PharmaCann Sees Improvements in New York Medical Cannabis Program, but More is Needed

We have been watching the New York medical cannabis program develop over the past few years and have noted several challenges along the way. As of August 8th, New York reported just 26,561 patients and only 1,155 practitioners registered to date despite the program having launched in early 2016.

The state initially approved 5 organizations to supply medical cannabis, with perhaps the most challenging patient access of any state medical cannabis program, including limitations on the types of products permitted (no flower) as well as very limited number of qualifying conditions. Over the past several months, it has made several improvements, including the addition of chronic pain as a qualifying condition, which has boosted patient registrations by 77% since March, and appears to be considering additional changes, but it has also doubled the number of registered organizations to 10.

We checked in with Jeremy Unruh, General Counsel and Chief Compliance Officer of Pharmacann, which we have previously highlighted as a leading multi-state cannabis operator, for his perspective on the market and its recent changes. PharmaCann operates production facilities in Illinois and New York and dispensaries under the PharmaCannis brand. The company has been awarded dispensary licenses in Maryland and Pennsylvania as well.

Alan: Jeremy, thanks for taking the time to update us on the recent changes in New York. Your company and the other four registered organizations in the state had argued against expanding the number of providers. The state decided to double the number but also made several changes in the program that will hopefully expand patient access (and are considering additional changes). Which are the most helpful changes, and are they enough to compensate for the doubling of the number of providers?

There are hundreds of thousands of New Yorkers who could lead a better life through the responsible use of medical cannabis.  However, barriers to access for these potential patients are cumbersome and complex.  For many potential patients, an inability to overcome those barriers only encourages them to rely on traditional black market channels to access untested, unlabeled, questionably-produced contraband cannabis products.

Speaking in economic terms, New York currently has a problem with demand.  With only 25,000 registered patients in a state with 20 million residents (and only a fraction of that number actually using the program), there is insufficient patient demand in New York State to offset the supply capacity of the existing five registered organizations.  While the Department is working on some of the mechanics to reduce patient access barriers, at the end of the day, adding additional licensees (meaning, of course, additional supply), is a recipe to exacerbate the State’s demand problem.

Indeed, PharmaCann is using only a fraction of our production capacity.  Why?  Because we have, literally, more than a metric ton of cannabis sitting in our production pipeline with nowhere to go.

The Department’s unilateral decision to double the number of licensees is based on considerations that have never been made clear to anybody but those behind the curtain in Albany.  Rather than tie the addition of new licensees to specific patient benchmarks like we see in other states, such as the number of registered patients (e.g., Florida), the Administration has instead decided that the calendar is a proper measure of program success, regardless of the actual number of patients, regardless of the amount of medical cannabis produced by licensees or sold to patients, and regardless of any other objective, data-driven benchmarks that could be used to measure the success of New York’s program.

Those of us in the industry don’t believe that there can never, ever be any new registered organizations in New York.  In fact, if New York reaches its full potential, then there must be additional market participants simply to meet the needs of the state’s consumer community.  Neither do we begrudge new licensees for working to come into the New York medical cannabis market.  In fact, if the Court ultimately decides that the Department has unfettered authority to add new licensees without oversight from the General Assembly, then we look forward to working with those responsible licensees to continue to develop the medical cannabis industry in New York State.

While our industry association is engaged in litigation with the State over adding licensees through a stale, two-year old application process, we respect the work of the committed civil servants within the Department’s medical cannabis program to find small fixes that help increase patient access.  In fact, the New York State Department of Health is far ahead of other state regulatory agencies at a similar place on the market development curve — Illinois in particular — in finding areas that can be improved at the agency level without a change in state law.

Breaking up New York’s existing forced vertical integration system by implementing a wholesale market is one key.  Allowing licensees to sell plant material, cannabis extract or finished products to the processing centers or dispensaries of other licensees will foster product differentiation and specialization among licensees.  If one of our fellow registered organizations makes a really great product, why spend the resources developing an imitation?  Perhaps another grows a desireable, but fussy strain?  A robust wholesale market will also allow the industry as a whole to develop more quickly.  If new licensees are able to retail the products of existing licensees in their dispensaries, then they’ll begin to generate revenue before they’ve spent the time and money to propagate, grow, harvest, dry, process, extract, formulate, package, and ship their own products.

Allowing the sale of dried flower is also important for a variety of reasons.  Dried flower is the most widely-known cannabis product, and it is the one from which all other products are derived.  Patients who come to a medical cannabis dispensary in New York expect to see products that are familiar.  When a patient’s cultural expectation is challenged, there is a heavy lift to teach the patient what unfamiliar medical cannabis products do (and don’t do).  Dried flower is less expensive than other highly-processed, scientifically-formulated products, and is more accessible to the patient.  Dried flower is also more versatile; patients can choose which method of use is the best.  Providing dried flower to patients does not conflict with the statutory mandate to discourage smoking.

