Texas-Based Marijuana Companies Facing Flood Of Cannabis Competitors Playing Under Different rules

By Melissa Repko
The Dallas Morning News

WWR Article Summary (tl;dr) As Melissa Repko reports, “A flood of unregulated cannabis products is one of the challenges facing Texas’ three medical marijuana companies pioneering a new state industry and trying to turn a profit.”

The Dallas Morning News

Employees from Compassionate Cultivation have driven their fleet of Priuses to nearly every corner of Texas to hand-deliver bottles of medical marijuana.

But at nearby gas stations, smoothie shops and convenience stores, Texans can find products with different ingredients and dubious legality that go by the same name. With a swipe of a credit card or a wad of cash, they can buy CBD products and walk out the door.

A flood of unregulated cannabis products is one of the challenges facing Texas’ three medical marijuana companies pioneering a new state industry and trying to turn a profit.

As lawmakers meet in Austin for this year’s legislative session, the companies want the state to expand the program and crack down on unregulated cannabis products they see as threatening their businesses and the public.

“I’m not usually one to talk about more regulation, but this is a patient safety matter,” said Marcus Ruark, president of Surterra Texas, one of three companies licensed to grow in Texas. “In this case, this is really important.”

If lawmakers don’t make changes, said Heather Fazio, director of Texans for Responsible Marijuana Policy, they risk putting Texas’ fledgling medical marijuana industry out of business.

“It’s unacceptable for the state to have invested so much and rolled the companies out, if we are just going to allow it to go by the wayside,” she said.

A growing industry
Texas established a limited medical marijuana program, and paved the way for the state’s cannabis businesses, when it passed the Compassionate Use Act in 2015.

The law required the Texas Department of Public Safety to issue licenses to at least three companies by September 2017. Licensees can grow marijuana, produce cannabis-based medication and sell it to patients. The state agency started a registry of doctors who treat and can recommend cannabis to Texans with epilepsy.

Three companies received licenses: Surterra Texas grows and operates in Austin, but its parent company is based in Atlanta. Miami-based Knox Medical, licensed as Cansortium Texas, grows and manufactures in Schulenburg, a rural town about 100 miles northeast of San Antonio. Compassionate Cultivation, founded and led by a group of Texans, operates in Manchaca, just outside Austin.

The cannabis-based medicine is used to control epilepsy-related seizures that can be frequent, debilitating and even deadly. It is typically sold as bottles of drops or sprays that can be taken under the tongue. Prices range from about $95 to $340, depending on the company and the bottle’s size.

But the program is limited in scope, so limited that many advocates don’t call it a medical marijuana program.
Only Texans with intractable epilepsy, a population estimated between 102,000 and 136,000, according to the Epilepsy Foundation of Texas, are allowed to buy the medication. Before they can qualify, they must get two doctors to prescribe cannabis and prove that they’ve tried to use FDA-approved drugs.

Unlike in other states where medical marijuana is legal, the CBD products are low in tetrahydrocannabinol or THC, the compound that gives marijuana users a high, and cannot be smoked. Companies must deliver or sell every product in person.

The three companies have built-in business challenges. Their market is limited by Texas law. Their products, considered a restricted drug by the federal government, are not covered by health insurance. And they have a new FDA-approved rival: Epidiolex, the first approved cannabis drug to hit the market.

But the latest threat to business has been unleashed by a federal law that brought hemp-based CBD products to a wide range of retailers, from gourmet grocers and mail centers to luxury department stores. The products are made in other states and come in a variety of forms, from gummy bears to capsules.

Hemp and marijuana are both varieties of the cannabis plant, but hemp has low or untraceable amounts of THC. Hemp can be used for industrial and construction materials, turned into beauty products like lotions or consumed as protein powders, gummies and oils.

In December, Congress removed hemp from the federal list of controlled substances when it approved a farm bill. Senate Majority Leader Mitch McConnell championed hemp legalization as a new and promising crop for farmers in his home state of Kentucky and other states, including regions that used to grow tobacco. The federal law defined hemp as having no more than 0.3 percent of THC.

