Selling Medical Cannabis as a "Medicine": How and What Are your Options?

Thank you for joining my newsletter. I hope to bring open, and honest tips from the inside of an operating medical cannabis company to bring forward collaboration and community in success through failure. This newsletter is backed by my passion and motivation to make a new industry successful and more particularly, a successful industry in South Africa that has the potential to employ, educate and generate an economy. I hope to engage with a community on a level whereby we can share our school fees, returns on those school fees, and the reality of the market globally. At times, my opinions may be wrong technically and I share them from a personal experience and journey from cofounding a medical cannabis company in South Africa, Cape Town. In a perfect world, open-source knowledge equals power. The topics I will write on will include but not limited; to medical cannabis markets, patient-doctor relationships, GMP vs GACP, when does EU GMP vs PIC/s GMP matter, how medical extracts are sold, what is the pricing of the product in bulk vs finished vs compound API, passing an EU GMP audit, where to spend money, where to save money, global regulations and how they are important to selling your product, extraction techniques, what are all these licenses really for, trends in delivery mechanisms, pricing trends from flower to extracts, non-registered vs registered, compound pharmacies in Germany, legal changes in cannabis reforms, market sizes, relevant cannabis stocks, consumption data in legal countries, current strains in various markets and global acquisitions.

?Selling Medical Cannabis as a “Medicine”: How and What Are Your Options?

?Step 1: Whose Selling & Whose Buying?

It seems like only yesterday that Canada legalized cannabis in 2018 five years ago and the green wave of excitement began. Of course, that was a large wave, and we are now in a lull, patiently anticipating the next green wave, which everyone hopes will be bigger than the first green wave. What goes up must go down. And what goes down must go up? Surely?

Assuming patients with chronic diseases will simply throw away their traditional medications and switch to medical cannabis overnight, was unlikely, but it’s not to say it won’t take another 5-10 years like other industries take to mature and drug discovery takes. While it is happening, it will be a slow switch once more clinically registered products are available.

With that said, it’s time to start using data to build your business model, not excel spreadsheets.

According to an article on 9th September 2022 by MJBiz Daily. Germany, in 2017 imported a total of 1,780 kgs, followed by 4,480 kgs in 2018 which would represent a 152% increase, 8,057 kgs in 2019 with an increase of 80%, 11,746 kgs in 2020 with an increase of 46% largely due to the COVID-19 pandemic, 20,769 kgs in 2021 with an increase in 77%, 10,487 kgs in 2022 so far which is likely going to be ±6% more than the previous year. In fairness, those are some impressive numbers so let’s assume a price today in 2022 of EU 9,52 per gram of flower, that would equate to a value of around EU 180mil per year with the potential to double with some experts calling for Germany to be at best, 300 million euros in medical cannabis and that the world is putting too much attention on Germany. While the importation of 20 tons of medical cannabis into Germany sounds fantastic, let’s assume how many patients you would need for that consumption to be depleted.

Let’s assume a patient consumes 0,32g flower serving, 0,64g per day (two servings/day) which may or may not be conservative. That would mean 19,2g per month prescription and 230,4g per year per patient (19,2g x 12 months). Now, 20 tones = 20,000 kgs = 20,000,000 grams of flower imported into Germany in 2021, now divide that number by 230,4g and you’re given the number of patients = 86,805 patients per annum to consume all that cannabis. Reports have shown that the number of prescriptions in Germany is between 100,000 to 150,000 – indeed those imports would have been consumed and the data is looking positive, but not exponential. It’s likely that saturation point is coming near and reforms such as recreational cannabis will be required to consume the next green wave of flowers.

Lessons: a) People are actually consuming cannabis, b) Demand is saturating, and the price is important, b) Germany is very developed so it likely will be the hub of medical cannabis for another 5 years and should not get sucked into the hype and look elsewhere as well.

Now that you’ve found your comfort knowing there is an actual growing market. Where to next?

?Step 2: Visit a business that will sell the product

If you have invested in a medical cannabis company it's true you have spent x millions in building a state-of-the-art facility but likely also true you paid x millions in school fees if you were early and uninformed. If the latter is true and you did not spend at least a month in Germany or Australia visiting compound pharmacies and/or clinics to understand the business relationship there, then you have missed out on the most important school trip to date. Understanding patient access from a pharmacist’s perspective (those who aren’t in Germany, this is NB).

I have made these efforts and will share more with you over time and its especially important for my fellow South Africans who have spent x millions in growing but never bought a plane ticket and visited a business in Germany and had a nice friendly coffee with a pharmacist and chatted all the things he loves about South Africa herbs, specially pelargonium sidoides where we all are familiar of this amazing medicine in South Africa called Linctagon whereas in Germany it’s called Umckaloabo.

