Medical cannabis investor Harry Karelis
It’s less than a year since cannabis was legalised for medical purposes, and investors haven’t let the grass grow beneath their feet. Australia already ranks among the countries with the highest number of recreational users. The history of cannabis cultivation here dates back to the First Fleet, when settlers brought along seeds to make hemp. Now the aptly named weed is at the centre of a growth industry aimed at treating many common ailments.
Let’s get one point straight. The marijuana that is smoked is not the same stuff that could soon ease itching from eczema, let insomniacs sleep or improve cancer treatments. The plants look similar but they have vastly different chemical make-up. Cannabis contains 113 types of a compound called cannabinoid. Just one of those, THC, brings a state of euphoria. Plants can be bred to have thousands of different concentrations and combinations of each compound, giving them the potential to treat many different ills. No one compound works alone. They all do, creating what is called an entourage effect. Now that it’s legal, the challenge is to test exactly which plants have which effects.
Harry Karelis is doing just that. Before the year is out, a company he chairs, Zelda Therapeutics, will start its first clinical trial in partnership with the University of Western Australia on formulations to treat insomnia. The university is a leader in sleep disorders, with its own sleep labs. “Picture a controlled environment where you have a relaxing night’s sleep with 24 leads attached to your brain, your lungs, your heart, your limbs and a camera monitoring your night’s sleep,” says Karelis. “We will be monitoring pretty much everything that is going on, including blood. This will be a randomised, crossover, placebo-controlled trial. That means the gold standard. If we show that our medicine works under those conditions, then it works.”
More trials are planned next year on autism, insomnia and breast cancer. If successful, then approval is needed from strict state regulatory bodies despite the federal government now classifying cannabis as a Schedule 8 drug, along with opioids. Karelis is confident the trials will work because Zelda has unique access to the results of medical cannabis treatments from a Californian company, providing a short cut for their tests. Knowing the chemical fingerprint that works is valuable, because a patent can be registered on the type of plant and the dosage. The company would then license production of cannabis oil and its marketing. Drops would be administered under a patient’s tongue.
The restrictions are still too much for some. Entertainer and cancer sufferer Olivia Newton-John recently called for it to
be more readily available. She is believed to have raised the matter directly with Prime Minister Malcolm Turnbull.
Perth has a hub of cannabis experts, in part centred on Zelda, AusCann and their teams of experts. It is also home to a funding base. Karelis says there are about 40 people in the cluster he is involved with. They work within 10 minutes of the CBD and regularly brainstorm. “We talk about who we have met, what new information is relevant, where we go next, who do we do it with, etc. We have tentacles in Canada, California, Chile, Germany, Spain, Denmark and Israel so we know what is going on. We are getting bombarded with ideas all the time from people wanting to do the next big thing.”
His entrepreneurial spirit developed at an early age. At 11 he took his first job at KFC and stayed for five years. “I was involved in two new store openings, so I moved around the system. I learned that if you worked hard, you made money. And you should save money and try not to blow it. The younger you are when you start building that nest egg the better. Resist the temptation to go boozing every weekend with your mates, and you can get ahead without too much effort.”
His biggest mistake, he says, was getting caught up in the hype of investing. “Most people think that when the music stops they can sell their shares. They might lose 5%. But when that happens, there are no buyers. If you are holding a position, that’s it. You don’t lose 5%, you lose 95%. It’s important not to get caught up in the hype. Things don’t go vertical forever. You will definitely see this in the cannabis space. It will go in waves, and we are in a bit of a wave now. But it will go up to a level and then it will go down a bit, and then go sideways for a bit. But don’t get sucked into the thought this is going vertical, and double and double.
“When I first joined the financial services industry as a research analyst for a stockbroker, there was a diamond boom on.
There were some companies off the north-west of Australia that wanted to mine diamonds from the sea floor. I was a young guy, and everyone else was driving Ferraris and making tons of money. I thought, here is my chance. It was T+10 settlement back then. You could buy a share and pay for it 10 days later, if at all. I remember on a Monday, the young guys said let’s go into these stocks. On the Tuesday we doubled our money, and the Wednesday we quadrupled our money and on the Thursday again. It was just going vertical. We all thought we were clever. T+10 was approaching so we decided that we didn’t want to pay for the shares. We will sell them. But the whole world was thinking the same thing. From something like a $100,000 profit – I don’t remember the exact numbers – I ended up making a $10,000 loss. You get sucked up in the hype.”
Corporate finance remained his strong card, albeit with a medical focus. With an undergraduate degree in biochemistry and microbiology, Karelis pursued an MBA. With that, he managed investment funds that focused on medical technology. One big success was backing a former Australian of the Year, Dr Fiona Wood, who is renowned for developing the spray-on skin that saved many burns victims after the 2002 Bali bombings. Karelis was a director of that company, Avita Medical.
He has since focused on “doing my own thing, looking for interesting projects and working with interesting people”. He meets regularly with a tight group to discuss investments. At one gathering in 2014, a friend suggested he investigate medical cannabis. His initial reaction was that it was crazy. But at his friend’s urging he did it. “I started googling, and the penny dropped. This is an ancient medicine that is being rediscovered. It was legal for 3000 years and illegal for 70 years. The more I looked the more I realised there was a real medical effect.”
Investors now are encouraged by UK medical cannabis pioneer GW Pharmaceuticals, which is valued by the Nasdaq stock exchange at $US2.6 billion ($3.3 billion). Its main product is a mouth spray that treats multiple sclerosis tremors. In Karelis’s view, it charges too much. His plan is to reduce the cost of cannabis medicines by having clinical trials to test the best dosages then making medicines, rather than investigating how the treatments work. That can take years, be very costly and be unnecessary. Medical trials on autism patients and breast cancer sufferers are in the works. The plan is to be selling treatments at affordable prices within a couple of years, once products are registered. It is likely they could be sold in Australia, Canada, Chile and Germany.
Cannabis crops will be grown in different regions of Australia, because different strains of the plant grow best in different climates and soils. One type might thrive in the tropical heat and thin soils of the Kimberleys, and another in the cooler climes of the Margaret River. The model for success in cultivating different strains is like the wine industry where pinots grow best in cool regions and chardonnays in warmer ones. Big reds often like rocky soil.
Cannabis earned its nickname, weed, because it can grow almost anywhere but Karelis says that is not good enough for medical use. “Cannabis is a very efficient scavenger of heavy metals from the soil. If that cannabis has been grown in the back of a wrecking yard and sucked up lead from the soil, that will go into your body. Same thing with pesticides or chemicals. That is a big difference between medical and street cannabis. There is different chemistry. And you don’t know what street cannabis has been exposed to. It is not medicine. It is potentially poison.”
“You don’t know what street cannabis has been exposed to – it is potentially poisonous”