Under state law, cannabis products made by the three Texas licensees have a slightly higher threshold: no more than 0.5 percent of THC.

After the farm bill’s passage, products from CBD oils to CBD-infused cookies, already easy to buy online, have become a more common and trendy offering. By 2025, the market of CBD beauty, health care and food products could generate $16 billion in retail sales, according to Cowen Research.

Dallas-based luxury retailer Neiman Marcus now sells cannabis beauty products like serums and lotions online and in some of its stores. Another luxury department store, Barneys New York, announced plans for a cannabis boutique called The High End in its Beverly Hills location. Even lifestyle and home decor maven Martha Stewart is teaming up with a Canadian company for a line of CBD products for pets and people.

A crowd of cannabis products
At an independent pharmacy in Oak Lawn, customers can choose from a large selection of CBD products such as lotions, oils and bath bombs. The products qualify as hemp, since they are no more than 0.3 percent of THC. They’re made in other states, including Colorado, Kentucky and Oregon.

Emile Abdo, the 30-year-old owner of Uptown Rx Pharmacy and Nutrition, said he never imagined he’d sell cannabis products when he was studying to become a licensed pharmacist. He said his perspective changed when he learned about CBD at a pharmaceutical conference and began researching its health benefits.

The small pharmacy fills prescriptions, compounds medication and sells wellness products, such as vitamins and protein powders, but Abdo said CBD drives about 75 percent of sales. Most customers, he said, are seeking a remedy for anxiety, chronic pain and insomnia. He said some buy products for their autistic or epileptic children.

Abdo realizes he’s operating in a gray area of state law, since federal law, but not state law, has legalized hemp. He said he only carries CBD products if he’s reviewed lab results that verify their ingredients.

He’s worried about customers getting scammed by fake or dangerous CBD products. Some are just hemp oil that can be used for cooking. Others have fillers like corn syrup or harmful contaminants like heavy metals and pesticides, which could make a person sick.

Nearly every day, Abdo said, he gets phone calls or samples in the mail from companies hawking unproven and sometimes gimmicky products like candies or infused waters.

“It’s stuff like that that will probably ruin it for brands that are selling [CBD] for legitimate purposes,” he said.

Business challenges
A year ago, Compassionate Cultivation opened Texas’ first cannabis dispensary, on the outskirts of Austin. It resembles a health clinic with a colorful waiting room, front desk and friendly staff that answers phone calls and questions.

Morris Denton, its chief executive, said growth in the number of patients and doctors joining the Compassionate Use program has slowed.

Just a fraction of Texans with intractable epilepsy, 686 people, are part of the program, according to the Texas Department of Public Safety. Fifty-three doctors have registered to prescribe cannabis. Most are based in metro areas, such as Dallas, Austin and Houston.

Jose Hidalgo, CEO of Knox Medical, said some Texans have trouble accessing the medication because they live in rural areas and do not have doctors nearby who can sign off on an order.

And some doctors fear repercussions for prescribing a medication that’s not FDA-approved and classified by the federal government as a controlled substance, said Fazio, director of Texans for Responsible Marijuana Policy.

Denton said he wants more Texans to have access to the medicine, especially after seeing it help people with epilepsy. One of the company’s customers, a teenager, used to have dozens of seizures a week and couldn’t be left alone. The 16-year-old hasn’t had a seizure in months, and she recently got her driver’s license.
“This is a girl who has been given her life back,” he said.

If Texans are sick and can’t get the medicine, Denton said, they may turn to off-the-shelf CBD that doesn’t have quality controls that make it safe and consistent. He’s been frustrated by the hype around unregulated and unproven CBD products _ “a wonder drug that can cure cancer and make your bed.”

“The vast majority of those products are garbage,” he said. “We’ve tested a lot of them and not a single one is what it says it is on the label.”

In Miami, news station NBC 6 purchased 35 CBD products from seven companies, including five products of each brand, and tested them at an accredited lab. Of the 35 samples, 20 had less than half of the amount of CBD listed on the label. Some had none at all.

