational Safety and Health Administration, should not be a scary monster – it exists to ensure you and your employees stay safe in the workplace. Slay the monster with some of these low-cost fixes to common violations.

Maintain easily accessible safety data sheets on all chemicals.
Did you know that your distribution representative has electronic copies of all safety data sheets for products they sell? Take five minutes to ask them to email those over, then put the sheet in a folder on every computer’s desktop.

Required Posters

All required posters can be obtained for free from OSHA! Make sure you check what other posters are required in your state and see if those posters are also provided free of charge. You can find the OSHA posters at this link: https://www.osha.gov/Publications/poster.html

Drink Station

At your next employee meeting, ask the staff to decide on a safe location for drinks. It should be convenient but as far away from animal and laboratory areas as possible. Then, purchase some stylish washi paper tape or fun paint and have a teambuilding activity to define the new space.

Secondary Labels

Containers of chemicals that you or your staff refills from the manufacturer’s container must be labelled. Once you have your safety data sheets, it will only take a few minutes to make a label. Consider using waterproof printable labels, a laminated piece of paper, or purchased pre-printed labels specific to your chemicals. It can seem daunting to find and label every bottle of alcohol or jar of scrub, but why not try turning it into a game of scavenger hunt bingo with the staff? Many hands make light work.

Some OSHA fixes are easier, cheaper, and faster than others. If you need to establish or rejuvenate your training and reporting programs, we are here to help. Just get in touch with our human resources gurus to find the right solution for you!

Negotiating Lease Agreements

Imagine you’re a practice owner, and your practice currently has a 12-year history of consistently grossing $1.5 million—and is actually on track to earn upwards of $2 million this year! You have three exam rooms and three certified veterinary technicians, and you’ve just hired an ambitious associate veterinarian to bring your total up to three full-time associates, with plenty of support staff. Your practice’s operations are clearly excellent and the camaraderie is there but, you’re ready. You’ve decided that enough of your life has been dedicated to the prosperity of your practice and you want to enjoy the remainder of your life with your family. You have made the decision to sell your practice.

You meet with an attorney, create your practice’s profile, and garner the attention of many corporate consolidators (CC) and private contractors (PC). Prior to entertaining any offers, your attorney asks you about your plans, including whether you’d like to remain involved in the practice, post-sale. You respond, “I think I want to retire altogether. I love my practice and my staff, and I’ll visit from time to time, but I’m pretty sure I want to spend the rest of my time with my family.” Your attorney then asks about the property and you are at a loss; you thought that once you sold the practice, the property would be sold, too. Your attorney informs you that this is not the case and sends you home with homework to complete, something you haven’t had to do in quite some time. Now you have to ponder about what you want to do with your real estate if you sell your practice.  

Do you want to relinquish or retain ownership of the real estate?

This is the first question that any facility owner who also owns the property needs to answer because this will dictate what language will be used in letters of intent (LOI). You’ll need to determine whether you want to retain the ownership of the property and lease it to the future buyer or sell the property.

If you’re looking to relinquish ownership of the real estate, then you’ll need to determine how and when this will change hands—and if this is your plan, then the remainder of this article will be purely informational. On the other hand, if you want to continue to retain ownership of the property and become a landlord, then    you should continue reading.

As a third scenario, if you currently lease your property from a third-party landlord, then your responsibility is to inform the buyer about your current lease’s terms and help to facilitate the transfer of the contract from your name to theirs.

What’s the composition of the lease?

Assuming, from this point on, that you’re the owner of your property and you want to lease it to the buyer, here’s what might happen next. Typically, the buyer will present you with a drafted lease with their terms—which likely represents their interests—and you will have to negotiate from there. Since this will be a steady stream of income for you, we’ve provided you with information to maximize the revenue you’ll receive.

