Business
Canadian medical cannabis companies look to benefits-covered patients for growth
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In the context of a shrinking medical marijuana market, some Canadian companies are focusing on selling medical cannabis to patients whose purchases are covered by employee health benefit plans, citing improved customer retention and consistency.
Major licensed producer Aurora Cannabis and several other players have adopted a benefits-focused medical strategy, which comes as prices have fallen in Canada’s fragmented, competitive recreational marijuana market.
Although the benefits-focused strategy suggests an avenue for higher-margin growth in maturing medical marijuana markets, cannabis companies say serving benefits-covered clients comes with high costs for education, customer service and research.
Plus, adoption of medical cannabis benefit coverage has been relatively low in the grand scheme of Canada’s health industry, according to Canadian employee benefits expert Mike Sullivan.
Before adult-use legalization in October 2018, Sullivan expected benefits coverage for medical cannabis would become “an enormous area for these self-insured (benefits) plans.”
That prediction didn’t pan out.
“It’s almost like tumbleweeds,” said Sullivan, CEO of Toronto-based employee benefits consultancy Cubic Health.
“There are very, very few of these plans that have moved ahead with medical cannabis coverage.”
Medical cannabis benefits strategies
Alberta-based Aurora Cannabis has refocused its business on medical marijuana, with a particular reliance on insured consumers whose benefits cover MMJ.
The company has a leading Canadian medical cannabis market share of 24%, CEO Miguel Martin told MJBizDaily.
Aurora says sales to “insured patient groups” accounted for about 80% of the company’s 23.4 million Canadian dollars ($17.4 million) in Canadian medical cannabis net revenue in its first quarter.
“Those that are in an insured program, by their very definition, buy more consistently, stay with similar pieces of medication for longer periods of time,” Martin said.
“… The noninsured patients do appear to have a little bit of a smaller basket size, a little less interaction, and to be a little more variable.”
Privately held Nova Scotia cannabis producer Aqualitas told MJBizDaily about 75% of its medical sales are covered by insurance.
George Scorsis, CEO of Ontario cannabis company Entourage Health (formerly WeedMD) said about 90% of the company’s medical cannabis clients are covered by insurance benefits.
Entourage, which is phasing out its cultivation business, reported medical cannabis net revenue of about CA$3.1 million in its most recent quarter.
The company’s medical cannabis strategy is anchored by a partnership with the Laborers’ International Union of North America (LIUNA), whose Canadian pension fund owns more than 30% of Entourage’s equity and is also a major lender to the company.
Scorsis said LIUNA locals offer dedicated medical cannabis benefits with coverage of CA$1,000 to CA$2,500 annually.
He also said Entourage’s Starseed Medicinal medical marijuana platform has relationships with other construction and trade unions whose benefit plans cover MMJ, arguing that focusing on selling medical cannabis to laborers makes sense as a safer pain treatment alternative in light of the opioid drug crisis.
Entourage puts patients “on a proper treatment plan, which is X amount of dose, X amount of times a day, of a certain product,” Scorsis said.
“So the stickiness of them, and retaining them within our model, is significantly higher. … They’re consistent with our brand throughout the entire journey from education all the way to the end of treatment and don’t leave our portfolio for a multitude of reasons.”
However, Scorsis said profit margins on medical cannabis aren’t necessarily higher than for adult use, even though medical marijuana doesn’t involve the “wholesale middleman” common in Canada’s provincial adult-use cannabis markets.
Entourage absorbs the costs of educating patients and physicians as well as patient call centers, reducing medical cannabis margins.
“Just to give you an example, we go to actual union halls and spend days (discussing) cannabis as a medical alternative,” Scorsis said.
Aurora CEO Martin said medical marijuana margins, on average, are roughly twice that of recreational cannabis.
But, like Scorsis, Martin said that margin advantage is offset by significant costs.
“Everything from the clinical work, the filings, the product development, the packaging, the testing, (to) all of the call center stuff is very, very expensive,” he said.
“And so there’s puts and takes to the business model, and I don’t think margin, in isolation, is the right way to look at the health of the business.”
Who has cannabis benefits?
