Texas cannabis companies face interstate competition
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 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. 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 CBDinfused 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 décor maven Martha Stewart is teaming up with a Canadian company for a line of CBD products for pets and people.
Business challenges
Just a fraction of Texans with intractable epilepsy — 686 people — are part of the Compassionate Use 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.
José 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.
And some doctors fear repercussions for prescribing a medication that’s not FDA-approved and classified by the federal government as a controlled substance, said Fazio, director of Texans for Responsible Marijuana Policy.
Compassionate Cultivation CEO Morris Denton said he wants more Texans to have access to the medicine, especially after seeing it help people with epilepsy.
If Texans are sick and can’t get the medicine, Denton said, they may turn to off-the-shelf CBD that doesn’t have quality controls that make it safe and consistent. He’s been frustrated by the hype around unregulated and unproven CBD products — “a wonder drug that can cure cancer and make your bed.”
“The vast majority of those products are garbage,” he said. “We’ve tested a lot of them and not a single one is what it says it is on the label.”
In Miami, news station NBC 6 purchased 35 CBD products from seven companies, including five products of each brand, and tested them at an accredited lab. Of the 35 samples, 20 had less than half of the amount of CBD listed on the label. Some had none at all.
The Texas Department of State Health Services can detain products labeled as CBD because they’re not approved by the FDA for use in food, dietary supplements or cosmetics — but the agency largely has taken a handsoff approach. A spokesperson said the state agency has detained CBD food products fewer than five times in the past two years, and none in the past seven months.
State Rep. Stephanie Klick, RFort Worth, authored the bill that created the Compassionate Use program four years ago.
She said Texas must come up with a way to regulate or restrict CBD products made in other states and sold over the counter.
“That is going to be one of the challenges,” she said. “But if people are misleading the public as to what the actual content is and it actually has something that may be harmful, that’s a problem.”