For clarification purposes:

“Buyer”/“Tenant” = Buyer of your practice; “Seller”/”You” = Practice Seller & Property Owner/Landlord

Lease Terms & Renewals

When discussing the value of a lease to buyers, you’ll have to think long term, literally. Most buyers, especially the CCs, express interest in having an initial 10- to 15-year lease to retain a firm grasp on the practice’s property and to ensure longevity. This may differ for PCs. You could add more value to the lease by giving the buyer options to renew at five or ten-year increments. This assures continued operations for the practice, allows for early renewal negotiations, and makes it easier for you to refinance the property, if need be. Now, depending upon your terms, you should determine how much you will charge the buyer for rent. Typically, rent is calculated as the sum of the base rent and additional rent, but you should also consider the valuation of your property. That’s because the fair market value (FMV) of your property may help to drive the base rent that you set for the buyer.

Fair Market Value

Agreeing to a base rent can represent a risk for both you and the buyer. Here’s why. Your initial lease term would be dictated by the FMV or, rather, the price your property would sell for on the open market; however, the FMV excludes the value your practice adds to the property. Zach Goldman, owner of the real estate investment trust (REIT) company, Handin Holdings, states that the valuation of a piece of real estate is therefore equal parts of art and science. It involves noting the global picture along with (1) the structure of the specific building, (2) the real estate market of the area, (3) the quality of the practice’s operations, and (4) the economic reliability of the tenants (i.e., will they be able to pay rent).

Plus, how you value your property isn’t necessarily how others will perceive its value. As a practicing veterinarian and owner of the practice, you’ve undoubtedly worked tirelessly to ensure the prosperity of your clinic. The sacrifices you’ve made and the time you’ve spent developing the practice to bring it where it is today, though, doesn’t necessarily add much value to the property itself. Daniel Feinberg, vice president of finance at the REIT company, TerraVet Solutions, notes that a common misconception they face when speaking to veterinary practice owners is that they are often infusing their personal experiences into the property value. He advises all future practice sellers to work with REITs, like TerraVet, to help determine the value of their properties from an objective lens; this way, as a seller, you can work on adding value to your property prior to entertaining offers.

Once you’ve appropriately valued your property, you can then determine how much you should charge for your initial term of the buyer’s lease. We advise that you read the terms of the lease provided by the buyer very carefully; CCs will typically request a “reset to FMV” once it’s time for them to renew their lease. This can effectively eliminate cash flow certainty during the renewal periods and, clearly, this does not always work in your favor. Whether or not this will be advantageous to you is highly dependent upon a number of factors, including your geographic location. Typically, if an FMV reset is included, then an appraisal will be needed. If you aren’t sure whether this would negatively or positively impact you, you could create appraisal rules and limitations to include within your lease. You’ll want to answer questions that add clarity to and substantiates the FMV reset; these are questions such as:

  • What appraisal method will be used and who will be conducting the appraisal? Your choice or buyer’s choice?
  • How will the future rent be determined? Will it be based on the property’s best or highest value?
  • Will the FMV-based rent take into consideration the practice’s value?

These are only a few questions that will need to be answered and you can find more information by contacting your real estate attorney or a REIT company.

Base Rent

Base rent is the amount charged to the buyer to simply occupy the premises. It can be calculated in a variety of ways, with the two most common methods being the following:

  1. Based upon a percentage of a tenant’s gross revenues: This will complicate the lease because the lease parties need to agree on (a) the method used to calculate the practice’s gross revenues; and (b) a process to resolve disagreements.
  2. Based on dollars per square feet, with “square feet” able to be defined in a number of ways: Most commonly, leases charge a dollar per foot of either the “rentable space” or the “rented space.” The former results in a higher rent, but will likely be refuted—and, therefore, the latter will be more easily accepted. No matter what standard is used, you will need to clearly define square footage.

Whether you choose the first or second option to calculate base rent, you will likely need to negotiate specific.

