Cannabis Entrepreneurs: The Compassionate Use Pioneers of Texas

Texas has not legalized marijuana in any form yet, but that is not stopping lots of budding entrepreneurs from getting a head start.

The cannabis market is growing by leaps and bounds across the nation, and, according to an article in newstimes Texans are hoping the Lone Star State will soon join that tidal wave.

Even with cannabis still illegal in the state, there are plenty of ways to get a foot in the door. Growing cannabis is one way. The very popular Republican Texas Governor Greg Abbott signed a 2015 law called The Texas Compassionate Use Act. It allows registered neurologists to use low-THC cannabis to treat patients with intractable epilepsy. To receive treatment, patients must get a recommendation from two qualified neurologists.

Under this law, growers can grow cannabis for this narrow use; they can only grow low THC, high CBD strains used to make a specific cannabis oil for epilepsy treatment. Companies are required to obtain a license for growing, processing, and distribution.

Only three Texas companies have taken the plunge so far; all three have received their Texas Compassionate Use Act licenses. Obtaining a license is not for the faint of heart. The companies had to put reams of reports together, demonstrating everything from capital to safety.

Growing in Texas is difficult and expensive; the licenses cost a cool half million dollars—each. The companies say it’s all worth it. They are making a bet and say they’re in it for the long haul, even though they have to renew the license every two years, which comes with a $100,000 price tag.

One company, Compassionate Cultivation, submitted a 300-page application for their license, proving the cliché that everything really is bigger in Texas. Just last month, they were first to market, opening the state’s very first dispensary. In one month, they have had 40 customers, and their volume is growing. They have an indoor growing facility just a stone’s throw from Austin. They grow the plants in a room chilly enough to be a wine cellar, and they harvest using their state-of-the-art extraction machine to make the precious CBD oil.

The second company is in the sleepy town of Schulenberg, Texas, a traditional German and Czech community situated between Houston and San Antonio. Right now, they sell cannabis oil and hope to unveil their suppository product line soon.

Surterra Texas is the third company that has obtained the Texas license; they are just getting started in the Austin area.

Indeed, all three companies have small markets—at least for now. Their market is Texans with a diagnosis of intractable epilepsy from two neurologists, so that is not a vast market, to say the least. The Epilepsy Foundation of Texas (EFT) estimates that market to be fewer than 150,000 patients. EFT says if you subtract the number of patients who have moral objections to cannabis (which accounts for quite a few Texans) and the ones who cannot get two neurologists to agree on a diagnosis, that market shrinks even more.

Furthermore, the governor won’t allow the products to be sold across state lines. But these companies have the “if you build it, they will come” motto. They are not deterred, and they are happy to be pioneers in the Lone Star State.

Compassionate Cultivation CEO Morris Denton contemplated for over a year about starting a business with seemingly more downsides than upside. Texas is a state of political turmoil when it comes to cannabis, and Denton worried about the personal stigma he might encounter because of his chosen business. Conversations with intractable epilepsy patients helped him make the decision, and in the end, the tremendous business opportunity was irresistible to Denton and his business partners.

But he said he could not resist the business opportunity and the chance to be part of an industry that he believes will transform Texas' politics, economy, and view of medicine. He said phone calls and emails from people with intractable epilepsy and their families cemented his decision.

Denton says he is following Florida’s model. A similar company, Knox Medical, began the same way in the Sunshine State. Florida initially had the same restrictive epilepsy law, but over time, the state has increasingly added other medical conditions to the list. Now, Knox operates in Florida, Pennsylvania, Puerto Rico and yes—in Texas.

All three companies have had an uphill battle. Raising money has been one of them.  Compassionate Cultivation raised millions from wealthy Texan investors but then struggled to find a bank. Because most banking institutions are FDIC federally-insured, many banks just will not go there. Denton finally found a bank with enough Texas gumption to take the leap—and the cash.

Physician education has been a major factor as well. Denton spends a lot of time educating neurologists, attending conferences like the Texas Neurological Society. He has had doctors out for facility tours to show them the operation first hand.

These companies have dug their boot heels in. They feel confident that their companies will have an edge when Texas inevitably changes its medical cannabis laws. They say they’re not giving up on Texas. They say it is not an easy road they have chosen, but it is the right thing to do.

In states across the nation, the cannabis market is growing. More states are legalizing medical marijuana. To date, 29 states and the District of Columbia purport legal sales of medical marijuana. Texas is a staunchly Republican state, with many politicians who vehemently oppose the use of marijuana in any form.

But Texans are changing their minds. The vast majority now support legalization of medical marijuana for restricted uses, per a 2017 University of Texas/Texas Tribune poll.

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