About 60 miles north of Dallas, amid green fields in the sleepy town of Gunter — population 1,486 — Texas Cannabis CEO Patrick Moran has optioned to buy a former cotton gin, where he plans to grow the Cannabis sativa plant, known more commonly as marijuana.
The businessman and attorney is positioning himself at the forefront of what he estimates will be a $900 million a year industry in Texas — the recently legalized market for treating intractable epilepsy with a strain of marijuana that eases seizures without getting patients high.
Texas, as it turns out, just may be one of the best states in the nation to grow pot. While the state has one of the most stringent medical usage laws in the country, it is setting up some of the cheapest licensing fees and one of the least restrictive markets for pot growers in the U.S.
Gov. Greg Abbott signed legislation last year allowing the state to license businesses to grow, process or dispense non-intoxicating marijuana or cannabis for medical use beginning next year. Moran wants to do all three with Texas Cannabis, cultivating marijuana from seed to sale.
Moran is just waiting on the state to set up its registry, slated to go live by June 2017, to put in his application. He plans to use that former cotton gin, which has sat dormant for 40 years, to cultivate, extract and dispense cannabidiol oil, or CBD oil, from low-THC cannabis plants — just around the corner from the city hall in Gunter. THC, or tetrahydrocannabinol, is the psychoactive component that gives users a high when they smoke traditional marijuana.
They are calling the new market the green rush.
“There’s a whole other industry that is being birthed in this country, just like what happened with the dot-com boom,” Moran told the San Antonio Express-News. “I think it’s once in a lifetime.”
Texas is one of 18 states to approve laws since 2014 allowing some form of CBD for patients with certain medical conditions. Under the state’s new Compassionate Use Program, epilepsy patients whose seizures can’t be controlled by traditional medication will be allowed to take oil that is rich in CBD — a compound found in the marijuana plant believed to have therapeutic benefits for some medical conditions.
An estimated 149,000 to 160,000 Texans of all ages suffer from intractable epilepsy, which can be fatal. Around 40,000 of those patients are projected to benefit from the medication, according to the Texas Cannabis Industry Association.
The potential for rapid growth is tremendous, as more and more states lift restrictions on marijuana use and sales and societal attitudes toward the drug relax. Legal cannabis markets nationwide are projected to yield $7.1 billion in sales in 2016, a 54 percent jump from $4.6 billion since 2014, according to a report released in February by ArcView Market Research and New Frontier Data.
By 2020, legal sales nationally are projected to reach more than $22 billion, more than triple the amount forecast for this year, the report states.
“No other industry in this country is making the kinds of gains year-over-year that the cannabis industry is making,” said Dr. Scott Bier, an emergency room physician in Houston who is CEO of Green Well Ventures, another private company aiming to be among the state’s first licensed cannabis operations. “And it’s just going to get bigger … Everybody wants to get a little piece of it.”
Strict restrictions, but cheaper licensing
The Texas law established narrow parameters on the type of cannabis that can be dispensed, who can take the medication and which physicians can prescribe it, said Frank Snyder, a Texas A&M University School of Law professor who teaches the state’s first course on marijuana law, policy and business. But it doesn’t limit the number of competitors who can grow, extract or dispense.
“The Texas law is the narrowest marijuana law in the country, in the sense that it’s limited only to low-THC marijuana, and only for a very narrow medical range — severe convulsions,” Snyder said. “On the other hand, the process for getting a license and beginning to cultivate is probably the most liberal law of any of the medical marijuana states that I’m familiar with right now, in terms of putting up the fewest barriers to entry.”
Applicants aren’t required to have vast cannabis industry experience. They simply have to show they have the technological ability to grow, extract or dispense the product by having experience in related fields, such as cultivation, analytical laboratory methods and handling confidential patient information.
They also must show they can obtain the locations, resources and personnel necessary for operations, maintain accountability of all materials and have the financial ability to keep going for two years.
Regulations issued by the Texas Department of Public Safety in January also set fairly low licensing fees.
A cannabis operation seeking to become licensed in Texas must pay a $6,000 application fee to the state. Businesses will have to renew those licenses and pay another $6,000 application fee every two years.