Canada’s medical cannabis market was worth CA$93 million in the third quarter of this year, according to Statistics Canada, implying a CA$372 million annualized run rate.
Military veterans appear to represent Canada’s most significant group of benefits-covered medical marijuana patients: The Department of Veterans Affairs forecasts spending CA$195.2 million on cannabis reimbursements in its 2022-23 fiscal year.
In terms of private-sector cannabis benefits coverage, no one knows exactly how many Canadians are covered, according to benefits insider Sullivan.
Employee benefits plans fall into two main categories, Sullivan explained:
- Self-insured, or self-funded, plans in which employers underwrite their own benefit costs. These plans tend to be used by larger employers.
- Fully insured plans put the risk of coverage on the insurer and tend to be used by smaller companies.
Sullivan added that some benefits plans might also cover medical cannabis through employees’ health care spending accounts, but the annual spending caps for those accounts tend to be relatively small.
In comparison, open cannabis benefit coverage would treat medical marijuana “the same way as a prescription drug, where, if it’s approved, you can have coverage up to thousands of dollars a year, or potentially unlimited,” Sullivan said.
“There are very, very, very few plans that have that.”
Sullivan knows of no fully insured Canadian benefits plans that cover medical cannabis as an open benefit off the shelf, meaning cannabis coverage wouldn’t be a default benefit option for employers who use those plans.
However, he has seen employers choose to add medical cannabis coverage on top of fully insured plans – albeit with a requirement for “some form of prior authorization” or review.
Although medical cannabis market leader Aurora said it earned roughly CA$18.7 million in medical marijuana net revenue from benefits-covered patients in its previous quarter, Sullivan sees that quarterly total as a drop in the bucket in the context of the overall benefits market.
“There’s CA$15 billion-plus a year paid by benefit plans for prescription drugs,” he said.
Growing the benefits-covered medical cannabis market
Ned Pojskic is vice president of pharmacy benefits management at not-for-profit benefits provider Green Shield Canada, Canada’s fourth-largest benefits company.
Like benefits consultant Sullivan, Pojskic said early interest in benefits coverage of medical cannabis failed to lead to broad coverage.
In recent years, Pojskic said, human resources leaders and other benefits decision-makers have been focused on other problems such as rising drug costs, issues surrounding the COVID-19 pandemic as well as diversity, equity and inclusion efforts.
In the meantime, he said, “the maturity of the evidence on medical cannabis simply hasn’t grown” – and that evidence base would need to be stronger to justify increased benefits plan coverage of medical cannabis.
“I haven’t seen a single multisite, randomized, controlled trial emerge that has demonstrated the safety and efficacy of medical cannabis. … In the benefits-plan industry, we’re very much focused on the evidence, because we have these massive dossiers of clinical trials and information we receive from pharmaceutical companies to make decisions around coverage of their drug.”
Benefits expert Sullivan said that after adult-use legalization in 2018, Canadian cannabis companies lost their focus on medical marijuana.
“If you want to go after that market, and if you want to add value to that market, you have to dedicate time and effort and resources to understanding it,” he said.
Green Shield’s Pojskic said convincing the benefits sector to embrace medical marijuana would require the cannabis industry “to reengage the (benefits) industry anew on that.”
“Because they engaged the industry in 2017, 2018, 2019, but in a way, that clearly demonstrated their lack of preparedness to do so,” he said.
“They brought some doctors who were basically working for the cannabis industry, they brought others, but it was clearly unconvincing to our industry that what they were selling was good enough to buy.”
Aurora’s Martin agreed with Pojskic that more high-quality research could help increase the benefits industry’s acceptance of medical cannabis.
But he expressed optimism that such research is underway.
“You’re seeing it in key markets with key universities, and a variety of different agencies,” said Martin, citing the success of plant-derived cannabinoid medication Epidiolex in clearing regulatory hurdles.
“So, it absolutely can be done.”
Business
New Mexico cannabis operator fined, loses license for alleged BioTrack fraud
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New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Business
Marijuana companies suing US attorney general in federal prohibition challenge
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Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Business
Alabama to make another attempt Dec. 1 to award medical cannabis licenses
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Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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