Houston firm vies for medical marijuana license
Vertical farming company would produce cannabis for epilepsy patients and research
A joint venture involving a Texas Medical Center-based startup and a Houston company that specializes in indoor vertical farming is bidding for one of the first licenses to dispense medical marijuana in the state.
Approval would make a business group with strong local ties a pioneer in the production of lowTHC cannabis under a program that was authorized by the Texas Legislature two years ago but has yet to launch. Though significantly smaller in scope than legalization statutes in other states, the initiative would at least give Texas a toehold in what is expected to be a $20 billion industry within the next three years.
The group led by Houstonbased engineering and procurement firm Indoor Harvest is among 43 statewide seeking a license to produce a specific strain of cannabis for sale to patients of intractable epilepsy who have a doctor’s prescription. The Department of Public Safety has until Sunday to grant provisional approval for dispensary licenses.
In preparation, Indoor Harvest is planning to acquire Alamo CBD, a San Antonio company that actually applied for the state
license in March.
“We’re looking at this from a pharmaceutical point of view,” said Chad Sykes, chief innovation officer for Indoor Harvest, currently best known for vertical farming projects to supply higher-end restaurants with organically grown fruits and vegetables.
The initial phase of the proposed $5 million cannabis project would entail opening facilities in Wilson County, east of San Antonio. Indoor Harvest would provide the high-pressure aeroponic technology that Alamo would use to grow the marijuana plants in a 54,000-square-foot facility without the need for fertilizer or pesticides. Patients could have their prescriptions filled at a 3,600-square-foot dispensary next door.
Indoor Harvest and Alamo feel their chances of getting one of the licenses are bolstered because they are partnering with Vyripharm Biopharmaceuticals, which is housed in the Medical Center’s incubator for emerging biotech companies, for a strong research component.
Vyripharm would take a portion of the cultivated cannabis and its researchers would assess the health benefits of the plants’ chemicals through a patented testing method that tracks where the drug metabolizes in the body, and how its effects can differ between individuals, said Elias Jackson, the company’s president of research and development.
Such methodology would fill in a major gap in the national medical cannabis industry. Currently most evidence in the U.S. on the health benefits of the cannabis’ chemicals is anecdotal rather than scientific, said Franklin Snyder, a Texas A&M law professor who studies cannabis policies.
“All studies done that are worth anything are currently coming from overseas,” he said.
Classified as Schedule 1 drug
The lack of concrete data in the U.S. can be attributed to the Drug Enforcement Administration’s continued classification of marijuana as a Schedule I drug, along with such notoriously abused narcotics as heroin and LSD. Even though 29 states have legalized some form of medical cannabis, the federal law has deterred broader participation in the market.
For the past 50 years, the University of Mississippi has been the only institution permitted by the DEA to grow cannabis for research purposes. National and regional leaders in the legalized cannabis industry say the university’s product lacks the quality needed for scientific research.
The DEA’s reasoning behind limiting registered growers to one entity was that at the time, the national demand for research on cannabis’ medicinal properties was low.
Yet research groups now value the legal cannabis market at $7 billion as of last year and predict it will grow to $20 billion by 2020.
The market value has grown thanks in part to more individual investors and small banking institutions such as credit unions and state banks agreeing to finance legal cannabis businesses.
In August, the DEA agreed to expand the number of registered growers that can provide cannabis for research. Should Alamo secure a Texas license, and thereby be acquired by Indoor Harvest, the Houston-based company would apply to join the DEA’s registry, with Vyripharm being a key recipient of the product.
Though interest in the cannabis industry is growing, just 22 organizations have applied for the DEA registry so far, the agency said. And mainstream banks and major investors continue to opt out for fear of federal retaliation. Even Indoor Harvest, upon acquiring Alamo, will create a separate Harvest Group to continue its vertical farming business to appease investors.
DPS in charge of vetting
The state’s Compassionate Use Program, signed into law two years ago by Gov. Greg Abbott, put the Department of Public Safety — a law-enforcement agency — in charge of vetting license applicants and mandated that it grant a minimum of three licenses by September.
The deadline for provisional approval is Sunday. After that, DPS inspectors will make site visits before granting final approval.
On Friday, the agency said it had received 43 applications, but it declined to provide any further information about the applicants or where they are based.
Demitri Downing, founder and director of the Southwest Cannabis Conference and Expo, said the narrow scope of the law passed in Texas likely restricted the number of applicants. The expo, which has been held twice in Dallas-Fort Worth, saw the number of exhibitors decline for the second event after people had a chance to review the Compassionate Use Program.
Downing said many exhibitors felt DPS would limit the state to three licenses — in effect making the legal minimum the effective maximum — and decided their chances at a slot were low.
Yet he and others have hope that the Texas program will expand in the coming years once the first licensees are able to impress state legislators and DPS officers in how they serve the community.
“Medical marijuana is here to stay,” Downing said.
Scott Bier, CEO of Green Well, another Texas company seeking one of the first state dispensary licenses, estimates about 146,000 Texans would benefit from cannabis-based medication. The current state program should address the needs of that population, he said. He also predicts more scientific research on cannabis’ health properties will come out in the next five to 10 years.
Still, others criticized Texas’ limited approach. For example, the National Cannabis Industry Association does not even categorize Texas as having legalized medical cannabis because of the narrow scope of its law, deputy director Taylor West said.
Snyder, the Texas A&M legal expert, said the originally proposed bill took a broader openmarket approach to legalizing medical dispensaries in the state. But the bill Abbott signed was far more conservative, allowing a single chemical strain of cannabis to be developed for a single group of patients, those with intractable epilepsy.
He agreed that DPS might consider three dispensaries a maximum.
“Three dispensaries in a state the size of half of Europe is not a way to get to kids who need this medication regularly,” Snyder said.