Legalization and the Untapped Opportunity in Medical Marijuana
Stella M. Sung, Ph.D. and Ben Sandberg
Marijuana proponents in the U.S. often create parallels between the contemporary mood regarding cannabis legalization and the termination of Prohibition. They debate that legalization – unlike medical cannabis – will attract millions of customers out of nowhere, spurring an enormously profitable “Green Rush.” As investments showered into marijuana companies in 2014, the hope of an imminent boom implied considerable risks in connection with the industry, drawing investment attention and funds away from medical cannabis and toward recreational marijuana.
This change in investors’ attention lays on a crucial misreading of the end of Prohibition. Prohibition was terminted with the ratification of the 21st Amendment on December 5, 1933. At the time, H.L. Mencken famously noted,
“It seems almost a geologic epoch while [Prohibition] was going on, and the human suffering that it entailed must have been a fair match for that of the Black Death or the Thirty Years War.”
Mencken’s announcement perfectly secures the irresistible social, political and economic strength propelling ratification of the 21st Amendment (even Utah ratified!). Similar forces are not at the ready for cannabis. Cannabis legalization will not end up as the result of a constitutional amendment.
The situation becomes how far will state-by-state legalization go? How many might team up with Colorado, Washington, Alaska and the District of Columbia, and by when? At current rates, we could fairly expect cannabis to be legal in 6-8 states by 2020, maybe as many as 15 by 2025. How long will it be before the federal government considers rescheduling marijuana? Most likely not in 6-8 states, but it would be difficult to entirely ignore 15 states. Finally, how might the feds reschedule cannabis? All marijuana? Certain strains? For all benefits or only for research?
The amount of states that end up legalizing pot naturally should most likely be examined more closely, but there is a small chance the state-by-state approach will have as big an impact as the termination of Prohibition involving the alcoholic beverage industry.
So let’s examine the potential influence of state-by-state legalization on the appeal of marijuana companies as potential shareholders.
First, a state-by-state stand point to legalize marijuana will give a relatively modest gain for demand. A fair amount of states are said to legalize in the next 5 years. Those that do will pass and implement legislation, license cultivators and processors, and establish distribution outlets – mainly dispensaries. Each legalizing state will be an isolated market, with its own developers, marijuana products, and distribution outlets. Legalizing states are not likely to forego tax revenues in connection with cultivating, processing and distributing marijuana; states that legalize marijuana will require cannabis businesses to be contained in state, and for the business owners to be state residents.
Second, a state-by-state standpoint does not help to decline the risks facing many marijuana businesses. No other modern agribusiness faces the sheer number of existential obstacles that meet face to face with marijuana companies: Not much access is granted to basic banking and electronic payment systems; restrictions on interstate transport of marijuana in most forms; in-state co-op requirements; even marijuana’s Schedule 1 classification. Regrettably, investments in companies concerned with “Second End of Prohibition” opportunities in legalizing marijuana in states have a higher risk and are less attractive for investors.
Third, legalizing marijuana is most likely to happen in states with cannabis marijuana is accepted. States without the latter programs, it stands to reason, are poor candidates for legalizing cannabis. A state that does not have a medical marijuana program is not likely to legalize cannabis before making it accessible for patients. Medical marijuana businesses will be properly positioned to compete in recreational cannabis, with their knowledge of growers, trimmers and processor, extractors, dispensaries, etc. Legalization in Colorado and Washington has proven how existing medical cannabis programs can affect the supply and distribution of recreational marijuana. For example, the top dispensaries for Colorado’s medical cannabis program have taken leading roles in the use of legalization.
Investors may be better prepared by concentrating more on medical marijuana. California became the first state with medical cannabis in 1996, and 23 states and the District of Columbia have approved or have given access to medical marijuana programs through 2014. In states with medical cannabis, there are
- 1 million patients, 600,000 registered (90,000 registered in California voluntarily, estimated 500,000 total with marijuana recommendation from physician)
- 140 million adult residents
- 23 million adult residents suffering from arthritis and chronic joint pain
- Millions more with conditions treatable with medical marijuana, including cancer and HIV, epilepsy, PTSD and fibromyalgia.
Contrary to recreational cannabis, medical marijuana is currently available in almost half the U.S. and has been going on for decades. There are less unknown, and a broader acceptance of medical marijuana. There are clinically valuable medical marijuana products – “cannaceuticals” – that can be derived from industrial hemp and have little or no psychoactive result when using marijuana. Products containing CBD oil – topical creams for relief of musculoskeletal pain, sublingual wafers and gel caps for the treatment of epilepsy – can be distributed legally through the nation, and have no psychoactive effects what so ever, and are manufactured using tightly contained procedures which yield consistent, high-quality product.
Medical cannabis offers pot companies with the necessary supply chain, products, medical and scientific knowledge, and experience with ingredient sourcing a timely and unique opportunity to develop a “cannaceutical” company with returns closer to pharma than agribusiness.
There is a important need for clinically effective, safe and consistent marijuana-derived therapeutics. Medical pot businesses have not innovated well. Most marijuana companies do not have a Chief Medical Officer or Chief Scientific Officer, never mind development infrastructure. Innovation is needed crucially in the following areas:
- Drug delivery – topical creams with penetrating substrates, sublingual wafers, gel caps, vaporizers with precisely engineered tincture and oils;
- Refinement/isolation of different components of marijuana – CBD, other essential oils, THC;
- Manufacturing process improvements – micronization, CO2 extraction.
It is a good time to become a shareholder in medicinal marijuana, particularly CBD-based products and hemp-derived products. The lion’s share of attention and competitive activity has been focused on recreational cannabis in Colorado and Washington. Medicinal marijuana has been written off or forgotten, though there is a true opportunity to sell “cannaceuticals” to tens of millions of of people across the nation with arthritis or musculoskeletal pain, whether they live in a state with medical marijuana or not.
In determining the opportunity in marijuana, it is important to state that the differences between the first and second Ends of Prohibition are less desciptive than the parallels. Most would agree pot will become legal throughout the U.S. eventually, and the world will feel quite a change from then than now. Currently, it shows that the best road to success as a marijuana company in a future where cannabis is legal is through medicinal marijuana generally, and through the come up of “cannaceuticals,” which are innovative, non-psychoactive, and legal yesterday in all states through out the nation.
This article was written by, DR. Stella Sung