Cashing in on medical marijuana

Next month, new legislation comes into effect stating that the only access to marijuana for medical purposes will be through licensed companies. A billion-dollar industry is there for the taking, and several B.C. producers are poised to light it up

Medical marijuana | BCBusiness
MediJean CEO Jean Chiasson (left) and chief strategy officer Anton Mattadeen believe R&D is the key to unlocking the medical- marijuana industry’s billion-dollar potential

Next month, new legislation comes into effect stating that the only access to marijuana for medical purposes will be through licensed companies. A billion-dollar industry is there for the taking, and several B.C. producers are poised to light it up

In business, your choice of real estate says a lot about your enterprise. A flashy storefront on Alberni or Burrard is de rigueur if you’re a luxury retailer; for the banks, you need to be high atop the action, on Georgia or Hastings or Howe.

But if you’re one of the dozens of B.C. entrepreneurs hoping to crack into Canada’s newly legitimized medical marijuana industry, a more low-key approach is in order. For one thing, despite Health Canada’s edict that as of April 1, 2014, the only access to marijuana for medical purposes will be through licensed producers, pot carries a residual black-market stench to it, making neighbours leery of anybody who might be trucking in the trade. Then there’s the security risk: those who get a licence in 2014 to sell marijuana become a target for the criminal element hoping to steal product for their less-than-legitimate enterprises.

And so it is that my first visit to one of B.C.’s medical marijuana hopefuls, MediJean, takes me to a nondescript business park in Richmond full of unmarked, low-slung offices and winding roads: in other words, a perfect place to get lost. Only once inside MediJean’s headquarters, decorated in the pastels-and-wood motif of an upscale dentist, do you see the posters and promotional material that the company hopes to take to market once they get their licence and grab a share of what’s expected to be a billion-dollar industry.

The federal government’s change to the laws governing medical marijuana, which came into effect on June 19, 2013, represents a profound shift in policy and comes with surprisingly little fanfare. In the old system, called Marijuana Medical Access Regulations (MMAR), launched in 2001, individuals (with the help of their doctors) applied directly to Health Canada to grow their own supply—or become an authorized producer to grow on behalf of someone else (up to a maximum of four people).

In the new system, called Marijuana for Medical Purposes Regulations (MMPR), only licensed producers can grow marijuana—and while Health Canada has a strict application and approval process for who qualifies as a producer, it has otherwise disintermediated itself from the business. If you have a prescription from your doctor saying you need pot, you’re free to fill your prescription from any licensed producer, similar to most prescription drugs.

The money at stake for those producers who get a licence is significant. In addition to the 30,000-plus individuals who currently have licences to grow under the MMAR system, Health Canada estimates that some 450,000 people currently “self-medicate”—growing or purchasing their own supply from disparate sources (including MMAR producers), without the government’s knowledge. With the MMAR licences expiring on March 31, and those producers effectively put out of business, the vast majority of patients needing medical marijuana are expected to now buy from a licensed producer.

How much they’ll buy is a matter of some debate, but Health Canada estimates a typical patient will go through at least 30 grams of pot a month, with the agency allowing users to possess up to five times that—150 grams at any one point. With the current market price ranging from $6 to $12 a gram, that’s at least $180 a month per patient, or about $2,200 a year. Multiply that by about 500,000 users, and you’re over a billion dollars a year in revenues for the industry. At bare minimum.

Image: Clinton Hussey
Some of the many strains of marijuana
(legal or otherwise) in production

Jean Chiasson, CEO of MediJean and my tour guide of the company’s sparkling new 35,000-square-foot facility, operated under the MMAR system “pretty much from its inception.” A compact middle-aged man, bristling with energy, Chiasson explains that he was first approached to grow by his late uncle Philip, who had epilepsy. Philip had heard about the benefits of marijuana for people suffering from his condition, and his nephew—a successful construction industry executive—had a bounty of land in the Okanagan to offer up. Chiasson became Philip’s designated grower, and soon what had been a sideline business flourished.