In another report by a New York station, NBC 4, an independent lab found dangerous amounts of lead in one CBD product and a high amount of pesticides in another.

The Texas Department of State Health Services can detain products labeled as CBD because they’re not approved by the FDA for use in food, dietary supplements or cosmetics _ but the agency largely has taken a hands-off approach.

A spokesperson said the state agency has detained CBD food products fewer than five times in the past two years, and none in the past seven months.

Despite challenges and confusion, all three companies say they’re in Texas for the long haul. But they’d like to see their market and profits grow.

Compassionate Cultivation counts the majority of Texans who are part of the Compassionate Use program as customers, but the company hasn’t turned a profit yet, Denton said. It’s served about 500 of the 686 registered patients.

About 400 patients are active customers, spending $320 a month on cannabis-based medicine, he said.

Surterra Texas and Knox Medical declined to say how many patients they’ve served and whether they are profitable. Both operate in other states.

Knox Medical sells products in Pennsylvania, Puerto Rico and Florida and has international operations in Canada and parts of Latin America.

Surterra Wellness, the parent of the Texas company, is led by William “Beau” Wrigley, the former CEO of the gum and confections company. The 600-person company has more than 20 wellness centers in Florida, where it is licensed to treat patients for more than 12 conditions. It acquired a cannabis company in Nevada and recently agreed to buy a Massachusetts company for an undisclosed price.

The companies said expanding the list of eligible medical conditions for their more potent products would allow them to manufacture in larger quantities and drive down costs for patients and their families.

Texas lawmakers are considering a record number of cannabis bills this session. Some would expand medical conditions that are part of the Compassionate Use program.
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Others would reduce criminal penalties for possession of marijuana or legalize hemp.

Rep. Stephanie Klick, R-Fort Worth, authored the bill that created the Compassionate Use program four years ago. She supports expanding the program and has filed a bill that would add multiple sclerosis, spasticity and all types of epilepsy.

Klick said she’s been motivated by her years as a registered nurse and the stories of Texas families.

Along with expanding the program, she said Texas must come up with a way to regulate or restrict CBD products made in other states and sold over the counter.

“That is going to be one of the challenges,” she said. “But if people are misleading the public as to what the actual content is and it actually has something that may be harmful, that’s a problem.”
What you need to know about cannabis terms

Not all cannabis is created equal. Here’s a primer:

Marijuana is the better-known variety of the cannabis plant. Though legal in some states for medical and recreational use, the federal government considers it a controlled substance. It has high levels of tetrahydrocannabinol, or THC, the psychoactive compound that gives marijuana users a high.

Hemp also comes from the green, leafy cannabis plant, but has low levels of THC. It won’t get users high. It’s used for industrial products, such as ropes and construction materials. It can also be turned into consumable products, like protein powder for smoothies. The federal government legalized hemp with the passage of the farm bill. It defined hemp as having no more than 0.3 percent of THC.

CBD is the shorter name for cannabidiol, a compound in the cannabis plant. It can be infused into lotions, gummies and numerous other products. The products are used for both proven and unproven medical purposes, such as minimizing seizures, soothing aches and pains and helping with insomnia or anxiety. Though easy to find in stores and online, CBD products are not authorized by the FDA for food, dietary supplements or cosmetics. Without oversight, they vary widely in quality and consistency. In some cases, they have less CBD than advertised. In others, they have high levels of lead and pesticides.

CBD oil is a popular cannabis product that’s typically sold as a bottle of drops. It can come from the hemp or marijuana plant. In Texas, three companies have state licenses to grow marijuana and produce CBD oil with no more than 0.5 percent of THC as part of a limited medical marijuana program.

Compassionate Use Program is Texas’ medical marijuana experiment. It was created by the Legislature in 2015. Three companies have licenses to grow marijuana, produce cannabis-based medication and sell it to patients. Doctors must register with the state before prescribing cannabis. To qualify, Texans must have intractable epilepsy, two prescriptions from doctors and proof they tried FDA-approved drugs that failed to help.

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