The cannabis industry hit a possible milestone in March when Bright Green Corp., a Florida company with “conditional” approval from the U.S. Drug Enforcement Administration to grow marijuana for research purposes, applied to list on the Nasdaq stock exchange.
If successful, Bright Green would become the first U.S. plant-touching company to list on a major U.S. stock exchange.
But the move also highlights the lofty – some say unrealistic – financial ambitions of such companies.
And it raises the question of whether a business model based on DEA approval is realistic from a financial standpoint.
The five entities registered with the DEA as “Bulk Manufacturer Marihuana Growers” are allowed to grow and sell marijuana flower and extract to researchers registered with the federal agency.
Those researchers can be at universities, pharmaceutical companies and other entities.
The University of Mississippi received the first DEA cultivation registration in 1968, while four more entities received registrations in 2021.
Three of the other four entities that have secured DEA approval are private companies, while the Scottsdale Research Institute in Cave Creek, Arizona, is a nonproft focused on determining “the general medical safety and efficacy of cannabis and cannabis products.”
Other entities, such as Fort Lauderdale-based Bright Green, are vying for additional registrations, although it’s not clear if or when the DEA will issue any more.
In addition to making money through the cultivation of marijuana for scientific research, at last three of the DEA-approved companies hope to further capitalize on cannabis-based drug development.
- Biopharmaceutical Research Co., in Castroville, California.
- Groff North America, in Red Lion, Pennsylvania.
- Royal Emerald Pharmaceuticals, in Desert Hot Springs, California.
How can such drug development be a money winner?
The answer? By partnering with pharmaceutical companies and multistate operators to develop drugs approved by the U.S. Food and Drug Administration that could be sold by prescription or even over the counter.
Each company attained DEA bulk cannabis manufacturing registration in 2021.
“Conceptually, the opportunity is phenomenal. If you total up all the pharmaceutical sales for the indications that cannabis can address, like sleep pain, nausea, etc., it’s a $330 billion-a-year market. There’s lots and lots of activity to be had in this pharmaceutical facilitator area,” said Joe Grzyb, CEO of Groff North America.
But he added: “You have to be patient, because it takes several years to get through the FDA process.”
Doubts over DEA-based business model
Sue Sisley, head of the Scottsdale Research Institute – which is among the five DEA cannabis cultivation registrants – said business models based on the DEA registrations are bound to fail.
“The entities who are trying to build a business model around these few research registrations won’t be successful. The demand for research cannabis is minimal,” Sisley said.
“This is not a lucrative business model and never will be. It takes over 10 years to develop drugs that get FDA approval – and is massively more complicated when it comes to agricultural products that have complex chemical composition with tons of different bioactive molecules.”
The University of Mississippi received the first DEA permit to grow cannabis for research in 1968.
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It was the only entity to have such a permit until last year, when the DEA issued permits to the four new registration holders.
The decision and process to increase the number of cannabis cultivation registrants was started at the end of the Obama administration.
It stalled under the Trump administration and restarted under the Biden administration.
The University of Mississippi did not return calls seeking comment.
The three DEA-authorized growers focused on drug development aim to partner with a pharmaceutical company or another DEA-approved entity.
The goal: Create and manufacture cannabis products approved by the USDA.
“Our business model is to develop a product with a DEA-licensed individual or department in a pharmaceutical company and then sell that product under that pharmaceutical company’s brand name or our brand name even,” said George Hodgin, founder and CEO of the Biopharmaceutical Research Co. (BRC).
The company harvested its first marijuana trial crop earlier this year.
The second crop will be sold to researchers.
Hodgin said BRC is already partnered on research with the University of California, Davis, Washington State University and Cure Pharmaceuticals, a publicly traded biotech company (CURE) based in Oxnard, Calif.
“So we’re absolutely headed down the drug-development path,” Hodgin said.
“There is not a lack of demand in the market. We think a lot of biotech companies and pharmaceutical companies, although they aren’t necessarily advertising an interest in cannabis, see the writing on the wall that there are therapeutic applications.”
