The U.S. cannabis industry grew 64% in 2013 and is expected to reach $2.34 billion in size by the end of 2014, according to ArcView Market Research. With additional states expected to legalize the drug over the next five years, the same group projects that the industry could balloon to $10.2 billion in size by 2018. These rapid growth rates have made the industry increasingly attractive to investors.
Some companies are focused on the cultivation and distribution of cannabis, particularly in Canada where new laws have made cultivation legal for so-called Licensed Producers. For example, Tweed Inc. (TSX-V: TWD) recently became the first publicly traded cultivator of cannabis in Canada, although there are countless others with outstanding applications to become competing producers.
Novus Acquisition & Development Corp. (OTC: NDEV) aims to capitalize on the compliance side of the business by providing healthcare risk management and compliance services. Founded by a group of healthcare industry professionals, the company helps organizations reduce their liability by establishing proper risk management protocols that reduce waste, abuse and fraud.
Medical Cannabis Becomes Accepted
Medical cannabis has only recently become accepted as a viable medical product by the U.S. government’s standards. In mid-2013, the FDA approved the first clinical studies of cannabidoil (“CBD”) for the treatment of epilepsy despite the drug remaining a Schedule 1 controlled substance. The critical move paves the way towards cannabis being accepted more widely as a viable medical option for patients.
Informal studies have also shown that cannabis could be useful in many other indications, ranging from post-traumatic stress disorder (“PTSD”) to potential implications in cancer treatment. In fact, cannabinoids like dronabinol and nabilone are already approved by the FDA for the prevention or treatment of chemotherapy-induced nausea and vomiting in cancer patients.
GW Pharmaceuticals plc (NASDAQ: GWPH), a biopharmaceutical company focused on leveraging proprietary cannabinoid products, has moved beyond these informal studies with a Phase IB/IIA clinical trial for the treatment of Recurrent Glioblastoma Multiforme (“GBM”) using its cannabinoids in combination with temozolomide. If successful, medical cannabis could reach a whole new level of clinical acceptance.
Addressing Compliance Implications
Cannabis remains a Schedule 1 controlled substance by the U.S. government’s definition, which means that it’s considered both highly addictive and dangerous. While classifying cannabis along the same levels of heroin may be extreme, even cannabis advocates admit that some users may abuse the substance, which means that patient treatment plan monitoring and compliance are key issues.
Many state governments that have approved medical cannabis have also insisted that it remains strictly regulated. For example, many state governments require dispensaries to be state-certified with product that’s regularly inspected for quality. Of course, all industry players also run the risk of a federal crackdown given that the substance remains illegal in the eyes of the Drug Enforcement Agency (“DEA”) and the federal government.
Recently, two high profile deaths in Colorado were tied to the overconsumption of cannabis “edibles”, which led Colorado’s Marijuana Enforcement Division to meet with lawmakers and edible-pot producers to discuss how much THC should be in a serving size. These developments underscore the need for additional risk management practices to be put in place, especially in a new industry that has very few established rules.
Aside from regulators, commercial banks have also been very cautious approaching the sector. The Department of Justice (“DOJ”) has hinted that the DEA wouldn’t be cracking down in states where the drug is legalized, but commercial banks remain hesitant to get involved. Technically, the government could charge them with money laundering and a host of other changes if they accept moneys stemming from improperly handled money.
“Bankers fear not just jail, but also the suspension of their banking licenses and steep penalties if they are caught violating these laws, most notably the Bank Secrecy Act and the Anti-Money Laundering Act, which are designed to prevent money laundering,” according to a recent BBC article.
According to Tom Ammiano (D-San Francisco), “Multiple failed attempts at regulating California’s haphazard medical marijuana program, this state lawmaker has introduced legislation he believes will finally establish some order to the state’s multibillion-dollar industry. People have seen that the more regulation you have, the less chaos you have.”
Novus’ revenue is derived from recurring monthly charges ranging from $2 to $10 per patient similar to the healthcare insurance industry revenue model.For example 1000 patients or for the oversight management to mitigate risk provider organizations pay a $10 per month per patient. For a contract to manage 1,000 patients, NovusQC generates $10,000 per month or $120,000 per year in revenues.
For Provider Organizations such as Hospitals, Self Funded Health Insurance and clinic systems who have patients that have certain healthcare conditions for which a physician has clinically determined would benefit from an MMJ treatment plan, we reduce liability exposure by providing them a structured protocol compliant for each states regulation and federal recommendations in exchange for our fee structure. For employers, municipalities and businesses with exposure to Cannabis users we conduct full scale Risk Management analysis in order to mitigate business liability and promote work place safety.
Shayna Balch an Arizona attorney blogged; “To support these work place effort Arizona employers cannot discriminate against employees simply because they possess medical marijuana cards and are lawfully using marijuana or other cannabis related products outside of the workplace”. And the article further states “No employer wants to face the prospect of a lawsuit for terminating an employee for marijuana use. At the same time, maintaining a safe and efficient work environment should be the prerogative of any business owner”. This is a prime example where the Novus business model will play a role.
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