“Additional rent,” meanwhile, comprises all other costs, usually related to the facility’s operations, that your buyer is required to pay you in addition to the base rent. Such costs could be a security deposit (often one to three months’ rent) and reimbursing the landlord for property taxes (monthly or quarterly).  In most cases, the buyer doesn’t pay the property taxes directly; this would typically be handled by you and then you would be reimbursed by the buyer. You could, however, require the buyer to pay you an estimate of property taxes monthly or quarterly in advance, subject to an annual reconciliation mechanism. This would consolidate the buyer’s payments while concurrently allowing you to receive a portion of the property tax amount in advance.

Types of Net Leases

Briefly, net leases help to define the relationship and responsibilities between the buyer and seller. The type of net lease—single, double, or triple—determines whether the buyer will pay, in addition to the rent, any of the following three expenses: property taxes, property insurance premiums or maintenance costs. You can equate the type of lease with the amount of responsibility, in addition to the rent, that the buyer will have. Single net lease requires the buyer to be responsible for property taxes, a double net lease will require the buyer to pay for taxes and insurance premiums, and a triple net lease will require the buyer to pay for all three additional expenses.

The goal is to minimize your responsibilities as a landlord as much as possible. Therefore, most leases are triple net leases. Reducing your responsibilities increases the likelihood that the buyer will negotiate with you on topics like rent during the initial term of the lease, liability insurance requirements, and a host of other things. Your best option would be to require a triple net expenses lease while only being required to cover the maintenance and replacement costs of the property’s structural components, such as a roof replacement or maintenance of the property’s foundation.

Annual Rent Escalations

Rent increases can be considered the norm in most veterinary practice leases today. These escalations are usually based on the Consumer Price Index (CPI), produced by the Bureau of Labor Statistics (BLS), which is essentially an average price measured over a time range. The CPI allows for you to adjust the buyer’s rent to accommodate the price change of the current real estate market. Most commonly, the escalation is represented by a percentage increase over a specified period of time. Although you are able to determine a percentage and offer it within the lease, we typically see a two to three percent increase annually. You can think of this as a compounding scheme whereas you will establish the base rent for the initial year of the lease, and each year after the buyer will pay an additional percentage. To illustrate, here is an example:

You’ll have the buyer pay a base rate of $25,000 annually during your initial ten-year lease. However, you will add the caveat that states how there will be a two percent escalation that will be applied to the base rate annually. This type of increase would result in the tenant paying nearly an additional $41,000 at the conclusion of their ten-year lease term.

This provides a better, more stable and predictable method of forecasting what income you will receive from the buyer. Ideally, you’ll consider their rent in conjunction with the buyer’s responsibilities as a tenant, so you need to also consider what kind of net lease you’d prefer for the buyer to have.

Financial Reports

In addition to your lease, you can also request an annual financial report of the practice. While most landlords don’t request this information, there are many reasons why you should. Annual financial reports allow for you to gauge the operations of the practice and determine whether the buyer will be financially self-sustaining. When requesting the financial reports from the buyer, they should typically provide you with a balance sheet, profit and loss statement, and a statement that acknowledges any changes in the financial position as well as any supplemental details to explain the change. These combined reports will provide an overall view of the financial well-being of the buyer, as well as assure you of their financial stability throughout the lease term(s).

The Guaranty

This seems like a very clear and straightforward issue, right? We generally assume that the buyer will provide the guaranty, but who exactly is the buyer? In this day and age when most of the CCs are owned by a larger corporate parent, you have to ensure that the buyer who is purchasing your practice can provide a guaranty for your lease. The company backing your lease could range from, say, Midwestern Pet Hospital, a single hospital with a limited, regional reach, to Animal Hospital Operations, a generally well-known company with multiple hospital ownerships. If you did your due diligence, you would discover that Animal Hospital Operations is owned by Krispy Kreme, a company with the financial assets to assure you they are committed.