Groff North America, whose first harvest yielded roughly 63 pounds, sees a future where it can be the “legal conduit” for companies, including MSOs, to take cannabis-based formulations that have been successful in state markets through the FDA drug-approval process and commercialization.
“We can work with an MSO to take their favorite product (and) bring that product internally to Groff and then be that conduit for them to move that product through FDA approval – if they wanted to make it into a real drug,” Grzyb said.
And if a drug eventually wins FDA approval? Groff and its partners would have to negotiate how to split the revenue.
“That would be an arrangement between us and the MSO which would be a mutually satisfactory contract,” Grzyb said.
Groff also possesses a DEA registration that allows it to export cannabis to researchers.
The company reckons it can develop drugs with companies in legal foreign cannabis markets. “But we still need to set up a proper legal structure to make all of that happen,” Grzyb said.
Grzyb also believes that as the FDA becomes more familiar with marijuana, it could eventually even approve over-the-counter cannabis drugs.
“The safety profile of cannabis is very favorable,” Grzyb said. “So, one would envision that as the federal government gets more comfortable with cannabinoid-based therapies, that you would go from a prescription maybe to an over-the-counter at some point in the future.”
Royal Emerald, which received its DEA registration in December, also is aiming for drug development.
“We’ve been very public about developing a relationship with the (Veterans Administration) and the local VA hospitals to figure out how to develop formulations for various ailments and then work with the patient population at the VA hospital to see how those formulations work,” said Justin Abril, Royal Emerald’s chief operating officer.
The hope, Abril added, is to perform drug development trials with VA patients.
“As we progress through the clinical trial process with the FDA, hopefully the end result is an approved, finished drug product for commercial distribution,” Abril said.
While DEA Bulk Manufacturer registrants acknowledge that it could be several years before they receive FDA approval for cannabis-based formulations, Sisley contends the wait will be longer.
She points to her own federally approved clinical trials as well as the example of Epidiolex, a 4-year-old cannabis-based therapy for pediatric epilepsy manufactured by U.K.-based GW Pharmaceuticals.
As the primary investigator with the Multidisciplinary Association of Psychedelic Studies, Sisley and her organization have spent 12 years getting cannabis through the FDA drug-development process.
She noted that the process is “only” at Phase 2 with underwhelming results because of the diluted quality of University of Mississippi cannabis.
“And we may have at least 10 more years to get through Phases 2 and 3 with whole cannabis flower,” Sisley said.
“Look at Epidiolex. That took over 10 years, and the only reason it went that quickly is because they spent over a billion dollars and were working with a CBD product with virtually no ‘adverse effects,’” she said.
“Investors who think they’re going to make a boatload of money pushing through the FDA approval process, good luck, because I guarantee that there’s no clear path. It’s totally speculative that the FDA will even approve any options to be on the market and not before 2030.”
A viable revenue stream?
Until or if registrants succeed in making an FDA-approved cannabis drug, they will need to count on growing and distributing cannabis for DEA-approved researchers – or possibly another revenue stream.
For example, Groff has its own CBD product lines that it sells to a pool of roughly 3,000 to 4,000 patients.
BRC believes it can generate enough revenue to be profitable with its research cannabis distribution segment.
“We think we’re building a profitable business based on the other revenue streams – producing and selling cannabis-based ingredients,” Hodgin said.
Hodgin added he is confident that BRC and the other registrants can supply the national demand for the foreseeable future.
That demand is based on DEA quotas. For 2022, the DEA set the quota at 3.2 million grams of flower, or just under 7,055 pounds. The agency also set a quota for extract at 1 million grams.
Registrants, however, can only grow cannabis that’s already been requested by researchers, and that amount might not end up being the whole 3.2 million grams.
“We have to sell the car before we can build it,” Abril explained.
Sisley, who said she applied for a C1 manufacturing registration from the DEA so she could grow her own research cannabis, doubts there will be enough demand to sustain a for-profit business model.
“The industry is terrified of these DEA research licenses, and they need to know that these licenses are not going to affect their business at all,” Sisley said.
“They’re completely irrelevant and not allowed to ever compete in the U.S. retail market.”
Omar Sacirbey can be reached at email@example.com.