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Flora Growth CEO Luis Merchan spoke to Cannabis Wealth about how governments can benefit from the significant economic growth that can come from the cannabis industry.
In Europe, a number of countries including Malta, Germany, Sweden and Luxembourg all made announcements in 2021 that they would be taking a more progressive approach on cannabis policy. Malta was the first country on the continent to legalise recreational use.
Other countries across the globe including Canada, Uruguay, Mexico and the US have also made progressive changes to cannabis policy in recent years.
Whilst the globe strides ahead on cannabis policy, the UK is lagging behind with the announcement of a new ten-year crackdown on drugs and its Beating Crime Plan, in which Prime Minister Boris Johnson commented that “Drugs are a scourge on society.”
Campaigners have highlighted that a regulated industry could create hundreds of thousands of jobs in the UK and generate large amounts of tax revenue.
Understanding the cannabis market
Flora Growth CEO Luis Merchan has almost two decades in Consumer Packaged Goods (CPG) and retail in the United States, having worked for companies such as Target and Macy’s. Since joining Flora Growth, an all outdoor producer of cannabis operating out of Colombia, the company has seen rapid progression in the cannabis space.
Colombia is known for a number of agricultural commodities and is the number one producer of cannabis flowers in the world due to its suitable climate and conditions which translate to low production costs.
Flora Growth has seen the benefits of legal cannabis markets. The company went public on NASDAQ under the ticker FLGC on 11 May, 2021, and since then, has expanded its operations – generating revenue of USD$911m in sales and expecting to deliver between $35 and $45bn this year.
Merchan highlights that the outcomes in the US and Canada highlight the benefits of taking a progressive approach to cannabis legalisation.
Merchan commented: “Flora Growth is a global cannabis company positioning itself as a global market leader in cannabis. North America leads the space in terms of their regulatory and legal environment.
“In the United States alone, there are 17 states that allow for recreational cannabis to be available for consumers. There’s also two reforms that would help pave the way for federal legalisation which will dramatically change the regulatory landscape globally – the Safe Banking Act and the MORE Act in Canada.
“Canada led the lead this space in terms of regulatory and recreational medicinal and the movement in those two countries have helped pave the way for what is now becoming an international trade community.
“There’s about a million and a half medical cannabis patients in the UK. Clearly, there’s a need for regulatory change, not only from an economic growth perspective. This is an industry that will provide meaningful economic growth as we have seen in Canada in terms of employment, tax revenues, but also for the benefit of consumers and patients.
“The UK has the opportunity to start becoming more aligned with other first world countries that are making significant changes such as the US Canada, and of course, Germany that announced changes a couple of months ago.”
Merchan suggests the lack of progress in the UK is a personal conservative view from government bodies that have not realised they are carrying a stigma around cannabis.
“They have not realised that cannabis carries a tremendous wealth of medical benefits for patients and also provides a safer alternative to other entertainment substances such as alcohol and tobacco. That stigma I believe needs to be and will be, removed as constituencies continue to talk to the government officials about their change of mind around cannabis.
“We have started to see that happening in the United States. It started of course in states that have more liberal views, such as California and New York, but we will continue to see that change as conservative movements the medical benefits, and also the business benefits in terms of economic growth from cannabis. There will be a transition to a more streamlined, regulated and open cannabis industry.”
The importance of regulation, equity and corporate responsibility
Merchan highlights that having a robust regulatory framework around any legal cannabis market is vital and that the responsibility of cannabis companies to be compliant can provide governments with the security they need to enable legal markets.
“It is important that there is a very robust regulatory framework around the cannabis industry. Without a doubt, there are a number of actors that are not good actors that that come from illegal trade or the black market trade,” said Merchan.
“It is also important that cannabis companies be safe, incredibly responsible, and that they are very transparent – that they open up their doors in terms of quality manufacturing and access to certificates of analysis, the companies that they trade with, the businesses that they work with, so they can provide government officials with the comfort that they need in order to to create more meaningful cannabis reform.