“I started experimenting with different cultivars for him and then other people, his friends, who started seeing noticeable improvements,” he says. Before long he was acting as a mediator between Health Canada and prospective patients who needed MMAR licences, some of whom had previously been self-medicating. “I was always focused on a future that would get away from basements and garages and move it into a biopharmaceutical industry.”

As we talk inside MediJean’s tissue lab, examining various strains of marijuana that could be used one day to treat everything from epilepsy to MS, Chiasson is joined by his business partners, chief strategy officer Anton Mattadeen and COO Chris Dollard. Dollard and Mattadeen had partnered over the years as IT consultants, working with the likes of Dell, IBM and Accenture. When Chiasson contacted Dollard about this new business he was envisioning, Dollard suggested that perhaps he bring his old friend Mattadeen into the discussion. A partnership was born.  

The three men believe the key to their success will ultimately be in research and development, and that setting up shop in British Columbia—with its longstanding cultivation expertise (legal and otherwise)—is critical.  

“Given the rich tradition and history associated with marijuana in the province, there exists a solid base of experience and knowledge particularly in the areas of horticulture, crop development and crop management,” says Mattadeen. “From the start, we realized that R&D was going to be the big differentiator between organizations that want to be what we consider ‘elite’ licence producers and organizations that are just looking at the financial benefit of this change.

“When we produce something, we really want to create the strains that are necessary to help people,” he continues. “If we do it properly and we have it at the highest quality levels possible, all the profitability will take care of itself.”

That said, there’s a ready expectation of profitability. Already, Chiasson—who, along with his wife, Beverly, is the principal shareholder—has sunk $10 million of family money into the operation. That includes $5 million to purchase and retrofit the former fish-processing plant that houses MediJean’s operations, with the balance going to pay for lab and production equipment, a slew of security cameras, monitors and vaults, and an ever-expanding workforce (as of late January, 25 staffers in Richmond, and another 10 in Toronto, home to MediJean’s IT and communications operations).

All this without having sold one single gram of the product, which they can’t do until they get a licence—but which they fully expect to early in 2014. “As soon as we get the licence, we’re ready to go,” says Chiasson. He believes he can recoup his investment within 18 to 24 months of launch day.

The biggest challenge for MediJean and other licensed producers will be getting the medical community on board. In the old system, Health Canada was the gatekeeper—reviewing patients’ personal medical information to determine who would get medical marijuana. As of April 1, that responsibility falls to a patient’s doctor and early noises from the Canadian Medical Association aren’t entirely positive.

Louis Francescutti, president of the CMA, described the new regime in a November 2013 interview with the CBC as “asking physicians to prescribe blindfolded.” He expressed concern about the fact that most physicians have little training with marijuana—how much to prescribe or how various strains should be used.

That’s why MediJean is putting as much of its early efforts into doctor outreach as it is R&D. Part of that is through traditional visits to doctor’s offices, talking up the virtues of MediJean’s product line. But the other part of it is building an IT infrastructure that anonymously shares MediJean patient info with doctors, so when a patient walks into the doctor’s office and lists his or her symptoms, the doctor—with the help of MediJean’s secure database—can see what other doctors are prescribing for what ailments, and how much.

“This is part of an ongoing clinical trial,” says Chiasson. “We’ll have the largest ongoing clinical trial, once we get our licence, not only in Canada but probably the world.”

Image: Adam Blasberg
MediJean is focused on providing the
right high-quality strains to help what ails
its clients

When the federal minister of health Leona Aglukkaq announced the new regulations in June, she framed it as a necessary evil—and very much in keeping with other Conservative law-and-order measures.

“While the courts have said that there must be reasonable access to a legal source of marijuana for medical purposes, we believe that this must be done in a controlled fashion in order to protect public safety,” said Aglukkaq in a June 10 release.

The announcement went on to note that MMAR’s rapid expansion (from 500 authorized users in 2001 to more than 30,000 by 2013) had had “unintended consequences for public health, safety and security as a result of allowing individuals to produce marijuana in their homes.” Under the new MMPR regime, “production will no longer take place in homes and municipal zoning laws will need to be respected, which will further enhance public safety.”