In order for Krispy Kreme to provide you with stability, using that example, you would need to confirm that their name is listed in the lease agreement. In comparison, a review of financial statements shows that Midwestern Pet Hospital has had a fluctuating history of financial stability and only within the past three years has begun producing competitive revenue. Which buyer would you choose to back your lease? You’d likely selected Krispy Kreme and rightfully so. The point here is that you should always ensure that the buyer can either provide a corporate guaranty from their parent company or can provide enough evidence to convince you that they can uphold tenant responsibilities and, essentially, foot the bill.

Assignments

An assignment clause in a lease essentially allows for the tenant to transfer the lease, and all associated tenant responsibilities, to a different entity. However, this is typically an area that you as the landlord will want to specify and limit. Commonly, CCs like to freely transfer their leases to any affiliated entities, which would almost certainly diminish the value of your property for multiple reasons. First, if the buyer was allowed to sublet or freely assign the lease, then they would receive the revenue generated from the sublet, not you. Second, if the tenant isn’t up to par, then the value of the property itself could be driven downward. Therefore, it’s in your best interest to add provisions to prevent this free assignment. For example, you can negotiate by stating that the buyer can only assign their lease to a guarantor with a net worth that is equal to or greater than the existing guarantor. This ensures that your property’s value does not decrease and that the tenant responsibilities are financially accounted for.

Are there any outstanding rights of first refusal or offer (ROFR/ROFO) with your real estate?

The ROFR and ROFO concept can be off-putting for many buyers and could severely diminish the quantity of offers you may receive. To explain, there are many variations on a theme when discussing ROFRs and ROFOs, but they all center on the fact that, as the seller, if you receive an offer to purchase the property, you are legally bound and required to send notice of the full offer to whomever holds the ROFR/ROFO. If the offer is incomplete or if you don’t give the holder sufficient notice of the offer, you have now made yourself, as the seller, vulnerable to one of two scenarios:

  • being sued for failing to protect the rights of the ROFR holder
  • losing the interest of the buyer because the ROFR holder didn’t respond or didn’t receive the notice of the full offer with enough time to respond

In some instances, there’s the ROFO, which is currently defined as “an offer made in good-faith” by the seller. This means that the seller will inform the holder of a reasonable offer before any official listing of the property or entertaining of such offer. The holder can either refuse or accept the offer. With a right of first refusal, the ROFR holder can opt to match or counter the buyer’s offer. This leaves you vulnerable to losing your initial buyer’s interest because the buyer won’t, or can’t, raise their offer to purchase the estate. Your practice facility’s future is subject to the demands of the holder. You can choose to accept their offer or remain the landlord. As you can see, the impact of the ROFO/ROFR can be quite significant; therefore, you should carefully review any and all documents for such a clause.

What are your expectations of the buyer?

As a practice owner preparing for the next step, it is important that you think about your lease, your practice, and your future, post-sale. You have to determine what responsibilities you are expecting the buyer to take on and be willing to negotiate those from the very beginning. Knowing what terms of your lease are non-negotiable from your perspective before you begin the bidding process could prove to be advantageous because you can provide them with your terms and negotiate from there. With respect to the lease obligations, the buyers can’t change the terms of the deal or alter the purchase price later in the process because you’ve already informed them of your lease terms and have negotiated the obligations at the start. Informing your buyers of what the lease terms are in the beginning and having that full transparency gives you the most leverage to guide the conversation how you see fit.

So, what does all of this mean?

There are numerous points to consider prior to the sale of your practice to prepare you for negotiations.  The process of selling your practice can be long, and it can easily be extended if you have not addressed your personal, practice and/or property needs. Many sellers are not prepared to deal with a facility lease when they sell their practice, but doing your homework now can give you the knowledge and confidence to negotiate a lease with your buyer that will benefit you for years to come.

WORKS CITED:

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  2. Lacroix, Charlotte. “Property Lease Dangers, Part II” | Real Estate, 2012, Veterinary Business Advisors, Inc. http://veterinarybusinessadvisors.com/wp-content/uploads/2016/07/Property_Lease_Dangers_Part-2_2012.pdf
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