“It is the responsibility of companies such as mine to ensure that we are providing the information that government officials need.”
Merchan highlighted other factors that would make a significant impact for informed regulation of a legal cannabis market, including access to financial services – an issue that has plagued the North American and US cannabis industry.
“The first is ensuring that there is a strong, reliable regulatory oversight to ensure that cannabis companies and players have very clear and transparent operational practices, including finances and quality standards of the products that they are manufacturing,” he commented.
“The second is access to financial services – the more access to traditional financial methods, the more transparent these companies are going to be and the more likely that that the local and state governments are going to be able to benefit from the significant economic growth that can that can come from the cannabis industry, including employment and tax revenues.”
Merchan also pressed the importance of social justice as a vital component of creating properly regulated markets – an issue that is consistently raised by reformist campaigners in the UK.
The UK’s national centre of expertise on drugs and drugs law, Release, recently published a report stating that the UK must repair the harms and historical injustices done by cannabis prohibition. Building on its former research highlighting the disproportionate impact of drug prohibition on minority communities, the report sets out 14 equity principles to integrate into the UK’s future legal market to ensure a “just, fair and equitable cannabis market in the UK”.
This includes regulations such as cannabis social clubs and a regulatory system that allows for non-commercial domestic cultivation.
“It is very clear that that cannabis law as it exists today, dramatically and disproportionately affects minorities including Black and Asian communities,” said Merchan.
“Decriminalising cannabis will ensure that these communities are less affected, which would dramatically improve the standard of living and quality of living of these communities in the United Kingdom.”
The importance of scientific research
Empirical evidence of the potential benefits or harms of cannabis is also vital for a properly regulated market and informed policy decisions, highlights Merchan, and private companies have a role in providing this evidence about their products.
“On the scientific front it is incredibly important that private companies, as well as governments, invest in scientific research, so they can prove and verify that medical benefits become, in fact, academic research and peer reviewed research, so cannabis can be safely used by the medical community as well.
“I think it is incredibly important that the majority of the of the potential benefits of cannabis and cannabinoids that are found in the cannabis plant are reviewed by consumers and patients.”
Flora Growth is carrying out its own scientific research by partnering up with The University of Manchester to study the effects of cannabinoids on fibromyalgia.
“Our number one priority is to investigate the potential benefits of cannabis molecules to treat many ailments and we have a number of efforts that are in place globally. One of them is with the University of Manchester where we are presenting some formulations for clinical trials for the treatment of fibromyalgia,” says Merchan.
“We are doing this with a very robust scientific team both inside and outside our company – global leaders in the scientific industry, led by Dr Annabelle Manalo-Morgan. Our expectation is that these types of clinical trials supported by the University of Manchester by the NHS will allow us to get data on the potential benefits for treatments such as fibromyalgia, which many people worldwide could have.
“From a recreational standpoint, it is also important to document the effects that cannabis have on humans and the long-term effects that they can have as compared to other substances, such as once again, alcohol and tobacco, to understand that this could be potentially a safer recreational alternative to other substances that are already broadly available in the market.”
Broughton expands experience from nicotine into cannabinoids
Broughton CEO Chris Allen spoke to Cannabis Wealth about the company’s ambitions to support safe and effective cannabinoid delivery.
UK-based Broughton Group is leveraging its extensive experience in nicotine replacement therapies and analytical testing to support the development of cannabinoid delivery devices.
Established in 2006, contract research organisation Broughton is working to develop its position as a full-service solutions provider to the global life sciences sector. With extensive experience in next-generation nicotine delivery products, the company succeeded in developing one of the first devices approved for nicotine replacement therapy.
Broughton’s services cover product development, scientific and regulatory consultancy and laboratory services across the pharmaceutical, nicotine and cannabinoid industries.
Its nicotine product experience covers electronic nicotine delivery systems, modern oral nicotine pouches, heated tobacco products (HTPs), nicotine replacement therapy and synthetic nicotine. The company has been applying its knowledge to the cannabis device market, which is expected to reach US$26.52bn (~£22.41bn) by 2031, according to Transparency Market Research.
