Many entrepreneurs and investors have expressed their concerns regarding the outcome of Tuesday’s U.S. presidential election, specifically whether the winner will have a positive or negative impact on the cannabis industry. Both Hillary Clinton and Donald Trump have stated that they will support the medical use of cannabis. Although it doesn’t much matter, Libertarian candidate Gary Johnson and Green Party candidate Jill Stein also support the recreational use of cannabis.
Regardless of the outcome of Tuesday’s vote, I see no immediate change in the existing system of allowing state-licensed medical cannabis businesses, nor do I see any immediate change in the rescheduling of cannabis under the Controlled Substances Act. The United States will continue to consider the plant an illegal substance, making it incredibly difficult to conduct research on the medicinal benefits of cannabis here in the U.S. I don’t see this changing quickly based on who becomes President on Tuesday.
What is more significant to the U.S. cannabis industry is Tuesday’s outcome of voting in California and Nevada, where the adult recreational use of cannabis is on the ballot. I’m expecting voters in both states to approve the ballot initiatives.
Given that California now ranks as the sixth largest economy in the world, the state’s approval of recreational cannabis will have a substantially positive impact on the entire cannabis industry and will likely propel the legalization of recreational cannabis in many other states.
I’ve publicly-described California as the 800-pound gorilla in the U.S. cannabis industry. I expect that when the history of what I believe will be the eventual federal legalization of cannabis in the U.S. is written, the pivotal event will be California’s approval of recreational cannabis. Colorado, my state, and the first to allow the sale of recreational cannabis will likely be referenced only in a footnote.
Whether our next president is a democrat or republican, I continue to offer the same advice to those who ask me about investing in the cannabis sector, whether in a privately-held or public company. Evaluate an investment in the industry the same way you would any other emerging market. A changing landscape is inevitable, but if you do your research and make decisions based on fundamentals rather than hype or media reports, you can hopefully mitigate some of the risks. This approach has served me well since I began investing over 30 years ago.
I’m one of the founders and CEO of Intiva Inc., a privately-held company that was formed in early 2014 to participate in the global cannabis industry. Intiva’s business has evolved as the cannabis industry has evolved. Today, Intiva’s principal activities are the providing of lease-to-own financing for CO2 extraction systems to cannabis growers, extractors, and edible manufacturers; and the formulation and manufacturing of products containing the non-psychoactive cannabinoid CBD on a private-label basis for retailers and distributors who have their own distribution channels.
Intiva has also made several investments in the cannabis sector. In addition to two Canadian growers who are “Licensed Producers” in Canada, we invested in the publicly-traded, Israel-based company, OWC Pharmaceutical Research (Stock Symbol: OWCP) - I’m also a member of the company’s advisory board.
INTIVA’s decision to invest in OWC during the summer of 2014 came after our due diligence into Israel’s cannabis industry. We concluded that the real money in the cannabis industry will be made by companies who create “real pharmaceuticals based on real science.” When I met OWC’s management team in Tel Aviv, I was impressed. Dr. Yehuda Baruch, the company’s director of research, was the former head of Israel’s medical cannabis program. I also found intriguing the early-stage research and trials OWC had underway for their proprietary cannabis-based formulations for the treatment of multiple myeloma and other conditions.
INTIVA’s investment in OWC, as well as the numerous trips I’ve made to Israel over the past two years, have convinced me that cannabis research in Israel is light-years ahead of research occurring anywhere else. In February I was a panelist at the Cannatech Israel Innovation Summit in Tel Aviv, where I indicated publicly that Israel would likely maintain its global lead in cannabis research for at least five to ten years.
Intiva’s investment in OWC and my understanding of the primary role of Israel in cannabis research also led me to become a director of privately-held CannRx; a company focused on the development of cannabis-based pharmaceuticals in Israel.
Both of these companies have plenty to gain from Tuesday’s vote. Both are pursuing business directions to bring science-based medicine to U.S. state-licensed cannabis businesses. It’s important to note that an estimated 30 percent of recreational cannabis sales in Colorado are for medical purposes, even though Colorado has both medical cannabis dispensaries and retail cannabis stores. So, the establishment of recreational cannabis businesses in California and Nevada will significantly increase the availability of medical cannabis for patients in those states.
This is where the outcomes of Tuesday’s voting becomes interesting for both OWC and CannRX. OWC Pharmaceutical Research recently announced that it has entered into a U.S. license agreement with a Maryland-based company to bring its topical psoriasis cream to the U.S. market, and CannRx is also pursuing its direction in bringing Israeli science to state-licensed cannabis businesses.
Right now, the vast majority of patients obtain their medical advice regarding the use of cannabis not from a doctor, but from a budtender at a dispensary or retail store. Many budtenders have considerable knowledge and are passionate about the benefits of medical cannabis, but many have not graduated high school, and are now providing medical advice in both dispensaries and retail stores.
The ability to provide patients with cannabis-based products formulated with dosage guidelines for specific medical conditions or disorders by OWC’s and CannRx’s Israeli scientists, would be a significant benefit for state-licensed cannabis businesses and their patients. While medical cannabis products that are formulated and approved for use in Israel do not provide the same assurances as Food and Drug Administration approved pharmaceuticals, the Israeli formulations and cannabis medicinal products are leap years ahead of what is generally available in the 26 U.S. states and the District of Columbia where medical or recreational cannabis is legal.
With the numerous challenges facing Colorado's somewhat mature, but still evolving cannabis industry, It's likely that both California and Nevada will face similar challenges similar to those that cannabis businesses in Colorado have experienced and are continuing to experience. Cannabis businesses in both states will also face challenges as the state and local government regulations are written and implemented, and as the new industry in the states evolves.
Recreational and medical businesses in California and Nevada will also need to differentiate their stores and dispensaries from competitors, effectively address patient and recreational customer needs, and most importantly diversify their product offerings with higher-margin, proprietary products if they hope to achieve profitability in what will likely be the country’s two largest recreational cannabis markets. To that end, I believe that California's and Nevada's cannabis businesses will benefit from relationships with research and development companies in Israel – companies such as OWC Pharmaceutical Research and CannRx.
Copyright 2016, Jeffrey Friedland