Pot Stocks and Cannabis Insurance: A Cannabis Stock Report Exclusive With Novus Chairman Frank Labrozzi
Pick and Shovel plays are fast rising as a safe bet for pot stock investors in a volatile market that still straddles the line between prohibition and legality. The ancillary cannabis market is rife with companies in the security, technology, and ag-tech sectors looking to score in the green rush, without having to traverse the muddy regulatory waters of an industry in its infancy. With the rise of medical marijuana, cannabis stock investors have a new avenue to explore -- health insurance.
Novus Acquisition & Development Corp. (OTCMKTS:NDEV) was one of the first health insurance companies to offer medical marijuana plans under the banner Novus Cannabis MedPlan. We spoke with the Owner and Chairman of Novus Acquisition & Development Corp. Frank Labrozzi to find out what his business means to the cannabis industry at-large.
Thank you for taking time to speak with us today. Let’s start by discussing your background. Tell our readers how you started the company and how you came to find yourself working in the cannabis industry.
Basically, I’m an analyst by trade. I did everything from brick to nuclear medicine. I also did mergers and acquisitions in health care insurance, accountable care organizations, so I’ve done roughly over 100 transactions.
The company started in 2006 in California. We created a public entity; we were looking for the right opportunity, and cannabis came along. We began exploring cannabis in 2015. We were approached by investment bankers to get in the cannabis sector. As I researched, I found a lot of areas of the cannabis sector where there was just no barrier to entry. Anybody could come in and file to be a business. We got into insurance because there was a high barrier of entry; because you had to go into each state and have high financial net worth in order to deal with the department of insurance and the department of regulations. We started exploring the insurance end of the business and found that there was a great need and that the price fluctuation and the cost of cannabis meds were very high.
There is a filing procedure and financial requirement for each state. Being a California based insurance entity, reciprocity is recognized because California has the strictest laws in the world. The key to getting to where we are now was strategically targeting an acquisition in the California insurance entity.
And the Novus Cannabis MedPlan, can you tell us about that?
Our Cannabis MedPlan covers both CBD and THC as well as dental, vision, and hearing. The CBD part of the plan is nationwide, while the THC program is state specific. There are close to 3,000 people signed up for the THC program although not all of them are paying because their states have not clearly defined their regulations. Take, for example, a state like Florida. The state’s medical marijuana program has been approved but the state is still wrangling over rules and regulations. We have to comply 100 percent with the cannabis rules and regulations in those states because we are filed as an insurance entity. So, in states like this, we tell the consumers, “we can't take your money right now, but we will keep you signed up and then once the state passes the rules and regulations we will enroll you.” When there is ambiguity in the law, we tend to tread lightly until it is fully accepted and blessed by the government.
How do you decide which market to enter and what is the process for launching in a new state?
We look at the pricing per ounce and the size of the population which, according to our analytics equates to about two percent. We also look at the density of the population in any given geo-region. Obviously, the most important factor is cannabis legality. We are currently in Washington, Oregon, California, Arizona, Colorado, Nevada, Michigan, New York, Massachusetts, and Florida --although we have not implemented anything in Florida yet. Up and coming markets are DC, Louisiana, and Texas.
We go into a market right when the state announces the approval of a medical cannabis program. We start our branding so when they actually launch their program we already are well established in their market.
Talk about some of the benefits of Novus for both patients and businesses in the industry.
If a cannabis patient spends $150 or more on cannabis meds, they can expect to see a 45 to 55 percent discount. That transcends into $1200 per year, which goes back into other healthcare purchases at the dispensary. We also provide dental, vision, telehealth, hearing, etc. We focus on filling the gaps from the Affordable Care Act, where the deductibles are high and out of pocket expenses are high. So, what we do is provide deep discounts that are focused on as little cash out of pocket for patients as possible.
The value proposition for cannabis businesses is that we deliver a loyal customer base to them that is higher than the industry average, three times higher than the industry average of the average med purchase. We also provide to the dispensaries advertising through social networking through our beaconing advertising. So basically, dispensaries that participate with Novus can market to the out of network dispensaries by marketing and sending an ad to digital devices to draw traffic to our dispensaries in the Novus MedPlan. We are constantly marketing and that is the value proposition for a dispensary who can’t afford that type of marketing and advertising.
The value proposition to our agents, of which we are approaching about 450, is that our plans can generate income. The government has taken away a lot of the revenue by becoming the broker and selling health insurance. So what we do is have our plan which is an additional method of how they can generate income.
We have a value proposition to doctors. We provide a referral through our Management Service Organization or MSO programs which is a health organization that comprises of doctors. Those doctors can provide referrals to us. We pay them for the referrals in a legal manner. The doctor comes in participating in the MSO. As they bring in the referrals to Novus, we take the referrals and pay the MSO and the MSO disperses the money to the doctors.
The Canadian market is drawing a lot of attention right now because of its growth and the impending recreational use. Just last week the Canadian Cannabis Act passed its second reading in the Senate. Do you have plans for the Canadian market?
In Canada, the process deal with the ability to be approved at a federal level which we are. Then we have to file with the Canadian Department of insurance and that is where things are slowing down for us because Canada was supposed to have their regulations set by July 2018 but they say it won’t happen until the end of 2018, if at all. So our approach has to be very succinct with rules and regulations. Any diverse action of the rules and regulations puts us in a situation where we have to reapply for our insurance benefit packages. Some parts may fall out of compliance that we have to focus in on, as well as the expense on the roll out on our marketing plan. So, we have been approved to conduct business on a federal level in Canada from a compliance standpoint but we are waiting on Canada to finalize their regulations so we can begin to roll out our benefits package. The process has kind of been like saying, “ok you can open up a subway shop here but let’s see what the local government has to say on what kind of sandwiches you can deliver.”
Has the soon to be recreational market played a role in your entry into Canada?
Recreational marijuana is very much so playing a role in our Canadian business. Recreational use is going to be a major absorption of product. The supply away from the marketplace will drive up prices and is going to affect the med user. It’s basically the law of supply and demand. The Canadians will tell you that they have plenty of supply but our records indicate, from government analytics, that there is going to be a massive shortage of supply. If there is a short supply, then the prices are going to skyrocket and that’s an opportunity for us. We also have to look at if there is an oversupply in the market because that will drive prices down and that would be detrimental to us. But if that is the case we have alternatives plans for that.
SunLife is coming in on a group benefits package program which is going to cost $3,000 to $5,000 a year. Group plans mean employers are going to pay for it. I don’t think employers are ready to pay for cannabis right now. I also don’t think employers are ready to have their employees on cannabis while they are working. That is going to be a long time with a lot of development. Our plan focuses on the health savings account and on the people coming through. One thing-- that is where the purchasing power is.
How about other international opportunities?
Cannabis has given us a tremendous platform for us to expand internationally into traditional health care service for our benefit packages. In India, China, North America, and South America healthcare insurance revenue is going to go from $1.2 trillion to $3.7 trillion in the next three years. So we definitely want to be part of that. Even though cannabis has given us a platform, we still want to expand internationally as a healthcare carrier. The exposure that cannabis is giving to Novus gives us the platform to gather interests from international entities that want us to expand into other areas.
Finally, there is a philanthropic side to your company involving children called the Child Med Program. Can you tell our readers a little bit about that?
Basically, it's a program where we focus in on giving back to the community that has been so good to us in the cannabis sector. What we do is focus in on parents who have difficulty paying for meds for their children or they are out of options for using pharmaceutical or other integrative meds. We have them go through an application process where we do our due diligence, vetting doctors, diagnosis of doctors, parents income and things like that. Once they are approved we provide charitable subsidies and resources to the parents for their children.
For Novus Investor Relations visit https://www.getnovusnow.com/ndev/investor_page.