Future of medical pot is all about insurance, Starseed CEO says

Union-backed firm strives to lock up ties with large groups of consumers

If Canada’s medical marijuana system is going to survive and thrive after recreational legalization, the key will be employee health-care plans, according to a union-backed cannabis company that’s betting big on insurance coverage.

“It will just be a lot easier for somebody to avoid having to see a physician ... and just walk into an (Ontario Cannabis Store) and just purchase product,” said Angelo Tsebelis, president of Starseed Medicinal Inc. “The key differentiator (for medical marijuana) will be paid benefits.”

With recreational marijuana set to become legal in the coming months, the weed industry is in the midst of a large-scale pivot. Most licensed producers continue to talk about supporting medical patients, but the momentum is clearly on the recreational side, and companies are increasingly focused on launching consumer brands and jockeying for position in recreational retail channels.

Starseed, by contrast, is focused exclusively on the medical market. And the private cannabis company, backed by the Laborers’ International Union of North America (LIUNA), one of the largest construction unions in the country, is using a business model that appears to be novel in the marijuana space.

Rather than chasing individual medical patients, Starseed intends to partner with health plan sponsors — unions and other large employers — to get preferential access to large groups of potential customers who have marijuana covered by their insurance plans.

It’s testing the model with LIUNA, which has roughly 120,000 members in Canada. LIUNA’s pension plan is also a “significant shareholder” of Starseed.

“Construction workers typically over-index towards chronic pain and injuries, so it was sort of right time, right place,” said Stephen Ng, the company’s chief financial officer.

The partnership lets Starseed speak directly to union members on health and wellness days, and the company is working with LIUNA’s insurance providers to make the reimbursement process easier.

“We get to be the ones telling the story about how does medical cannabis work, is it right for you ... That direct relationship is pretty powerful,” said Tsebelis, a former director of payor strategy for Shoppers Drug Mart.

“And it’s not like walking into any other LP, where you pay for it, then submit your invoices back to the insurer and wait to get reimbursed. We are streamlining the process for them.”

It’s still early days for the company, which is backed by heavy hitters from Bay Street and the medical world, including former CIBC Wood Gundy chief executive Ed King and former Canadian Medical Association president Dr. Hugh E. Scully.

But the strategy could allow it to lock up relationships with large groups of well-insured consumers, potentially insulating it from a migration of medical patients into the recreational market.

The company ’s focus on the medical market is also a margin play, said Tsebelis. Medical cannabis is shipped straight to the consumer without passing through government wholesalers and retailers, as will happen in the recreational market. “There is no intermediary in there, so you have the ability to capture the margin from end to end,” Tsebelis said.

Starseed purchased an underutilized licensed facility in Bowmanville, Ont., from Canopy Growth Corp. last fall for $7 million, and has a three-year supply deal with Canopy.

Going forward, it intends to source the majority of its cannabis wholesale from other growers and then turn it into a finished medical product.

It will just be a lot easier for somebody to avoid having to see a physician ... The key differentiator will be paid benefits.