This week’s Power Players interview, focuses on one of Hoban’s new projects, Gateway Proven Strategies, a consulting firm which helps mainstream companies and foreign governments navigate the cannabis world. In a fascinating conversation we discussed how consumer packaged goods companies view cannabis, the industry’s four lanes and whether Big Pharma is really trying to stop legalization.
This interview has been edited for length and clarity.
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“This is what’s likely to happen next.”
WeedWeek: Tell us about GPS. What are you doing?
Bob Hoban: In recent years, some of our law firm’s clients wanted to use us for more business development and industry expertise. And some large companies outside of the space wanted us to help them navigate cannabis. So we came up with the idea of GPS.
While I founded it, and I’m a resource to it, it fully operates on its own. It’s a group of really, really strong individuals. We have a really well-rounded approach and [the diversity of management’s experience] lets people look at us and say that we’re not drinking too much of the industry Kool Aid. We can still be objective.
WW: Shorthanded, you’re working with Fortune 500 companies interested in cannabis. What kinds of companies are you dealing with and what do they want to do?
RH: We’re talking [largely] about [companies] that have a background in producing consumer packaged goods (CPG). Some of these companies just want to know the basics. What are the legalities? What are the things that these products can do? Can you add cannabinoids into a product that people use every day, like a deodorant or a toothpaste, or are the rules not clear enough yet?
[Clients also want to know] about the marijuana industry, if there are groups out there that are better than others? What groups should we pay attention to? How should we invest our dollars? We’ve also advised a number of international governments about legislation and regulation. We’re working presently in a Middle Eastern country and an Eastern European country.
It’s exciting. It reminds me of that scene from Back to the Future, because you come from the future. We can discuss clients’ options: “This is what’s likely to happen next.” There’s enormous opportunity. There’s just no central place to get information about what that opportunity is.
“CBD will be an ingredient”
WW: On a panel the other day you mentioned Colgate wanted to make a CBD toothpaste. Can we tell us about that, what they wanted to do and what happened?
RH: Colgate has a toothpaste containing hemp seed oil out in the marketplace. How they decided to go with hemp seed oil is the same journey that breweries go on when they want to put hemp or cannabinoids in beer. They ask, what is the legality here? What does the market want? It’s a combination of regulatory and market-based research to determine what consumers want. And then they evaluate the risk.
For example, if I wanted to put CBD in toothpaste right now, I have to deal with the fact that CBD is not actively regulated by our FDA. Accordingly, it’s too much of a risk for large institutional companies, Fortune 500 companies, to put those products into mainstream distribution.
But consumer market research may indicate that consumers would love to have CBD on the label. Perhaps they really just want hemp products because hemp products signify something natural, organic. Whether it is is besides the point, it symbolizes something to those consumers.
So when the companies get that market data combined with the regulatory data they may [go with] hemp seed oil which has always been approved by our FDA. A company like that’s risk tolerance would incline them to go with the thing that’s least controversial. It doesn’t want to burn a bridge or a relationship with the FDA or the federal government, because there’s so many products in the marketplace that require that type of give-and-take relationship.
Look at New Belgium Beer. When they wanted to put CBD in the beer, they determined that they didn’t want to do that because it was too aggressive. It wasn’t yet regulated or approved as an ingredient. So they went with hemp seed oil and terpenes that mimic the smell and the flavor of cannabis.
So many companies on the hemp side, the CBD side, have set themselves up to sell CBD: A tincture, or a capsule, 25 mg or 50 mg of CBD. Going forward, the reality in all likelihood, is CBD will be an ingredient in other products. Companies are looking at how to incorporate it as an ingredient, based on their risk tolerance. That’s an exciting place to be in a brand new industry.
“FOMO applies to large corporations”
WW: At one end of the spectrum, you have [tobacco giant] Altria and some of the big alcohol companies that have moved into cannabis and spent a lot of money on it. What’s your impression of some of the other companies for whom cannabis isn’t so mission critical but has potential?
RH: There’s this notion of FOMO, right? The fear of missing out applies to large corporations as well. They’re intrigued by the opportunity and how to position these products. Product developers within these companies have maybe studied it. But for decision makers, THC, CBD, all this stuff is really something they don’t understand.
[A major pet retail chain] put CBD pet products on the shelves. Then the other one wants to know, why is my competitor selling this? What do they know? What do they think? What’s the risk? Are they really making any money off of it? That’s the FOMO, the opportunity. That’s the thing that companies want to figure out. It’s what drives the early interest. But the pricing has to come down.
Think about the hemp seeds for a second. They’re delicious. They contain Omega 3s, Omega 6s and trace elements of cannabinoids. They contain high levels of protein, and that’s just the tip of the iceberg. It really is a superfood, but you can’t buy a mass quantity of hemp seed at equivalent pricing to other grains. You’re talking of hundreds of dollars versus thousands of dollars. So, that doesn’t make [sense in] the marketplace.
It’s that type of thing [that interests companies], being on the leading edge of what’s happening at the FDA and in Europe regarding a novel food or an FDA-approved ingredient so that you can have those products in the pipeline ready to go when the legality is clear.
One thing that’s clear is that larger companies control shelf space. As such, they’re going to be able to put these products directly into large mainstream distribution across national and international markets with relative ease. They need to know this stuff, but there’s just not a lot of great information.
