Cannabis Musings - January 21, 2025

What's the deal with pharmaceutical cannabis?

Friends, the relentless nature of the cannabis industry can leave you (me) bitter, cynical, and jaded. So, imagine my naches when I learned about the progress that’s been made by pharmaceutical cannabis. San Francisco-based boutique investment bank, North Point Advisors, hosted a symposium last week on the topic, featuring Biopharmaceutical Research Company, Andira Pharmaceuticals, and a number of panelists discussing this niche area, which is still in its early stages. Your first question may be “what’s that?” Your second question may be “how does that even work?” Your third question may be “‘Big Pharma’ is going to destroy our industry, right?” Fair, but in the end, I think this is all good for cannabis.

What we’re talking about here is the development of pharmaceutical products for very specific therapeutic uses within the framework of existing pharma structures. These medicines are derived from cannabinoids and go through the same (and probably even more) rigorous testing and government approval processes that any other new drug would endure. The goal, from what I understand (this is not medical advice), is FDA (and its foreign equivalent) approval (and protection), so that these treatments will be broadly accepted by doctors, hospitals, and insurance carriers.

In the case of a company like BRC, this is done with DEA approval. Indeed, the DEA has issued about half a dozen licenses for US-based companies to fully legally cultivate, possess, and process cannabis (not just the hemp flavor) for the purpose of pharmaceutical development. Other companies, like Andira, are sourcing their cannabinoids solely from hemp. This imprimatur allows these companies to do things that most other state-licensed cannabis companies can’t – raise institutional capital, cross state lines, use FDIC-insured banks, take operating deductions, yadda yadda yadda. The level of compliance and DEA scrutiny is, from what I understand, farkakteh, but it appears to be worth it.

Based on the presentations, it’s still very early, but steady progress is apparently being made in developing treatments for cancer, wound care, and other specific indications. These products are still years away from approval, because, just like any other new drug development, the testing regimes are extensive. There’s also the cloud of cannabis that surrounds the space, which makes outsiders a little more skeptical, but that’s also the purpose of the rigor of the process.

What’s most interesting to me about this niche is that it’s developing and operating alongside, and not in competition with, state-licensed cannabis (both medical and adult-use). From what I’ve learned, in order to be effective for specific therapies (such as reducing the size of a cancerous tumor or preventing infection in open wounds), these pharmaceuticals need to be able to deliver dosages of cannabinoid-derived medicines that practically can’t be achieved with typical cannabis form factors. Plus, cannabinoids are only a part of the solution – they’re being combined with other stuff (that’s a technical term, apparently). Finally, you need a specific, targeted delivery system for these drugs to work effectively. In other words, a little dab won’t do ya.

All of this helps dispel the myth/concern that “Big Pharma” will take over cannabis. The pharmaceutical industry simply isn’t interested in adult-use (recreational) products - alcohol and tobacco industries are the more logical suitors, which we’ve discussed before. As for traditional medical cannabis, no pharmaceutical company is going to spend millions of dollars over years of testing to obtain FDA approval for a cannabis-based product that’s easily replicated by a trip to a local dispensary or from an unlicensed source. What they’re interested in is developing a product for a specific indication that can’t otherwise be easily manufactured or replaced (and, yes, sells for a lot of money).

The counterpoint to this, sort of, is Epidiolex. You may remember that, back in 2018, Epidiolex became the first cannabinoid-derived pharmaceutical to receive FDA approval. Based on hemp-derived cannabidiol (CBD), this was a breakthrough not only for seizure treatment, but also for legitimizing the use of cannabis for pharmaceuticals. The fun thing about FDA approval is that the recipient (in this case, GW Pharmaceuticals) gets years (usually seven for new drugs) of exclusivity (very much enforced by federal law). So, when the 2018 Farm Bill passed a few months later, legalizing hemp, the FDA quickly asserted its authority over hemp-derived CBD, in part because it had just granted protection to GW Pharmaceutical for Epidiolex (it also helped that the 2018 Farm Bill preserved the FDA’s authority). The FDA needed to protect its process. The hemp-derived CBD industry never really got very far after that.

I’m confident, however, the broader cannabis industry won’t run into the same issue if the FDA were to grant a new drug approval for a non-hemp cannabis-derived, cannabinoid-based pharmaceutical. When the 2018 Farm Bill federally legalized hemp, no federal framework was put into place to regulate CBD, so when it started showing up in foods and drinks, there was nothing stopping the FDA from shutting that down.

On the other hand, if and when non-hemp cannabis is legalized by the US federal government, it’ll almost certainly be done though full-blown regulation (and taxation) – the chances of the feds legalizing something as politically hot-button as cannabis without tight control are infinitesimally small. And if the government is going to bother to regulate, it’ll do so in a way that allows both the adult-use and the pharmaceutical areas to co-exist. Now, I recognize that this flies in the face of our mantra that rationality doesn’t apply when it comes to federal cannabis policy, but although the FDA is going to want to protect its process, there won’t be a point to legalizing cannabis if it still can’t be sold. Even our mantra has its limits.

All of this is great for cannabis. It helps legitimize the plant by taking away the stigma and further affirming its unexplored depths. As the industry makes its case to the public (and to the federal government), it should be highlighting the efforts of this small, yet important, part of our industry.

Be seeing you.

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© 2025 Marc Hauser. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín.