Pennsylvania is barreling towards a high tech medical cannabis industry, driven by automation, aeroponics and a lot of start-up capital.
Passed in April 2016, the law instituting the state's medical marijuana program puts growing a new industry from scratch on a tight timeline. The first dispensaries are slated to sell prescription cannabinoid oils, sprays and creams by early 2018, according to the Pennsylvania Department of Health.
To make that happen, the state fielded hundreds of applications from private companies, offering to grow, distill, package and sell the controlled substance to patients with one of 17 qualifying medical conditions. In June, the Department issued permits for 12 grower/processors and 27 dispensaries, divvied up across six geographical regions. Locally, that means two grower/producers in Berks County, and 10 dispensaries: three in Philadelphia, two in Montgomery County, and one each in Berks, Bucks, Chester, Delaware and Lancaster Counties.
Competition for these slots was fierce, and many of those not chosen are calling the process unnecessarily opaque, and possibly even slanted, reports the Philadelphia Inquirer.
NewsWorks spoke with John Pohlhaus, CEO of one of the two grower/processers to receive a permit in the Philadlephia region, Franklin Labs, LLC, about the rapid generation of these businesses.
[This transcript has been condensed and edited for clarity.]
Q: Are there ways you can compare and contrast the roll out Pennsylvania to what it looked like in New Jersey? New Jersey legalized medical marijuana in 2010, when fewer states had done so.
A: I think the roll out in Pennsylvania is going to be markedly different than New Jersey. Because in Pennsylvania, the entire process was really created with grassroots, and mothers advocating for their children....They appealed directly to bipartisan senators and congressmen at the state.
That, in combination with bipartisan support and a governor that supported it created a robust medical program. And I think the rollout is going to be much larger and much more successful than New Jersey was, because you had a governor that was opposed to the rollout.
[In Pennsylvania,] we have a much larger scale because we're starting with 12 grows [sites for growing] across the state, and there are 17 qualifying conditions, which is more liberal than New Jersey started with. So the patient population should be much larger, as long as the program to educate doctors and get them to participate is successful in Pennsylvania. The most important thing is to create a patient population through education and advocacy.
Q: I've heard of some reticence among doctors' groups to participate in prescribing because there hasn't been enough research on the effectiveness of medical marijuana. I know the state released a survey to 193 doctors and about 74 percent of respondents said they would be willing to prescribe.
A: That's pretty good.
Q: But I don't know how representative that is.
A: In terms of a rollout, we also are going after really a pharmaceutical model. So that the process of manufacturing will have enough data acquisition and repeatability that the production of like industrial, pharmaceutical-grade cannabis is a combination of the best parts of science and data acquisition to show that you can replicate the strains. So that scientists or doctors in the future can see that you'll be able to meet an FDA model.
Eventually, there's only two ways this could go. It could go all recreational, it could go combination medical-recreational, or the government could wipe it all out.
We really believe there will be two tiers, there's a medical part and there's a recreational part. And the medical cannabis really has to meet a future FDA model. Because as soon as it's used in hospitals and it gets off Class 1 status [a federal designation for illegal drugs], someone's going to have to regulate it on a national scale. So that's where you have more of a medical-pharmaceutical manufacturing approach.
Q: A lot of growers compare making medical marijuana to a highly controlled, pharmaceutical process, rather than agriculture, let's say. Can you walk me through how the plant becomes medicine at your facilities?
A: We're designing the facility to have half be traditional hydroponics ..and the other half being aeroponics [where plants are grown in a combination of air and water], which requires no soil. We're also exploring different light technologies.
Aeroponics can give you more yield and more turns per year, so it's a boost that way. The only drawback is [making sure] that your pumps don't get clogged and you don't lose power.
The nutrients are all computer controlled, the timing and all that stuff. It's really more computer controlled equipment, rather than having soil, and hand-watering and pruning carefully.
You get more crops, you can turn 'em faster, there's a lot less labor involved. You don't have to pull heavy pots. It's really industrial agriculture with a pharmaceutical data acquisition to it. That's where the industry is going on the medical side.
Once you have the crops and you can yield your actual flower within the warehouse, then we have to process it with a CO2 super-extraction machine, with a liquid which is concentrated, and then from there we make ancillary products, like tinctures, have automatic vape filling machines to make vape [cartridges].
That process is also digitized, automated and sensored so you know exactly the inputs you put in to get the output you did, temperature, pressure, etc. That oil can then be diluted and put into different products.
You can control the amount of CBD [cannabidoil, a non-psychoactive compound associated with therapeutic uses for marijuana] and THC [tetrahydrocannabinol, the psychoactive component in marijuana] with the strain of plant you create, or you can do it in the lab. So there's two methods to do that.
Q: Let's talk about money for a little bit, there was a pretty large payment that each applicant had to make to put their hat in the ring for one of these grower/processor permits. There's a $10,000 fee, and then a [refundable] $200,000 permit fee which you guys won't be getting back because you got a permit...and you need proof of $2 million in capital to get this off the ground. As a company, how are you balancing that investment against the revenues you project to make annually once this is up and running? How much do you project to make annually?
A: That really is determined by how many physicians get in the program and what the market is. Every market is slow to start. As long as there aren't any other obstructions based on what's going on at the time, at the federal level or state level, but I think we have very good chance to be profitable not in the first year, but you know in subsequent years, definitely.
Q: Right. You must have done some projections to get that capital in the first place.
A: I don't feel comfortable giving forecasts of sales and stuff, it's too unknown.
Q: I understand businesses tend not to do that, although people have attached some dollar figures to what the permits themselves are worth. Some have said the industry annually is set to produce $175 million annually. Does that ballpark sound accurate to you?
A: I think Pennsylvania is definitely a $100 million industry annually, or more. I don't know what the value of a permit is, without having an operation up and running, it's hard to value something that's theoretical.
Q: There have been some accusations flying, that the presence of John Hanger, a former high level state employee, on your board may have helped you beat out others in getting a growing and processing permit. Can you respond to that accusation?
A: I don't think it helps. He's a great member of the team, and clearly we lost the dispensary application. The applications were based on history and diversity and capital, in terms of you had to meet a certain capital requirement. I think there was a bit of luck in this, because the state had to review things that it had never done before.
John Pohlhaus, CEO of Franklin Labs, LLC. Franklin's parent company has cannabis operations in Colorado and New Jersey, and recently received permits to operate in Maryland, Pennsylvania and Delaware. The state did not grant any of its three affiliated dispensaries permits in this round.