Want to Sell Cannabidiol in Texas?
You’re going to need more money
Two summers ago, shortly after Gov. Greg Abbott signed the Texas Compassionate Use Act into law, marijuana reform advocates were cautiously optimistic about how the core components of the law would be put into effect. Little else was sure except that cannabidiol, a low-THC cannabis product known to treat and prevent epileptic seizures, would be licensed and regulated for private, medical use in Texas. But two years of tightening regulations and skyrocketing licensing fees have dimmed hope for advocates, entrepreneurs, and patients (see "Lege Limits Use of Cannabis Oil for Epileptics," Nov. 18, 2016). The Department of Public Safety, the agency overseeing the TCU's rollout and eventual regulation, has made it hard for aspiring suppliers to even apply for entry into the industry – reducing the minimum number of in-state licensees from 12 to three, and imposing a licensing fee of $488,520 for a two-year contract – up from $6,000, yet somehow, after a November 2016 proposal to jack the cost up to $1.3 million, still somewhat "compassionate" in comparison. (Those figures don't account for renewal and registration fees, which have also skyrocketed.) DPS has said that the licensing fees will help pay for application processing, facility inspections, background checks, security, and more. Texas will have the highest licensing fees of any state that participates in a marijuana program.
Such a lofty cost seems to be preventing potential licensees from applying. DPS is accepting applications through March 31, but department spokesperson Tom Vinger said this week that it has not yet received any applications from aspiring distributors. By April 30, officials are expected to inform three applicants of their conditional approval. Operations should begin for the approved three on Sept. 1. Asked Tuesday about DPS's plans should it not receive any applications before the deadline, Vinger said: "We expect that applicants will take full advantage of the March 31 deadline ... beyond that, we are not in a position to speculate."
Jay Czarkowski, co-founder of Canna Advisors in Boulder, Colo., has been working closely with one potential applicant. He speculates licensing fees were raised "to reduce the number of applicants" and "reduce [DPS] workload." The responsibility of starting a business requires owners to consider building facilities, buying equipment, and other operational costs. Budgeting for those expenses, in addition to the licensing fees, has led Czarkowski to believe "the only group that's going to make money on this, at least for the first two or three years, is the state of Texas." Kayla Brown, executive director of the Texas Cannabis Industry Association, another organization that's been working with TCU applicants, expressed similar concerns. She added that the small patient population (CBD use is limited only to those diagnosed with intractable, or "uncontrolled," epilepsy) will be another problem for aspiring licensees. "The licensing fees would be more bearable if there were more conditions and alternatively the lack of conditions would be more bearable if the licensing fee was lower," Brown said.
Yet Brown and the TCIA continue their work with potential licensees – among them, Kris Taylor and Yasir Hashim, co-owners of CannOrganics of Texas, who want to bring a CBD manufacturer to central Texas. The two initially planned to seek separate licenses but decided to become business partners after realizing DPS would favor fully integrated organizations that could cultivate, manufacture, and distribute cannabidiol under one license. Speaking from his family farm roughly 60 miles outside of Austin, Taylor told the Chronicle that, though they anticipated changes to the program, the cost increases imposed by DPS did require CannOrganics to make some quick adjustments, which set them back one month. "We had to return to every single investor we approached with the new financials and restart the process of getting commitments," Taylor said. The "whole process has been interesting because you have to round up secure commitments for funding before you actually know if you're going to get a license or not."
Should that effort prove successful, CannOrganics plans to operate a series of greenhouses on Taylor's farm outside of Austin. The facility, known as Regenic, will include a pharmaceutical sterile extraction room where technicians will convert raw components of CBD into capsules and oils. The products will then be delivered through the company's secured distribution division to retail and distribution facilities in Austin and San Antonio. The two hope their combination of cannabis experience and higher education will work in their favor. Taylor earned his bachelor's degree in biology with a minor in environmental science, and previously worked as a cultivation manager and environmental protocol supervisor on a California cannabis farm. Hashim earned his bachelor's in psychology with a minor in environmental science, and his master's in applied cognition and neuroscience. Both deferred medical school to pursue a career in the industry.
Taylor anticipates a patient-driven business rather than one built on how much CBD is produced or sold. He said his ultimate goal is to "provide the highest quality medication that's available on the Texas market and set the standard" – not just for the Texas pharmaceutical CBD industry but for the marijuana industry as a whole. "It's not a miracle drug and it's not going to help everyone," he said, "but again, it's just one of those tools in the toolbox that physicians can use to help people have some kind of normal quality of life."