Broughton CEO, Chris Allen, who has been working in the medical device industry for 25 years, shared the company’s journey from its inception to its move into cannabinoids, where it will apply its knowledge of regulations to develop safe and effective devices.
The journey into cannabinoids
Chemistry graduate Allen has been heavily involved in analytical and regulatory science throughout his career. Early on, he worked in respiratory medicines at Melbourne Scientific, now part of Intertek, where he began working on drug registration programmes through inhalation.
After moving location, Allen began working at a company that focused on animal feed testing, where he met Broughton co-founder Paul Moran. The pair succeeded in obtaining GMP accreditation for the company’s testing facility and within two years, doubled the turnover of the business.
In 2006, Allen and Moran decided to establish Broughton together, beginning the business by focusing on animal health products. By 2011 Broughton moved into nicotine replacement therapies and supported the securement of the first licensed medicinal product for electronic cigarettes.
This move led Broughton into different regulations for tobacco harm reduction products, where the company saw the most significant growth.
Allen commented: “Broughton has the ability to be able to interpret different regulations from around the world and bring that sound science and pragmatic view to adhering to those regulations.
“The heartbeat of the businesses is analytical testing, but being able to complement that with the consultancy business. So, bringing in project managers, toxicologists, scientific consultants, clinical experience and behavioural experience – to be able to provide that full package – it was always more than just data for us.
“It’s about what that data actually means – what are you trying to prove, and therefore, how do we design the study? When you get the data – what should you be doing next?
“It’s about the ability to start looking at how we can apply those services, those learnings, into other markets, and that has now brought into the cannabis industry.”
Safe and effective cannabinoid delivery
Broughton has spent the last two years unpicking the right markets to work in from a global perspective. With a growing customer base in North America, the business is establishing a US Subsidiary with the aim of building its presence in the region.
Allen commented: “Going into the US is very state by state at the moment if you’re not in recreational. So, our real focus now is inhalation because we have a lot of the consultants here, myself included, and a lot of the analytical facilities focused on inhalation products.
“That’s been through the electronic cigarettes but also inhaled pharmaceuticals. Looking at cannabinoids, the historical way of consuming those has been through inhalation.
“We always look for the safest way to deliver drugs – the most effective way – but the safest possible way as well. And that’s always avoiding combustion. So, as we look to inhalation products.
“We look at how we can work with companies to design the right products, demonstrate the right level of safety from an efficacy perspective, but also from a perception and behavioural.”
In this regard, Allen notes that a lot of nicotine replacement therapies do not work because they do not mimic the action of smoking and this same principle applies to the consumption of cannabinoids.
Broughton has also been looking heavily at the UK’s Novel Foods process which has raised a lot of confusion in the industry. Allen says, the company has seen many businesses making mistakes with Novel Foods. Allen highlights that the cannabis industry is fragmented from a regulatory perspective, which is no different from the nicotine industry that has very localised regulations.
“We have been looking at those regulations – what’s right about them, what’s wrong, how to apply them, and how to go and support companies through that process,” said Allen.
Allen emphasises that the cannabinoid industry can learn a lot from the nicotine industry, which, in the early days of nicotine vaporisers saw many products focused on flavours and branding, fuelling a negative perception of the products.
“Don’t make ridiculous claims about cannabinoids – you have to be able to back those up,” said Allen. “If companies start to work from day one responsibly, it’s only going to help the industry. Self-regulate as much as possible.”
Broughton is launching its cannabinoids services, where it is looking to help those companies that have been let down by providers.
“It is about bringing a degree of pragmatism, sound science, good consultancy, and applying the right studies to support those companies that are looking to take products through the Novel Foods process,” said Allen.
“We’re hearing some horrendous stories coming out of poorly thought out studies and poor quality testing that’s been conducted.