That compares favorably with fees charged by some other states.
Massachusetts, for instance, requires a medical marijuana dispensary to pay a $50,000 annual registration fee. Hawaii charges a $5,000 application fee, but requires a dispensary applicant to have at least $1 million in reserves, plus an additional $100,000 on hand for each retail site. Florida requires an applicant seeking a cultivation license to secure a $5 million performance bond.
Colorado, widely regarded as having some of the nation’s most permissive marijuana laws, charges as much as $25,000 in upfront application and licensing fees, depending on the type and volume of pot sold, plus additional fees.
Texas has “no competitive business entry requirements. They’re not going to weigh one person’s application against another in terms of who’s more qualified to operate under a license,” Texas Cannabis Industry Association Executive Director Kayla Brown said.
Moran hopes to sell Texas Cannabis products at his dispensary in Gunter, other dispensaries across the state, and eventually, nationwide, he said.
“We’re developing a brand,” Moran said. “The dispensary is the cannabis equivalent of a CVS. I want to be supplying the aspirin to that CVS.”
In the meantime, he’s been busy running AcquiFlow, which sells LED lighting systems to industrial agricultural customers. AcquiFlow also established an industrial-scale “grow” in Virginia, where its subsidiary company, Living Farms, plants lettuce and basil and sells them to some Whole Foods Market and Wegmans grocery stores.
Moran plans to replicate that growing operation in Texas, but will plant low-THC cannabis here instead.
AcquiFlow also has a partnership with two Kentucky companies licensed to grow hemp under the Kentucky Department of Agriculture’s Industrial Hemp Program. Moran said he’s developing hemp strains specifically for the Texas market.
Established CBD businesses eye opportunity
Texas is drawing interest from out-of-state players as well. CW Botanicals, a private company in Colorado that makes Charlotte’s Web Hemp Extract products, is among those contemplating doing business here.
CEO Joel Stanley said “there’s a good chance” his company may work with one of the licensed operations in Texas or perhaps jointly seek a license with another business here.
“It would likely be a type of partnership in which we offer our brand, our knowledge, our experience, our operating procedures, our manufacturing practices and help that company set up,” Stanley said. “We are interested in finding the right group of like minds that will have the financial wherewithal and business plan to provide this … until the rules expand.”
Texas also is attractive because it will be some time before the state becomes saturated like Colorado, said Bier, the Houston emergency room physician who leads Green Well Ventures. He predicts Texas’ low-THC cannabis industry could yield $100 million to $300 million a year in revenue.
The company, which also plans to apply for a license early on, is eyeing Houston as home base for its indoor growing facility and production. It plans to open dispensaries in Houston and Austin, employing up to 50 people once fully up and running.
Green Well’s dispensaries won’t just fill cannabis prescriptions, but also will serve as traditional wellness stores, stocking products like herbals, eastern medicine products and homeopathic products, and possibly offering acupuncture or massages. “We may even open up before our first (cannabis) harvest comes through since we have other revenue streams,” Bier said.
State officials have created favorable conditions for businesses seeking to enter the low-THC cannabis market, said Brown, of the Texas Cannabis Industry Association.
“I think the bill passed so quietly that a lot of people don’t realize Texas actually has the most permissive licensing structure in the country,” she said. “You could not choose a better market to get into.”
DPS is required to license at least three dispensaries by Sept. 1, 2017, providing applicants meet its requirements.
The agency is now soliciting proposals from contractors to build a secure, online registry that physicians and licensed dispensaries can use to provide the substance to patients. Once that registry is ready — by June 2017 at the latest — growers, extractors and dispensaries can begin applying for state licenses. DPS will conduct inspections to make sure applicants comply with all regulations.
Tough rules for physician approval
The new state law forbids patients from smoking marijuana. They can use it as an oil, resin, preparation, mixture, derivative or some other compound derived from the Cannabis sativa plant. Patients with prescriptions will be able to take it orally or apply it to their skin.
