Between the extraordinarily high barrier to entry for businesses and the hyper-restrictive program for patients in Texas, it’s worth asking the question: Is there enough of a market to support the state’s three licensed medical cannabis companies?
“I don’t know. That’s the $5 million question,” says Morris Denton, CEO of Compassionate Cultivation, one of the three companies licensed to produce and sell medical cannabis in the Lone Star State. “If the patient ramp continues at the current pace, there could be. If it trails off, we’ll need to see expansion.”
Texas began licensing medical cannabis businesses in 2017, but it’s quite possibly the most restrictive program in the nation among states that allow some form of cannabis sales through licensed dispensaries.
The only patients that qualify for the program are those with intractable epilepsy who have tried conventional anti-seizure medicine without success and have been authorized by multiple doctors to try medical cannabis. Licensed cannabis companies can only produce low-THC, high-CBD cannabis extracts. Plus, each company must be 100% vertically integrated, meaning they are the cultivator, processor, retailer and distributor all rolled into one — and they must have their own in-house testing lab.
“It’s a complex business that has zero boring days,” Denton says.
Education emerging from the shadows
Despite being in one of the most conservative states in the country, two cannabis advocates have set up shop in Dallas with the goal of providing educational services to those interested in learning more about cannabis as a medicine or working in the cannabis field.
Co-founders Holly Law and Bridget Black established the DFW Academy of Cannabis Sciences to help legitimize medical marijuana in Texas, with its first course beginning Aug. 4, 2018.
Informational courses will cover all aspects of legal cannabis from cultivation to medicinal use and are targeted toward “anyone who wants to know the truth about this incredible plant medicine,” the founders say.
“It’s time to come out of the shadows,” Black says. “We are training up a new workforce for a burgeoning industry and taking away the mystery and stigma of a vilified, inaccurately demonized plant that has been put here for our good.”
In addition to common medicinal uses, including as a treatment for epilepsy and chronic pain, many are beginning to look at cannabis for its potential to curb the nation’s opioid problem.
“Opioids are an epidemic scourge on our society and culture; they lie, cheat and steal the lives of our citizens in the most calculated way,” Law says, having witnessed the destructive impact of prescription opioids that led to her mother’s death.
“At first I thought, ‘It didn’t have to be this way,’” says Law, who spent 15 years in the pharmaceutical and biotechnology industries. “I was so angry. And then I realized it did have to be this way because of the laws here in Texas, and I became angrier still and filled with a sense of purpose.”
— Garrett Rudolph
Like many green rush entrepreneurs, Denton never imagined he’d be working in the cannabis industry.
The 55-year-old businessman has been involved with a number of traditional companies, ranging from failed startups to Fortune 500 companies and everything in between.
Two years ago, he began to seriously consider whether to pursue a cannabis business license. Texas had passed the Compassionate Use Act in 2015. Denton and another partner had a running debate for the better part of a year, trying to come up with reasons not move forward.
“Frankly, none of those reasons were compelling enough,” he says.
Compassionate Cultivation was awarded its provisional license on May 1, 2017. After receiving its final license and planting its first set of seeds on Halloween, the company harvested its first crop on Jan. 19, 2018 and began selling cannabis oil to Texas patients on Feb. 8. In May, the company was named to the Austin A-List of the Hottest Startups, an annual award sponsored by South by Southwest and the Austin Chamber of Commerce that recognizes the top new businesses in the city.
According to Denton, Compassionate Cultivation is unique in that he and his fellow co-founders are all native Texans. Consortium Texas (Knox Medical) and Surterra Texas, the other two licensees, are subsidiaries of Florida-based companies.
But while Compassionate Cultivation and the state are seeing good traction in terms of patient enrollment, it’s too early to say whether that trajectory will continue.
In order for the company to succeed, Denton says three things have to happen.
First, the company must create medicine that is high-quality, consistent and delivers on the promise of helping patients.
Second, the company must operate with transparency and integrity.
“We can’t afford any slip-ups or blemishes,” Denton says. “We need to hold ourselves to a higher standard than the average business.”
Finally, Compassionate Cultivation must be “something that survives on its own two feet and creates a profit for investors and shareholders,” Denton says.
“If any of those three things don’t happen, the business falls in upon itself.”
Cannabis as a Medicine
In order to serve such a narrow patient base and maintain a high standard of consistency and quality, Compassionate Cultivation built a world-class facility and brought in a team of experts to handle the varied needs of the company, from cultivation to extraction to logistics.
Compassionate Cultivation has nearly $2 million invested in laboratory and testing equipment, the most important of which, according to Denton, is the flash chromatography system that allows the company to identify and isolate on a molecular level 100% of the content of the medicine that it produces.
“In effect, it allows us to be a compounding pharmacy,” Denton says.
So far, the response from patients has been quite positive. Denton says roughly 70-80% of the company’s patients have reported a reduction in the number or intensity of seizures, or improvement of cognitive capabilities or behavioral issues.
“When we define success, it could be one or all of those four things,” he says.
Compassionate Cultivation has also partnered with the Epilepsy Foundation to subsidize CBD products for patients based on demonstrated financial need. Compassionate Cultivate donated $5,000 initially and will continue to fund the program by donating a portion of proceeds from the sale of non-cannabis merchandise.