Certain pharmacies are compound pharmacies in Germany, of course, some have grown now to optimize the compounding steps but it’s a traditional “old-school” way of preparing medicines. The pharmacist compounds the flower by taking out from the bulk bag (15g to 45g) and placing it into another container with the pharmacy label. The act of him performing this step is seen as a manufacturing step and he is paid for this by insurance. While removing a few grams from one large bag to a smaller container seems quite simple it's important since the flower is seen as an API since he is “manufacturing”. By this manufacturing, it means that he will be able to buy APIs as starting materials (flowers) that are EU GMP Part II: Starter Materials. Some manufacturing steps are a little more complicated than with flowers such as Dronabinol, a purified THC extract not less than 95%. The pharmacist buys the Dronabinol API in a syringe or packaged form. He then prepares, blends, and bottles the dronabinol with a formulation and MCT, which is performed under validated laminar flow hoods, and all the relevant GMP filling/packaging steps to make the compounded medicine.

Link: https://www.deutsche-apotheker-zeitung.de/daz-az/2018/daz-12-2018/rezepturen-leicht-gemacht

?The trick is to not visualize the product being bought from a traditional pharmacy that sells flu medication. The trick is to visualize the end point for the patient as a manufacturing pharmacy, a manufacturer, a bottled and labeled product manufacturer who is in the market for EU GMP APIs that are suitable as starter materials to compound cannabis medicines according to their recipe formulation book: NRF – New German Formulary. This outlines the compounding/manufacturing steps.

The goal now would be to understand the relationship between the pharmacist and the wholesaler from who is importing and selling these to the pharmacy.

Lessons: a) Build a business that can supply EU GMP Part II: APIs to be used as starter materials (likely touch base with my country’s regulator to ensure they can audit against this and ask), b) Find a wholesaler that has built a significant pharmacy network, c) APIs ultimately become a commoditized ingredient, ensure I can design my supply chain with price in mind (i.e., batch release direct to pharmacy, longer the supply chain = less likelihood of your competitiveness), d) being a pharmacist in Germany would be an exciting career and business.

?Step 3: Find a wholesaler of Cannabis APIs

You can either search all the articles in the world trying to find who has what license or you could do what has been designed for. Use a government and regulatory database, properly, more specifically, this website I regularly use to verify wholesalers etc. (I am sure you have checked the SAHPRA website a million times to see if SAHPRA has uploaded your name in the approved licenses list and to see who also has, well this also exists in Europe)

It’s the EudraGMDP database that lists all the EU GMP licenses etc. for products and how to find buyers.

https://eudragmdp.ema.europa.eu/inspections/displayWelcome.do;jsessionid=h0h2SrNG7cn72spIxHYL4zfrrboRV8OeMmRkDROIC5-xrnl-wot6!-1268059501

Steps:

1.????Click the read-only access to EudraGMDP button

2.????Click the top left on API REG (API Registrations)

3.????Top left under Search clicks API Registrations

4.????In the “Search Registrant Sites” go to “Site Details” and select Germany.

5.????Scroll to the bottom right and click search

6.????Wala – here are registered companies, now go spend time going through each one and create a database, this will take time. But it’s not as expensive as the greenhouse or GMP cleanrooms you already have

7.????As an example, click Cantourage left column link

8.????Scroll to the bottom

9.????You can see where they are, importers of cannabis APIs, as well as distributors

10.?Meaning that they could be a client if the price is right

The following licenses give distributors the competitive edge as a client so don’t choose anyone and let them nail you on price if they only have one license. Find a wholesaler that has all the licenses to work together on pricing.

1.????GDP license (must have)

2.????Import license

3.????GMP license

4.????API license

5.????Own logistics

6. Doctors' sales force

Another website that I find useful is the Cannabis Apotheke. If you haven’t used this one before, you can thank me later. Great tool for seeing the strains on the German market to ensure you don’t choose a strain that patients are potentially not smoking anymore as trends do change, I have witnessed.

?https://cannabis-apotheke.de/

Another great tool I use for pricing cannabis products in Australia to compare against German prices is found on this website. Create an account (it's free) and browse the product offerings, price per mg, and competitors of your company.

?https://cannareviewsau.co/

Lessons: a) Not all distributors are the same in Germany, if you’re in a low operating region and have EU GMP Part II status then focus on quality and significantly reducing your price and choose a partner who is open and honest about this. Growing together is much easier in what can be a painfully difficult process.

Step 4: Hyper-focus your Facility, Team, Production, and Stability Studies around EU GMP Part II and Contact your Regulator

?If you haven’t started stability studies on your first harvest in either 5g, 10g, 15g, 30g, 100g, 150g, or 400g bags for Germany ambient, accelerated, or intermediate then it’s likely it will be another 6-9 months before your wholesaler can approve you. You might have seen some of these bags and have an idea already from the pharmacy visit and therefore you already knew long before with those discussions with the pharmacist what will be required in terms of packaging and stability.

