Poway’s cannabis conglomerate
A small Poway company that sells hemp products that don’t get people high is trying to cash in on the “green rush,” the booming nationwide interest in the medicinal and recreational use of marijuana.
Its name, Medical Marijuana Inc., refers to the type of cannabis that can get people stoned. But the company’s inventory is confined to health and beauty items developed from another type of cannabis: industrial hemp.
The company, which doesn’t grow anything, primarily sells and distributes hemp oil products that consumers use to treat everything from anxiety to Lyme disease to epilepsy. The active ingredient in the products — cannabidiol, or CBD — is of unknown medicinal value. Medical Marijuana says on its website that its claims “have not been evaluated by the FDA and are not intended to diagnose, treat or cure any disease.”
So far, it has had mixed results. The company operated at a loss in 2011 and 2012, then went into the black in 2013 when one of its subsidiaries signed a big contract. It has not released its full results for 2014.
Meanwhile, the company in March hired a new CEO — cannabis industry veteran and investor Stuart Titus — after a two-year leadership vacuum. Founder and former CEO Michael Llamas, who stepped down in 2012, is undergoing trial for his involvement in an alleged Ponzi scheme.
Titus, 58, is an 11-year Wall Street veteran and San Diego transplant who has backed a number of prominent cannabis ventures through his private equity firm, General Hemp. He is one of the original investors for Medical Marijuana Inc. but said he wasn’t comfortable talking yet about the company.
“I’m just a brand-new CEO and can’t really comment too well on what happened before my involvement with the company,” he said.
The firm is operating at a time when 23 states have approved marijuana for medical uses. Four of those states and the District of Columbia have also approved pot for recreational purposes. Meanwhile, 11 states recently began allowing the medical use of “low THC, high cannabidiol (CBD)” products. The cannabis industry generated estimated sales of $2.2 billion in 2014, and is expected to hit $8 billion in sales by 2018.
Stigma persists
Despite state legalization efforts, the cannabis industry is still surrounded by stigma, regulatory hurdles and consumer confusion. Like many others in this space, the company operates in a legal gray area.
The federal government deems CBD as dangerous as THC and substances like heroin, LSD and meth.
But some doctors and researchers say CBD has medical properties similar to THC, without its psychotropic effects. So Medical Marijuana, established in 2009, has built its business on a 2004 Ninth Circuit Court of Appeals decision that excluded non-psychoactive hemp from the federal prohibition on marijuana.
Medical Marijuana believes it may have been the first firm in the cannabis industry to find a legal precedent that allowed it to sell CBD products online and ship to customers in all 50 states — and now 40 countries.
Martin Lee, the director of online publication Project CBD and author of the book “Smoke Signals,” a social history of marijuana, says the company was clever to find this loophole, but that doesn’t necessarily make CBD legal.
“They sell these CBD products because they believe it’s legal, and then the government doesn’t step in because it’s awkward and reveals the problems with some of their policies,” he said. “You’ve got to give Medical Marijuana Inc. some credit; they’ve figured out it would be hard to stop them from doing this.”
The company’s products range from the flagship ingestible CBD-rich Real Scientific Hemp Oil (up to $169 for 3 grams), to Cibaderm Hemp Clean Shampoo (16 oz. costs $39.99).
Low-risk way
Most of the money in the cannabis industry is coming from products and services that don’t actually involve growing or selling product from the marijuana plant itself, Martin said, such as software and greenhouse development.
“When they talk about actual products, the only thing that’s even vaguely legal is CBD,” he said.
For that reason, many business owners see CBD as a low-risk way to get into the burgeoning marijuana industry. Medical Marijuana’s competition now includes Realm of Caring in Denver, Bio Hemp CBD in San Diego, and CannaVest in Las Vegas (another company that CEO Titus backed financially), among dozens of others.
Those entrepreneurs are smart, Martin said, because most of the industry’s growth is going to come from people who have never used marijuana, but now feel comfortable buying cannabis products for medical reasons — and prefer the ones that won’t get them high. But with the lack of regulatory oversight or quality standards, Martin said, the market has turned into a free-for-all.
“There will be a glut of products, but they don’t know what they’re doing, and they don’t know anything about dosage,” he said. “They’re just throwing CBD into everything under the sun. It’s the Wild West, and people are elbowing their way to the front.”
Hope for Harper
Many of Medical Marijuana’s customers are parents who feel they’ve exhausted the other medical options for their children.
Penny Howard in Dallas said she turned to Medical Marijuana Inc. products for her 4-year-old daughter. Harper has CDKL5, a rare genetic disorder that results in early onset seizures and impairs development of the nervous system.
“There is no medication on the market that can control the seizures completely,” Howard said. “We tried a number of epileptic drugs, and it was a battle over which one had the fewest side effects.”
Then she discovered Real Scientific Hemp Oil. She started administering it to Harper in September 2013, relying on what she calls “mom science” to find a dosage that worked.
Within a week, Harper’s 60 to 70 seizures per week were reduced by half. After six months on the product, Howard said, Harper went seven months with no visible seizures.
“We saw personality, she made eye contact, she was interacting and expressing herself more, whereas before she was recovering from a seizure just in time to have another seizure,” Howard said.
Harper’s RSHO treatments cost about the same as a car payment each month, she said — a lot of money, but nothing out of the ordinary for the parents of a child with special needs.
Growing a business
Medical Marijuana Inc. was born six years ago when an Oregon company, Club Vivanet, bought it from ex-drug smuggler and King of Pot Bruce Perlowin. Club Vivanet became Medical Marijuana, and today, the Poway-based conglomerate is a web of about a dozen portfolio companies at various stages of life, from research and marketing arms to consulting and security services.
It does most of its business through HempMedsPX, the division tasked with marketing and selling products from the other divisions.
Medical Marijuana doesn’t actually grow anything, and its Poway facility is primarily a warehouse for filling orders with products that were made at contract facilities with hemp oil imported from Denmark.
The oil, drawn from the stalks of mature hemp plants, is tested multiple times during the export, import and production process, said HempMedsPX Operations Manager Marcos Agramont. The high price tag on Medical Marijuana products can make it challenging to compete with lower-priced, less stringently tested cannabis products in the new and relatively unregulated gray market.
Despite its early jump into the market, Medical Marijuana is still trying to find its financial footing. It reported losses of $2.5 million in both 2010 and 2011. But in 2013, net income reached $24.6 million, up from $7.1 million the previous year. Results for the fourth quarter ended Dec. 31 haven’t been posted yet but the company reported a net loss of $490,292 for the first three quarters of 2014.
Premature projections
Alan Brochstein, an investment analyst covering the company (it trades on the Over-The-Counter Bulletin Board under the ticker symbol MJNA), says the company has a history of over-projecting its financial performance and under-delivering. In February 2013, the company told investors they could expect $47 million in revenue for 2013, for example, and ended up reporting only $5 million.
Brochstein’s main problem with the projections, he said, is that Medical Marijuana executives “never explained why they were so grossly wrong.”
Andrew Hard, the company’s spokesman, says the projections for 2013 and 2014 were premature and the result of optimism about new products and services Medical Marijuana had in the pipeline.
But the company has been growing in fits and starts along with the volatile marijuana industry.
As an initial investor, Titus said, the discrepancies don’t worry him. He’s excited that Medical Marijuana is a pioneer in a brand-new industry.
“Obviously we had expected there to be a certain market size and demand for CBD products coming onto the market, and it hasn’t always grown steadily, but Medical Marijuana Inc. really started the whole market,” he said. “As the first publicly traded company in the space, MJNA is really kind of the granddaddy of them all.”