And we also don’t have exact clarity with CBD. Is it an ingredient? Is it a drug? What’s the milligram distinction between a drug CBD product and a food or a supplement CBD product? All of these things are yet to be determined, although there’s good baselines to operate in.
WW: In tech, there’s a notion of a killer app, something that really drives consumer interest in a technology that, until then, was for hobbyists. Is there a killer app that big CPG companies are waiting for with regard to cannabis? Or something like a killer milestone?
RH: At the end of the day, I think these companies want to move freely and without risk to use cannabinoids as ingredients in regular products. It sends a message to consumers that this product is more than just the food or beverage it would be without the addition of the cannabinoids.
This does a couple things. It creates consumer demand because people want to try something that might make them feel better. Secondly, it allows [companies] to charge a higher price point. Thirdly, if they control the cost of production, there’s a nice margin built into the increased price point, increased demand, and low-cost of extract production.
WW: Are big companies paying close attention to what happens in Washington D.C. with regard to cannabis legalization? Do they care?
RH: Do they care enough to assert the influence that they could, based on their history, their resources, their reputation, their standing, their wealth? No.
If there are mainstream consumer products makers that have influence in the decision-making process, it would be the alcohol [and tobacco] manufacturers. It’s companies like that that see cannabinoids, THC in particular, as ways to sell products that are different than food and medicine, or just regular consumer products. Those folks have exerted a lot of influence to date. The other folks still see this as a small niche marketplace.
What does Big Pharma want?
WW: In the cannabis world, there’s a certain persecution complex. In terms of legalization, there’s a perception that legalization has powerful opponents, notably the pharmaceutical industry. Is that something you’re seeing? And is that something you’re thinking about in the work of GPS?
RH: Certainly the pharmaceutical industry, to varying degrees, has major interest in what they can do with cannabinoids as active ingredients in drugs that are specifically designed to address specific conditions in the human body. The only drug to date we’ve seen is Epidiolex and that’s been [FDA] approved for use to treat epileptic conditions Dravet Syndrome.
The pharmaceutical companies know that if policy change is made, their resources, relationships, and ability to conduct expedited research and clinical trials will put them in the driver’s seat to do that. Plus, they’ve been active for many years in filing patents to protect various formulations.
I think pharmaceutical companies view the nutraceuticals or the supplements use of CBD as not so much competition as, “You’re infringing on our patents.” So instead of shutting you down, [pharmaceutical companies say] if you’re a company worth your salt, ‘We’ll make a deal, you give us a percentage or a royalty for every unit you sell.’ So, they, in effect, get to double dip.
And then, they have the ability to far exceed any people in the supplement or the food space, producing CBD products with their research capabilities and resources. So I don’t think that they worry. I think that they influence the process only so far as it goes towards the scheduling element, because they do get to participate in that way I described. We’ve seen it in patent suits that we’ve had to defend as a law firm, where we’ve seen offers made to effectively make that kind of deal [on supplements], avoid litigation. And folks without resources or for various reasons often take that deal.
I believe that, as it relates to the cannabis plant, there’s four policy lanes, four distinct ways to regulate use of the plant. The first way is industrial. That doesn’t contemplate human consumption. We don’t have to dive into that. It speaks for itself. The second lane is over-the-counter marijuana. I use the term “marijuana” because it’s the legal term, meaning psychoactive, THC-laden product, generally produced within a state-specific system.
Thirdly, foods and supplements. That’s the lane we’ve been talking a lot about today: Products with non-psychotropic, low levels of THC or undetectable THC sold in stores, mainstream retail pharmacies, etc., but low dosage. The fourth lane is pharmaceutical FDA-approved medicines, specifically designed to treat a specific condition with clinical trials to prove it, and extensive cost.
Those four lanes can all coexist. And I believe they will coexist. Some of them are more profitable than others. But as a pharmaceutical company, I know that pharmaceutical companies are going to dominate that fourth lane. But why not try to double dip?
Why not try to participate economically in both of those lanes? That’s what we’ve seen so far. So I don’t know if there is an incentive, other than to just sully the rescheduling process, which they’ve been successful at to date. It’s more like they’re throwing sand in the gears, versus a deliberate way to take over the middle two lanes.
WW: How do you see big pharma sullying the rescheduling process?
RH: Ultimately the U.S. FDA has had a powerful impact on what’s happening globally. We’ve seen many attempts to reschedule cannabis, not just for the criminal justice and the social impact, but also for carving out these distinct lanes of foods and supplements and pharmaceutical drugs or at least drug-active ingredients.
We’ve seen that the pharmaceutical companies have stepped up and asserted themselves every step of the way, saying that, ‘If you simply reschedule the plant, it’s going to create all of these unforeseen, but frankly, foreseen consequences, that are going to make that too close to this. And that creates confusion for consumers and patients, and in the marketplace and what we’ve got control of here on the pharma side.’
It’s easy for them to have government affairs personnel, who impact the [legislative process] at every single level. I don’t believe they’re trying to get rid of the middle two lanes, but I do think that their influence is slowing down the rescheduling process because it suits them well, now. And when they’re ready to have marijuana rescheduled, they’ll be ready with the formulations, the products for different conditions to roll out.
But I think if we understand that the law provides for those four lanes. And if we can keep things in their lanes and respect that this might be your lane, and this might be my lane, I think there’s room for everybody to succeed.