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.

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