CO: How The Marijuana Industry Will Shift As Big Entities Buy In

Photo Credit: Brian A. Pounds

What does Big Pharma have in mind for cannabis? That question has been on the minds of medical marijuana patients for some time, with many fearing that the price and availability of the healing plant on which they rely for well-being will no longer be attainable.

The scenario seems realistic: A private pharmaceutical company puts a patent on weed, keeping others from growing it.

The state of Colorado has already pushed consumers in the direction of store-bought cannabis products by reducing the legal plant count that individuals can grow on their own, and local communities have also enacted their own grow restrictions. For medical patients, these changes have already meant that many can no longer legally grow the number of plants required to produce the tinctures and specialized canna treatments they need.

So far, the pharmaceutical industry isn’t a big player in the cannabis arena, although this appears to be changing, especially when it comes to cannabidiol (CBD)-only products. One factor that deters the national players, according to Charlotte Peyton, vice president of business development at Stratos, an infused-product manufacturer, is the state-by-state nature of the cannabis legalization movement. Makers of marijuana products must be licensed and regulated in the state in which they are located, and sell to state residents only, as federal law prohibits interstate transfer of marijuana.

Though a local player in Colorado, Stratos is unusual for its use of pharma-like methods — applying FDA-approved processes and standards to its manufacture of cannabis pills, which come in Indica, Sativa, hybrid or CBD. The company, which began operations at the end of 2014, competes in both the medical and recreational markets, and has recently added a topical cannabis salve that’s one-to-one THC to CBD to its product line.

Stratos’ solid-dose pills are classified as “infused edibles” by the state. Their ingredients are grown, harvested, turned into cannabis oil, and then into a powder formula, which is pressed into pills at the Stratos manufacturing facility in Pueblo West. Cannabis pills are “an especially fast-growing subcategory” of edible products, according to data from the cannabis market research firm BDS Analytics, and consumer demand for them has grown steadily since 2015.

The main benefit of using pharmaceutical methods with cannabis is standardization of results, or what the industry calls “consistent, reproducible dosing.”

“Stratos has a very loyal following, people of all ages,” says Director of Product Development Brenda Verghese. “They know they will get the same effect every time.” In addition, Stratos’ pills are formulated for more rapid absorption into the system than other edible products, which may take one to two hours to fully kick in.

Not surprisingly, the three principal owners of Stratos had past careers working in the pharmaceutical industry, which is how they met. They decided they could apply these same skills to the young cannabis industry in Colorado, taking the risk to get in on the ground floor. The three have different skill sets that nicely complement each other.

With 30 years’ experience as an analytical chemist working under FDA and EPA regulations, Peyton established the testing protocol and in-house lab at Stratos, and uses her regulatory and compliance background to navigate the state’s regulatory framework through the Marijuana Enforcement Division in the Department of Revenue.

Stratos Founder and Chief Operating Officer Jason Neely, was a formulation scientist for 20 years, and worked for several large pharmaceutical companies developing medications under DEA and FDA scrutiny. Vice President of Operations Jim Sokol has 20 years of pharmaceutical manufacturing experience and is responsible for managing Stratos’ facility. The three owners “bootstrapped the operation” in the early days, working hard to keep costs down while seeking investors for the venture.

Although they declined to specify an exact amount, Stratos’ 2-acre property represents a significant investment in Pueblo County’s economy. It employs 35 workers and includes two state-of-the-art greenhouses, an outdoor grow space, a 5,000-square-foot manufacturing facility, offices and several complex pieces of equipment. One is a CO2 “closed loop” extraction system, which pumps liquid carbon dioxide through the cannabis plants to extract the cannabinoids used in Stratos’ products.

The rapid growth of Colorado’s marijuana market, especially with demand for pill-type products, has already caused Stratos to outgrow its facilities and seek additional space. Their products are found at about two-thirds of the state’s marijuana retailers.

While El Paso County certainly could have benefited from Stratos’ investment and jobs, its ban on recreational marijuana prevented the company from being able to get the state license required to operate here. Instead, the firm chose Pueblo County for its cannabis-friendly reputation and plentiful sunshine for growing.

The revenues produced by the legal cannabis industry haven’t escaped the notice of the business world. The Cannabist reports that the industry’s on track to grow at “a compound annual growth rate of 14.7 percent,” reaching “an estimated $25 billion by 2025,” according to figures released by New Frontier Data, a cannabis analytics firm.

While Stratos stands as one of the first Colorado firms to use pharmaceutical methods for cannabis production, other national and even international players are poised to enter the market. GW Pharmaceuticals, based in Great Britain, recently received permission from the FDA to test its CBD drug Epidiolex, which has been approved to treat two forms of epilepsy in children.

Though CBD is found in marijuana plants, companies get around legal restrictions by extracting the cannabinoid from industrial hemp, which has very little THC in it and enjoys a semi-legal status. GW Pharmaceuticals is the first to seek FDA approval as a prescription medication, and according to The Cannabist, “forecasts have put Epidiolex’s peak annual sales between $1 billion and $3 billion.” Outside the U.S., the company also sells Sativex, a THC-CBD Multiple Sclerosis drug, which could eventually be marketed in the U.S. if cannabis’ legal status changes at the national level.

Suffice to say, Big Pharma can’t turn a blind eye to this type of profitability. The marijuana industry seems destined to change. Sadly for many, it may turn away from the cottage industry that birthed legalization, and into another realm of pricey pills.