“It is about bringing our experience into this industry to try and bring control, and also to try and change public perception as well. The commonality of a lot of the products that we’re starting to look at is actives that potentially have been around for a very long time, but the perception isn’t right.
“They have a lot of therapeutic benefits, but they also have a stigma attached to them. It’s a passion point of the company to see what new products can we help bring to market and change that public and healthcare perception of some of these drugs.”
Growing pains: fresh challenges for the UK’s CBD industry
The regulatory hurdles are many, but the potential UK market – thought to be the largest untapped market in Europe – is significant.
David Hardstaff and John Binns of BCL Solicitors LLP discuss the regulatory landscape in the UK following the EFSA’s decision to pause all novel foods evaluations for CBD products.
The European Food Safety Authority (EFSA) has dealt a blow to the European and UK CBD industries, identifying several hazards related to CBD intake and pointing out deficiencies in both the experimental animal and human research data.
However, its findings primarily highlight a lack of sufficient evidence needed to fully assess the safety of CBD as a food. Whilst the findings are not binding on UK regulators, the beleaguered UK CBD industry must now brace itself for its inevitable fallout.
An industry under fire
Although no longer a member of the EU, the UK continues to align with its Novel Food Regulation; and so, whilst not determinative, the findings of the EFSA are likely to concern UK regulators grappling with the CBD issue.
UK-based CBD companies had already been feeling bruised prior to the release of the EFSA’s statement. From operating within a light-touch regulatory regime, founded on the belief that CBD products were no different to any other readily available food supplement, the closing drawbridge that was the Food Standards Agency’s (FSA) novel food application process has been a shock to the industry’s system.
The process, which required non-medicinal CBD products to be the subject of an application for authorisation, has caused a stir within UK CBD businesses and exposed brands’ reliance on white label goods. This has left many querying the real value behind some of the celebrity-endorsed brands vying for a piece of the UK’s CBD landscape.
The longer-term consequences are unclear.
When announcing the publication of its list of products which have submitted a valid novel food application, the FSA confirmed the role of enforcement authorities and that it had recommended to local authorities that any products not on the list should be withdrawn from the market. Such products would be deemed ‘unsuitable for progressing to authorisation’, or in other words, unsellable.
This was prior to the EFSA’s statement, which will clearly not aid the industry’s plight. The FSA will publish its full list of pending novel food applications this month.
The position of the EFSA
Although the EFSA has not commissioned its own research, its statement points to existing animal and human studies which have been conducted to identify safety concerns linked to CBD. In considering the safety of food products, the same cost-benefit analysis used when assessing the safety versus efficacy of medicines doesn’t apply. Put simply, adverse effects from food consumption are not tolerated, regardless of other perceived benefits. The bar to find grounds for caution in the regulation of CBD as a foodstuff is therefore a low one.
The EFSA statement refers to its finding ‘clear evidence’ for liver toxicity of CBD, demonstrated by liver hypertrophy in laboratory animals and increases in liver enzymes in experimental animal and human studies. Data gaps are identified in relation to other areas of concern, including on gastrointestinal tract, endocrine system, nervous system and on psychological function.
The statement recognises that most of the existing human data emanates from studies into the efficacy of the CBD-based medicine Epidyolex at therapeutic doses. The limitations of such studies in the context of assessing CBD as a food are clear.
As one door closes, another opens?
Although bad news for CBD products marketed as foodstuffs, the EFSA’s statement and novel food considerations shouldn’t impact on the availability of CBD products as medicines, which are separately regulated.
Outside of pharmaceuticals, one of the largest and arguably sustainable CBD customer bases have been consumers with some sort of health or therapeutic need, for which they are unable to access medicinal cannabis.
One potential consequence of the drive to rein in the UK’s CBD industry is reduced access to the previously available wide range of products. In recent times, it has been difficult to find a high street or retail centre between John o’ Groats and Land’s End without CBD products for sale. That position could dramatically change, shifting some products into, and prompting changes to, the medicinal CBD space.