Prescriptions in Texas will require the approval of two physicians. A “significant portion” of their clinical practices must be devoted to evaluating and treating epilepsy, the law states. They also must be board certified in epilepsy, neurology, neurophysiology, or neurology with a special qualification in child neurology. Few physicians in the state meet those requirements.
The Texas Medical Board could not provide any data showing how many physicians in the state meet those qualifications. Cursory research by the Texas Cannabis Industry Association indicates only 45 physicians statewide fit the parameters of those who will be allowed to prescribe, Brown said. Sindi Rosales, founder and CEO of the Epilepsy Foundation of Central and South Texas, believes the number is even lower.
DPS regulations also set tight parameters for storing and transporting CBD oil, all raw materials and any byproducts.
“Even though this (CBD oil) has zero street value — you could drink a gallon of this and never get high — I’ve got to have anti-diversion protocols,” Moran said. “I’ve got to have 24-hour security. If it’s transported in a vehicle, the vehicle has to have a safe inside.”
The rules assume a “worst-case scenario for those who oppose it or who have no faith in those who are in the industry,” he said.
DPS has indicated it will soon propose revising those regulations to define more specific safety and security requirements, testing procedures and waste disposal measures.
CW Botanicals, which already ships its Charlotte’s Web Hemp Extract products nationwide, is keeping a close watch on the Texas market.
CEO Stanley hopes the state’s Compassionate Use Program eventually becomes more inclusive. “Ultimately, where it really starts to make financial sense for any company is when they expand out of just intractable epilepsy,” he said.
At the University of Texas Health Science Center in Houston, Dr. Gretchen Von Allmen, a pediatric neurologist specializing in epilepsy, said patients’ families ask her “every day” how soon low-THC cannabis will become available here.
“Most of them who are asking have already tried multiple anticonvulsant medications that are available, and their children are still having seizures,” said Von Allmen, who sees 50 to 100 epileptic children a week at her practice. “These families are very desperate for any other option.”
Some parents are giving their epileptic children CBD oil from companies in other states, such as Charlotte’s Web, Von Allmen said.
“We need to make sure that it’s being used safely and that it’s not affecting the child’s health otherwise,” said Von Allmen, chief of pediatric epilepsy at the health science center’s McGovern Medical School and director of the epilepsy monitoring unit at Children’s Memorial Hermann Hospital in Houston.
“It will not be a cure-all for everybody”
Parents ordering CBD oil from companies in other states report they’re typically paying a few hundred dollars a month for such products, Von Allmen said.
CW Botanicals sells a 1-ounce bottle of Charlotte’s Web containing 500 milligrams of CBD for $52.49 through its website, while a 3.38-ounce bottle containing 5,000 milligrams costs $275. The larger bottle provides a six-week to two-month supply for a typical customer, Stanley said.
“We deal with a lot of families who are out of time and out of options. Knowing that we’re dealing with a very safe compound made from hemp, the right thing for us to do is make it available and provide as much information as we possibly can while the clinical research is being done,” Stanley added.
The low-THC cannabis authorized by Texas law won’t be the answer for all patients, predicts Dr. Freedom Perkins, a pediatric neurologist and epileptologist at Dell Children’s Medical Center in Austin.
“I think for some people this is going to turn out to be a wonderful thing … It will not be a cure-all for everybody,” Perkins said.
Gov. Abbott remains opposed to legalizing recreational use in the state and has drawn a hard line at easing restrictions on traditional marijuana, even for medical purposes.
Still, cannabis industry advocates plan to press the Texas Legislature to add more medical conditions to the state’s Compassionate Use Program during next year’s session.
And that would be very good for business.
“The great thing about Texas is, when it comes to the cannabis industry, it’s an empty page,” Bier said. “There’s a lot of room, a lot of population in this state, a lot of patients that can benefit from this medicine. So I think the returns will be excellent once we’re able to get a few more (medical conditions added) to the laws that already exist.”
It won’t be difficult for licensed cannabis growers to accommodate the extra demand once they build out their initial operations, Moran said.
“You just turn up the volume … All you have to do is add acreage, add labor and processing and put more product on the market to handle more patients down the road.”