Texas medical cannabis firms bet on market reforms, more opportunities

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A chart showing medical cannabis patient count growth in Texas.

The number of medical marijuana patients in Texas has quadrupled over the past year, but MMJ companies there still find it tough going and are betting that, over time, the market will be overhauled and provide greater business opportunities.

Medical cannabis businesses currently must contend with an onerous 1% THC cap, numerous regulatory restrictions, and strict limits on the conditions that can be treated with MMJ.

Local operators also face stiff competition from thriving marijuana markets in neighboring Oklahoma and New Mexico.

Because of the numerous restrictions in Texas, MJBizDaily currently doesn’t classify the state as a full-fledged medical marijuana market.

As a result, industry executives say major reforms are needed in a state that legalization advocates have long eyed as a major prize.

The nation’s second-most-populated state has nearly 30 million residents.

However, Texas lawmakers and other top decision-makers have taken a conservative approach to opening up the state’s limited medical cannabis market to more business opportunities.

Advocates say the biggest obstacle has been Lt. Gov. Dan Patrick, who has used his power to kill marijuana reform measures. The fall elections could change that dynamic.

The long game

In the meantime, MMJ businesses in Texas are playing the long game and responding in creative ways to serve customers and position themselves for a more robust, less restrictive market in the future.

For example, current regulations allow an operator to store inventory at only one location.

In response, two of the three licensed businesses in the state are now offering pickups a few hours each week in physicians’ offices and other locations across the state.

“By opening pop-up locations, they (the licensed operators) are able to expand their delivery efforts,” said Lisa Sewell, director of operations for Texans for Responsible Marijuana Policy, a coalition working to reform marijuana laws in the state.

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“We have to be creative because of the regulations,” said Morris Denton, CEO of Manchaca-based Texas Original Compassionate Cultivation, the leading MMJ operator in the state and the only homegrown one.

“If we can’t figure out a way to be more efficient, then we’re only increasing our loss.”

The other two licensed MMJ operators in Texas are Atlanta-based Parallel/Surterra Wellness, which does business in the state as Goodblend, and Florida-based Fluent.

Strong patient growth

The number of medical cannabis patients as of May totaled only 26,687, according to the patient registry operated by the Texas Department of Public Safety.

But that actually represents a quadrupling in the number of patients from 6,051 in May 2021.

The program has grown in the past year after lawmakers in 2021 increased the THC limit from 0.5% to 1%, and added cancer and post-traumatic stress disorder (PTSD) as qualifying conditions for medical cannabis patients.

“We’ve seen a big shot from PTSD,” Sewell said.

Chronic pain, which typically is the leading driver of sales in MMJ markets, isn’t a qualifying condition. But Denton said some cancer patients who experience chronic pain are now able to qualify for medical cannabis.

Still, even with patient growth, the state’s so-called Compassionate Use program, enacted in 2015, likely doesn’t generate enough sales to offset the upfront costs of the three licensed vertical operators.

So the companies are doing the best they can while awaiting major reforms.

Turning to customer pickup 

Texas Original, for example, has augmented its main store in Austin with home deliveries via fuel-efficient Toyota Priuses and 14 pickup locations, most of them in the populated areas of Dallas, Fort Worth, Houston and San Antonio.

The pickup spots typically are in a doctor’s office that has a relationship with Texas Original, Denton said.

For example, the company will ask if it can set up a table in the conference room, lobby or an exam room a few hours each week.

Texas Original also recently opened its first full-time pickup location, a nearly 1,800-square-foot facility in the Houston area, and hopes by year-end to do the same in other large, populated areas.

“Eighty percent of Texans live in Dallas, Fort Worth, Houston, Austin and San Antonio,” Denton said. “We call it our Big Five for markets, and we’re in different stages of development in all of those markets.”

Parallel’s Goodblend Texas has adopted a similar strategy.

The company’s website shows nine pickup locations across the state, also generally at physician offices for three or four hours for one day each week.

Fluent, meanwhile, doesn’t list any dispensary locations. But its website promotes call-in ordering with free delivery around the state.

The economics of home delivery in a state as sprawling as Texas are challenging – even without soaring gasoline prices.

Denton estimated the company will put 500,000 miles on its Toyota Priuses making deliveries across the state this year.

Because a licensed operator is allowed to store inventory at only one location, its drivers must bring back any unsold inventory.

Cross-border competition

More liberal marijuana programs in neighboring states such as Oklahoma and New Mexico have definitely cut into business.

New Mexico launched its recreational marijuana program on April 1.

Before that launch, Texas Original made 30-40 deliveries in El Paso near the New Mexico border every other week, Denton said.

“Since New Mexico has gone to rec, that number has dropped to 10,” he said.

“That makes it very challenging for us to look at the El Paso market. It’s hard for us to put a driver in the car.

“It’s nine hours each way; they have to stay overnight. You only have 10 deliveries with an average pickup of $200. It doesn’t take long to do the math.”

That’s where the long game comes in, with an eye to future reform.

Sewell said overall Republicans and Democrats alike are supportive of medical marijuana – while legalization of adult use seems a ways off because Texas politicians don’t feel an economic need to go that route.

Texas, Sewell noted, has a conservative approach, “but it does show a pattern of increasing access.

“It does move forward, and that’s what’s important.”

Sewell and Denton said the legislative goals for 2023 include:

  • Removing the THC cap or at least increasing it from 1%.
  • Adding chronic pain as a qualifying condition.
  • Allowing doctors to recommend medical cannabis as an alternative to opioids.

MMJ operators also want the ability to store inventory where it makes sense, rather than in just one location.

Sewell said that might be able to be achieved through the regulatory process, without legislation.

Denton is optimistic about reforms, especially if a friendlier face occupies the lieutenant governor office after the elections.

“The political winds are howling at our back from a Republican perspective, and the Democrats are already there,” he said.

Jeff Smith can be reached at jeff.smith@mjbizdaily.com.