Cannabis-based products for medicinal use, or CBPMs, have been available for prescription in the UK since 2018; however, access is strictly limited through existing and bespoke regulatory controls. In addition to the regulatory barriers to access, funding has long been cited as a problem, with limited patient access through the UK’s National Health Service (NHS). On drilling down into the issue, a lack of UK-based research as to the efficacy of CBPMs is the starting point.
Several laudable initiatives have sought to plug the research gap, including Project Twenty21, the UK’s largest observational medicinal cannabis study. However, observational studies have their limitations, which is why most have recently welcomed with open arms the UK Health Research Authority-approved trial, Canpain.
Canpain is planned to run for three years and aims to conduct clinical trials involving up to 5,000 patients suffering from chronic pain. The trial will be the first of its kind in the UK and could be significant in opening access to CBPMs for the UK’s estimated 1.4 million patients currently accessing cannabis through the illicit market.
As highlighted by the EFSA statement, reliable data on the number of CBD consumers with some sort of therapeutic need is patchy, but as access to CBD products becomes more limited through enforcement of the novel food regime, access to CBD-based medicines could provide an important lifeline.
This could also present opportunities for the CBD industry, which until now has seen a benefit in its separation from the medicinal market. The industry must ask itself whether it is now time to explore the jump from consumer products to medicines.
Can a more agile CBD industry flourish and better serve patients?
No one would suggest that the development and marketing of a new medicinal product is a straightforward task. Although CBD is not a controlled drug in the UK, the position of the UK Home Office remains that it is difficult to produce CBD without any trace element of THC, which is controlled.
Consequently, it is usually necessary to begin the process of developing a CBD-based medicine with an application to the Home Office for a Schedule 1 controlled drug licence for research purposes. Further licences are likely to be necessary throughout the development process, including a Schedule 2 controlled drug licence for operating with CBPMs, as well as Manufacturers (Specials) and Distributors licences from the Medicines and Healthcare products Regulatory Agency (MHRA).
The regulatory hurdles are many, but the potential UK market – thought to be the largest untapped market in Europe – is significant.
Turning to the development of CBD-based medicines could represent a lucrative opportunity for some of the brands which have until now limited their reach to what might be described as the lifestyle market. That may not explain or justify the EFSA and FSA’s stance, and nor does it remove the urgent need to liberalise access to CBPMs in the UK.
But for consumers with a therapeutic need, a more agile CBD industry, equipped to cross the barrier between the medicinal and non-medicinal worlds, would unquestionably be a good thing.
How two former heads at Johnson & Johnson are bringing a science-based approach to CBD
Two former Johnson & Johnson executives teamed up in 2020 to bring their experience in consumer medical products to the CBD industry and create products that are more efficient and effective. The company’s water-soluble technology claims to be 400 per cent more bioavailable than standard oils.
Dr Gerry McNally, former head of consumer healthcare at Johnson & Johnson and John McDonagh, former head of worldwide marketing, joined forces in 2020 to show the CBD industry that there is one thing it is not paying enough attention to – bioavailability.
McDonagh kicked off his career at Johnson & Johnson straight out of university, initially working in the finance department before turning his attention to the marketing of medications like Tylenol, ammonium, Motrin and Pepcid AC. There was a common thread between these medicines. Consumers wanted to be assured of the evidence and data behind the medicine they were taking so they could be taken with full confidence. This is the missing link that McDonagh and McNally saw in the burgeoning CBD supplement industry. Too many products on the market lacked the evidence backing the formulations and too few companies were prioritising bioavailability.
“It’s not just about the ingredient, It’s really [about] how the formulation makes the ingredient accessible to the body,” McDonagh told Cannabis Wealth. “We really want to take that research, the science behind it and the technical parts of formulating quality products, and that’s what we’re really trying to do at NextEvo. There’s a lot of commonality there between my background at Johnson & Johnson and [our] work at NextEvo.”