Alan: New York, despite the changes, still has one of the tougher medical cannabis programs. What other improvements would you like to see?

As an industry, we strive for business normalcy.  We want to be treated no more strictly than any other responsible enterprise when it comes to advertising, banking, taxation, and so forth.  Whether you believe that medical cannabis is akin to pharmaceutics, or that cannabis should be taxed and regulated like alcohol, these outside regulatory perspectives are roadmaps for how the cannabis industry can be treated commercially.

At the time of this writing, we have not yet seen the final proposed regulatory changes recently announced by the Department (those are due to be published on August 23), and so we do not yet know precisely whether these proposed changes will live up to the expectations created in the Department’s recent press release.  From the early drafts I have seen, however, these changes are largely positive.  It’s refreshing to see a regulatory agency looking for ways to improve patient access and physician participation, rather than looking for ways to further tighten down our industry.

We would like to continue to see improvements in our ability to communicate with existing and potential patients.  Calling this mere “advertising” is naive.  Starting a medical cannabis industry from scratch requires a massive education and outreach campaign catering to such disparate interests as the general public, the patient community, and the healthcare practitioner alliance.  Allowing us to meaningfully interact with these stakeholders is critical, while still staying true to our obligation to present honest, fair information.

We would like to see the laboratory testing requirements modified in such a way as to encourage private third-party testing labs to enter the New York market.  Currently, all testing is done through the Wadsworth Center, the state’s testing facility.  Unfortunately, Wadsworth is swamped and our ability to bring new products to market is impacted by the testing bottleneck.  Giving existing licensees the ability to exchange validation samples is a good step in the right direction.

We would like to see qualifying conditions abolished.  Limiting a practitioner’s professional judgment is repugnant to the very reason why we impose ethical obligations on a physician in the first place.  There is nothing “recreational” about relying on a physician’s code of ethical standards when it comes to treating patients.  Physicians are not limited by law to prescribing ordinary controlled substances for only a handful of certain conditions, why should recommendations for cannabis be any different?

At the end of the day, it’s all about physician and patient engagement.  Any regulatory change that makes it easier for a potential patient to access a practitioner, like telemedicine; or makes it easier for a patient to access a dispensary, like online ordering and delivery, is going to directly impact the program in a positive way.

Alan: What is PharmaCann doing to drive patient growth?

PharmaCann’s New York outreach staff is working overtime to engage physician groups, healthcare organizations, and patient communities to teach them about New York State’s medical cannabis program.  These super-influencers of ours work hand-in-hand with our dispensary teams to give potential patients a look “behind the curtain” of the program.

While patient recruitment and conversion is often a ground-game, PharmaCann believes that building relationships in the institutional healthcare and education realms will pay dividends as the industry continues to develop.  Driving patient growth is an area ripe for innovation.  Engagement of online patient communities, telemedicine, virtual ordering and delivery are important priorities in our industry.

Alan: You announced a partnership with HelloMD in June in order to help “accelerate your reach and brand awareness across this growing market.” Can you discuss if there is any early traction thus far and how these efforts can help grow the patient base over time?

PharmaCann applauds the work HelloMD is doing in developing an online patient community and platform for qualified patients to interact with practitioners.

Along with HelloMD, our company’s shared goal is to simply increase qualified patient access to physicians and cannabinoid-based therapies, whether those patients end up in our dispensaries or not.  Though still early in the program, we are encouraged by the feedback we are hearing from the marketplace about the efficacy of these initiatives.

Alan: PharmaCann currently has operations in Illinois and New York. Can you share a roadmap for expansion into other states?

PharmaCann understands that the decision-makers in Maryland and Pennsylvania expect a strong healthcare-focused retail experience in those key markets, and we intend to exceed those expectations.  PharmaCann is currently developing a dispensary location in the Bethesda/Chevy Chase area of Maryland and working to build out Philadelphia-area dispensary locations, too.

PharmaCann is also working with a local group to develop a cultivation center and medical cannabis dispensary in Massachusetts.  We can’t wait for Pennsylvania to turn its attention to Phase II of its grower/processor licensing process, and we’re looking forward to seeing how things turn out in Ohio.  Every new market gets consideration, whether that’s Florida, North Dakota, West Virginia, Arkansas, or Michigan.

One day we will look back at this inflection period in the development of the US cannabis industry, and we will see that it went by in a whirlwind.  There is no rest for the weary, is there?

Alan: Indeed not! Jeremy, thanks again for sharing your perspective. We look forward to an update on your progress as the medical cannabis program  in New York hopefully continues to improve.

Do you have an interesting story to share? Let us know!

Exclusive article by Alan Brochstein, CFA

ab-byline-ncvBased in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV.

Contact Alan: Twitter | Facebook | LinkedIn | Email

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