Let’s assume you have your stability studies 1-2 months in and it’s just a waiting game until you get the results. Now it’s time to sharpen the pencil, drink lots of coffee and plan the road ahead with your wholesaler in Germany. Two important things are required to happen but one is not as critical as the other. Firstly, you should contact your regulator and if you haven’t been audited against EU GMP Part II or PIC/s GMP Part II it’s important to get this done first. It will teach you a lot about what is wrong and where you need to fix it as you might have potentially learned a lot from a GACP consultant and it’s here where you will fail miserably if you attempt an EU GMP Part II on the basis of a GACP audit if you don’t have experience in this. For South African cultivators, this would be asking SAHPRA to perform a PIC/s GMP Part II audit against your quality management system. The “GACP GMP Certificate” is not the certificate you want to show German wholesalers, nor do you want to advertise you are GMP with that license – it will certainly hurt your credibility if you cannot produce a manufacturing GMP license that has been audited against EU GMP Part II. After being successful and walking the journey with your local regulatory (expect 6-9 months of back /forth with them as you’ll fail likely the first time if you’re completely new to this) it is then time for your wholesaler to arrange their regulator in their relevant state i.e., Berlin for example to come and perform a site visit and audit your facility. Yes, I said that correctly, a German regulator must fly to your facility with your wholesaler who has hopefully been walking this journey with you now and preparing you for this as they are incredibly excited about the quality and price of the flower.

Congratulations, you have passed the audit and you will now go onto the database I mentioned above, and you can now export medical cannabis flowers to Germany. Now the only thing between you and building a behemoth of a business is how fast your wholesaler sells, their marketing budgets, sales force teams, and how competitive they are with pricing.

Snap, I failed. What now? Well, it’s not the end of the world. I would have made some backup plans encase (like some companies in South Africa have). Is to connect to a Portuguese-based manufacturer. Fancy words such as CMO (a contract manufacturer) are used here, while is true it's simply another manufacturing step. This facility is also a cultivator or manufacturer that is based in the EU and has passed the EU GMP Part II audit that you have unfortunately failed. By design this facility received “wet” or partially dried cannabis and dry’s it under their license packs it and then labels it. Since they are in the EU already, it is then easy for Germany to accept this. But how long will this last? And is this sustainable?

The short, no. South Africa's electricity is USD 0.14/kWh vs Portugal's USD 0.23/kWh. The average South African salary is USD 1300/month vs Portugal's USD 1300/month. This means that Portugal could seem like the obvious choice and low risk since electricity is only higher and not the average salaries. However, do not be fooled, this is a distraction long-term. In the short-term perform this for lesson building and knowledge building to understand market intelligence and to show investors developments in the business. In the long-term, Colombia and more African-grown flowers will come, and very fast COVID-19 just slowed down the enormous amount of supply coming. We have now seen it happen in Canada, that is what you need to build your business around, not on. These companies will have passed the EU GMP Part II and will not have to use this expensive supply chain maneuver, and hence their price will be dominating, while low quality at scale will certainly cause some potential distractions. However, we do not cultivate, we merely observe, and to us as manufacturers, this would seem like a distraction long-term with a good short-term feedback loop in failing to succeed.

Lessons: a) Test supply chains and options, do not depend on them if you’re uncomfortable, b) Hyper focus on your USP, if your USP is cost, then don’t do things that make cost a lot, c) Ask your regulator for the strictest and most hardcore inspector that has experience with EU GMP Part II or PIC/s GMP Part II (don’t hold back from strict regulators, because the German regulators are)

?Step 5: Fail, Succeed and Repeat?????

After a few times of succeeding and understanding the most difficult part of them all. It would then be to repeat this strategy in countries like Australia, UK, etc. While each of these countries' regulatory and supply chains works differently, the first-based principle thinking of the supply chain will work.

It’s important to embrace failure along the way if this is your first time setting up a business like this. However, not understanding your failure and repeating mistakes will be extremely detrimental to your business. In my view, going big as fast as possible is likely the emotion you want to avoid. Anyone can get lots of money and pay highly qualified professionals but taking the time to understand the business you’ve built, executed, and must now deliver on is sometimes easier when it’s a smaller company built around a niche hyper-focused model that delivers a small in demand quantity of the quality it needs to.

However, I do speak from starting our business immediately out of university, not being in a rush, and taking informed decisions with my team rather than professionals. Some things we as a team got wrong and right:

?Wrongs:

1.????Time – It took us a lot longer to truly understand how complicated our validations would take in a complicated biotech process

2.????Analytical Testing – We planned to avoid the analytical issues we experienced from others and still, we are struggling to get this right

3.????Stability studies – We initially chose the incorrect glass from a reading error on my end and while it wasn’t detrimental, it was annoying to start again

Rights:

1.????Team – We hired the right team who are professionals and leaders dedicated to their roles

2.????Innovation – While it's sometimes difficult to accept the market for example is not that interested in bulk cannabinoids vs finished products, we innovated to deliver what we had but in a different form

3.????Cost – Our cost of manufacture was always designed to assume that the Californian prices of the lowest quality were the rock bottom of a German medical cannabis

Thank you for taking the time to read my first newsletter, I am a scientist at heart and so English words in long sentences and paragraphs to an audience will be weak but honest. I hope to write and share more tips and tricks and Q&As to support a growing industry with new companies joining us monthly for the ride.

If you believe you know someone who should read this, I would appreciate sharing it to them as well as commenting on the post on what topics you would like me to discuss in the near future.