“It’s a way for us to be able to extend the reach of this medicine,” Denton says. “There is a real pent-up need for this medicine. People view this as their last resort, but because it’s not covered by insurance and because it has to be paid for out of pocket, they are concerned about the price.”
The Texas Program
In many ways, the growing acceptance of medical cannabis crosses over most spectrums of American politics, from liberal to conservative. But medical programs in traditionally red states still come with miles of red tape. Texas is a prime example.
While 30 states have legalized medical marijuana, several others, including Texas, Georgia and Iowa, have passed legislation that allows some form of high-CBD cannabis to be used for medicinal purposes.
Texas’ Compassionate Use Act features a particularly onerous set of restrictions for patients. In order for a patient to gain access to medical cannabis, they must have first tried two other readily available forms of anti-seizure medication without success. They also have to receive approval from not one, but two doctors who meet certain board certifications and qualifications for treating epilepsy and are registered on the state’s Compassionate Use Registry. The state has more than 28 million residents and an estimated half-million people with epilepsy, yet there are only 42 doctors on the Compassionate Use Registry.
State-legal cannabis products are limited to no more than 0.5% THC by weight and must be at least 10% CBD. For any refills, the doctor has to enter into the registry any patient observations, including reduction/increase in frequency or intensity of seizures. That information gets collected and stored anonymously within the registry, so the state can evaluate the efficacy and impact of CBD over time.
“This is pretty unique,” Denton says. “The subtext is that if there aren’t enough people who qualify through the very stringent, very restrictive definitions, then Texas needs to look at that, but the Legislature won’t meet again until January 2019.”
Doctors that are authorizing patients to use medical cannabis are still in the process of learning how CBD works and how to recommend doses.
“A lot of patients are still trying to dial that in with their doctors,” Denton says, but points out that a lot of patients are seeing success at lower doses than originally expected.
“That speaks to the power and potential of the medicine.”
Without a doubt, CBD is a trend that is sweeping the nation. While plenty of research still needs to be done, many believe it could be the next aspirin, in terms of medical breakthroughs.
“In Texas, just like in a lot of other states, people are seeing the potential for the healing power of CBD,” Denton says. “Some of it might be hype, but a lot of it is real.”
The result is a “groundswell of CBD products flowing into the state,” he adds, pointing out the numerous unlicensed CBD stores popping up around the state, as well as the droves of online retailers shipping products across the country. In some ways, these retailers compete with the three licensees in Texas, because consumers can purchase CBD without a doctor’s recommendation, oftentimes at a fraction of the price. But these products also threaten the legitimacy of CBD as a medicine, because the recipients have no way of knowing what they’re getting.
“We’ve tested dozens of these products,” Denton says. “With the exception of just one out of those dozens, nothing came close to being what it said. Everything else was way off.”
Numerous other studies support Denton’s findings. Depending on the retailer and the manufacturer, some so-called CBD products contain only a fraction of the CBD they claim. Others have none whatsoever or may even contain THC. Patients may find products that work one time, but not another, or it might even make them feel worse.
“This huge sloppiness has a huge negative impact on the medical cannabis industry,” Denton says. “It’s a big problem on a national level and a big problem in Texas. Unfortunately, it’s the consumer who’s paying the price.”
Exactly how this will ultimately be resolved is anybody’s best guess. But Denton says it’s clear some type of regulation is necessary.
“It is the very definition of the Wild West snake oil, and that is a huge, huge issue that has to be resolved,” he says. “There are businesses out there doing it right, but for every one of those, there are 10 or 20 others that are just looking to make some quick money while there’s confusion in the market.”
Winds of Change
All across the country, former cannabis opponents — including high-profile politicos like former Speaker of the House John Boehner — are flip-flopping, particularly on medical marijuana.
“I think that some people are quick to point out that they’re changing their tune because of the financial upside or seeing the momentum shifting,” Denton says. “But they can also be changing their tune because they’re seeing the science and the efficacy of the medicine.”
According to a Quinnipiac University poll in April, 63% of people surveyed nationally said marijuana should be legal — the highest number ever in a Quinnipiac poll — and 93% said marijuana should be legal for medical purposes if prescribed by a doctor.
Even in deeply conservative states like Texas, the tide is shifting toward legalization, with 61% of Texans in support of “allowing adults to legally possess small amounts of marijuana for personal use,” according to a Quinnipiac poll.
In June, the Republican Party of Texas adopted several cannabis-related items to its official party platform: support for decriminalizing marijuana, rescheduling marijuana at the federal level, expanding the state’s medical marijuana law and legalizing hemp production.
“I think in Texas we’re going to see ongoing transformation and ongoing expansion of medical cannabis laws,” Denton says. “I don’t know that we’re going to see an adult-use market any time soon, but a variety of illnesses should have access in two to four years.”
He believes the work of Compassionate Cultivation can help that process by contributing to the authentic, credible story of cannabis as a medicine.
Considering the pace with which cannabis policy is evolving, he says, it’s almost impossible to predict where the industry will be in the next two years. After all, he adds, two years ago he certainly didn’t see himself running a business that grows and sells cannabis products.
“The winds of change often take a long time to shift directions, but once they reach that inflection point, they can really start to howl,” Denton says. “I think we’re seeing a big shift in the change of direction and I think it’s going to pick up speed.”