After leaving Johnson & Johnson in 2018, McDonagh worked with a fund that looked at both cannabis and hemp investments in the wellness and lifestyle space. When he delved deeper into the industry, he found that most products on the market were likely not delivering the therapeutic benefits they were claiming to.
“We really couldn’t find anyone who was addressing some of the key issues with CBD which is the bioavailability issue,” he said. “The management teams of these companies just didn’t have the experience in consumer products like I did at Johnson & Johnson and Gerry did with his research and development background.”
Identifying a gap in the market, the pair joined forces to launch NextEvo and its trademarked technology SmartSorb, a water-soluble 5 per cent CBD concentration liquid that claims to improve bioavailability by 400 percent compared to standard oil-soluble products.
CBD is a highly lipophilic substance, meaning it dissolves particularly well in oil. This is why the majority of CBD products on the market use oil-based formulations. It’s cheaper and generally requires less time, money and expertise to produce. The issue with a lipophilic molecule like CBD, however, is that it does not absorb well in the digestive tract resulting in only a small proportion of the molecule reaching the bloodstream. CBD is also highly metabolised. According to McDonagh, most oils will get “chewed up” by the liver resulting in a bioavailability level of just 5 to 10 percent in most products.
A water-soluble emulsifier like SmartSorb differs in that it can mostly bypass the digestive system and is believed to instead be taken up by the lymphatic system, a network of vessels, organs and tissues that process an average of 20 litres of blood every day. The result is an absorption rate four times greater than that seen in standard oil-based formulations, NexEvo claims.
Preliminary studies from the company also show that water-soluble CBD products are absorbed much quicker than oils and tinctures. In one pharmacokinetic study carried out by NextEvo, SmartSorb reached its maximum concentration within one hour while in oil-based products the research team only recorded signs of uptake between 90 minutes and two hours. So, if water-soluble products appear to be more effective than oil-based, why are they not the norm?
“Most of the products we see in the market are oil-based products, in large part because they’re relatively inexpensive and easily accessible to the market,” Mcdonagh said.
“Maybe the balance of products will shift from oil base to water-soluble at some point in the future. But I think right now, you have a lot of companies that are really just looking at the margins that they can get from some of these poorly formulated products and I think, unfortunately, that’s driving a lot of current trends.”
Due to the complexity of the technology, not all water-soluble products are going to offer the enhanced bioavailability they claim to. For example, McDonagh is sceptical of companies claiming to use nano-technology to break down the particle size of CBD so it can be more easily formulated into a water-soluble emulsifier.
“Nano is kind of a false term in the category. Many people use the term nano when it really just means that they shrunk the size of the molecule,” McDonagh explained. “We don’t know if that’s really the magic key with CBD. We have seen instances where the molecule can actually be too small and so you might get a quick uptake of the product into your bloodstream, but you won’t get a sustained and overall [greater] absorption level.”
The technology behind SmartSorb was developed by one of NextEvo’s technology partners based in Colorado. With 30 years of experience in R&D at Johnson & Johnson and 32 patents under his belt, Gerry McNally took the technology and adapted it into a number of formulations including capsules and gummies.
Although water-soluble technology is still relatively rare in the world of CBD, it is a well-established formulation in the pharmaceutical industry. “It’s not so much a mystery how to make a water-soluble ingredient,” McDonagh said. The challenge lies in making the product consistent and specific.
“The difference here ensuring a couple of things,” he explained. “One is [ensuring] the particle size is the right size to maximise absorption. It’s also about selecting the emulsifiers. We’ve tested different emulsifiers to achieve the results that we have. And then there’s another element which is what we call the fingerprint of the emulsion which makes sure that each particle is emulsified correctly.”
“What Gerry and I really stand for is making sure that we’re making products that are science-based and high quality,” McDonagh added. “The reason we’re doing that is because we have the consumer in mind first; that’s who we’re formulating for. Our approach is to bring quality products and it’s more expensive and it’s more timely and it takes more investment to do that, [but] we want to do things the right way.”
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