The producers

The federal government, after dropping the new rules for licensed medical marijuana producers in June 2013, has kept largely silent on how things are progressing.

When asked by BCBusiness how many people had applied for an MMPR licence, a spokesperson for Health Canada would only say they had “received many applications” with “the majority” coming from Ontario and B.C. Beyond that, the agency was not willing to “disclose any information about these applications as they are confidential business information.”

According to Agrima’s James Poelzer, however, a representative at Health Canada has told them that as of mid-December, some 320 applications had been submitted, with about 50 of those coming from B.C.

So far five companies have received their licence from the government: CanniMed Ltd. of Saskatoon (which had the original licence to produce for Health Canada, as Prairie Plant Systems Inc., under the old MMAR system); The Peace Naturals Project Inc. of Clearview Township in Ontario; Mettrum Ltd. of Toronto; Bedrocan Canada Inc. of Toronto; and Tweed Inc. of Smith Falls, Ontario. Several more are expected to become licensed producers in the first few months of 2014.

Tweed Inc., which has moved into the former Hershey chocolate factory in Smith Falls, is one of the more intriguing new producers. Their massive 470,000-square-foot manufacturing and distributing facility speaks either to the enormous potential its principals see in medical marijuana or to the even greater potential of legalized pot down the road. Tweed’s founder and CEO, Chuck Rifici, previously served as the CFO for the federal Liberals—a party whose leader, Justin Trudeau, has famously advocated for full-on legalization of marijuana.

For most municipalities, that has meant shunting would-be producers off into industrially zoned land, like the sort of business park that houses MediJean. For the District of Maple Ridge, medical marijuana growers are instead restricted to agricultural land—which is where I find another B.C. licence- hopeful, Agrima Botanicals.

Agrima is indistinguishable from the farmhouses and equestrian facilities that dot the landscape just north of the Alouette River. An unmarked mailbox greets visitors, who, once passing a ranch-style house (Agrima’s future offices), follow a road to the back of the five-acre property toward what looks like a barn but is, in fact, Agrima’s future production facilities. Construction workers are hard at work expanding the former horse stables from its current 15,000 square feet to 20,000 square feet.

Led by a quartet of high-school buddies from New Westminster, Agrima is a decidedly smaller enterprise than MediJean. As of January, there were 13 employees (including a web designer), but the principals are no less convinced of the industry’s potential.

“Part of our model is being a bit more personable,” says COO James Poelzer, a fresh-faced 26-year-old SFU business grad, as he outlines his social media strategy. “One of the concerns with the process of going commercial is that big pharma is taking over. We want to maintain that personal connection—the boutique hotel versus the giant chain.”

Whereas MediJean is being funded with family wealth, Agrima has involved a lot of cap-in-hand begging of relatives and friends.

“We have first and second mortgages on the property,” says Poelzer. “The rest of it has been private investment, shareholder loans—we’ve taken out some high-interest loans from private companies. We’ll be pretty stretched until we get the licence.”

For Poelzer, who has already “invested in the millions,” the question is not simply when Health Canada will give Agrima its licence, but when the floodgates will open to a broader market, both here and abroad.

Under the new MMPR regime, a producer can apply for a licence to export to any country that has a federally regulated medical marijuana program and that is in “good standing” with Canada, diplomatically speaking. Agrima is expecting to produce 750 kilograms a year initially, so if domestic demand isn’t as projected, some of their product could potentially make its way to places like Germany, Italy or Spain. Suddenly a billion-dollar market becomes a tens- or hundreds-of-billions market.

And then, of course, there’s the question of changing political tides in Canada and the promise of more liberal laws somewhere down the road.

“The real carrot is legalization,” says Poelzer. “At that point, the market is limitless. We have that relationship with Health Canada already. Even under a legalized system, it will have to be regulated. We’ll have the inroads, the relationship and the knowledge.”