Will Cannabis Companies Slowly Become Life Science Companies? : A Perspective from a “Life Science – Cannabis” Attorney

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People from the cannabis field will often ask me how practicing “cannabis law” compares to my time spent practicing “FDA” (a/k/a life science) law at two publicly traded biotechs and a global medical device manufacturer. Given the many similarities between the two industries, cannabis and life science, but with one industry firmly established on the national scene and the other just emerging, the curiosity is understandable.

To be sure, cannabis is a drug with remarkable (and still largely untapped) properties to improve human health and wellbeing. It’s not surprising that we already see cannabis sold as a possible treatment for any number of ailments, in many ways like nutraceuticals and herbal treatments over the counter. The pressure on the industry over time will be to explore various components of cannabis as FDA regulated therapeutics. Epidiolex is just one example of the “drug development” direction in which some must be heading.

Given these pressures to exploit all the potential of cannabis, will there be a blurring of cannabis companies into life science pursuits? Will cannabis companies slowly become life science companies pursuing FDA approval for human therapeutics? I suspect not. There are reasons why companies that actively pursue both FDA regulated products and traditional consumer products (like GE and Alphabet) are few and far between.

How Cannabis Businesses are Similar to their Life Science Counterparts

First, consider some possible limits on some assumed similarities: Both industries are driven by entrepreneurial spirits, many of whom have an earnest desire to improve human health. But the notion that a human therapeutic drug can also be “recreational” seems to be something of an existential problem for many of the people I know from my days in life science. Put another way, scientists, executives and investors in life science seem to have a hard time viewing cannabis development as a serious pursuit.

Similarly, while both industries are heavily regulated, the regulations have vastly different characters and functions. Fundamentally, Cannabis is regulated to ensure the product remains within the state of origin and is trackable from seed to final customer in order to minimize the risks of diversion into the black market and to keep the product out of the hands of children. In this regard, the regulations are not dissimilar from those restricting the production, distribution and sale of alcohol and tobacco, only more rigorous for so long as cannabis remains a controlled Schedule I substance at the national level. In any event, as burdensome as today’s cannabis regulations may be on those within the industry, they are still many times less rigorous than those found in life science. And so the costs of compliance in the cannabis field are a drop in the bucket compared to those in life science – how many cannabis companies do you know with a VP of Regulatory Affairs and a dozen staffers?

Dissimilarities Between Life Science Companies and Cannabis Businesses

As for the notable dissimilarities: To me, the key differences between the two industries involve (1) risk tolerance and (2) cost structure. Fundamentally, the life science industry is risk averse. Class action litigation, driven by adverse events in drug/device testing and use, can hobble even the most successful life science business because the scope of damage can be significant – a bad batch of cannabis oil poorly manufactured could sicken or seriously hurt hundreds of people; a poorly “designed” drug that causes cancer administered over several years could be accused of killing tens of thousands of people. The weight of this potential liability and the powerful medical moral imperative (“first do no harm”) weighs on those engaged in developing drugs and devices to treat and potentially cure diseases and disorders. They tend to make those within life science very careful, cautious and risk averse. In contrast, the cannabis entrepreneurs I’ve met have been incredibly risk tolerant, moving at a fevered pace forward. Also, many have operated in the shadows for a period of time and learned to embrace fluid situations. Furthermore, people within the cannabis industry are frequently surprised to hear that it can take over 10 years and over $1 billion to develop a successful drug approved for sale by the FDA. The fundraising mechanisms and business structures needed to support a business for over a decade without a single dollar of revenue are very different from businesses that can anticipate revenue almost immediately after licensure.

The Final Word

Bottom line, I believe that “normal” revenue-generating cannabis businesses will be uninterested in taking on one or more 10-year ($1 billion) R&D projects, each with a very low probability of success, bulk up their compliance and controls functions (and the staffing and outside costs that come with it), and assume the risks of significant product liability claims. And I believe that “normal” life science companies will conclude that their structures, personnel and competencies are not well suited for competing in a consumer products field, even a heavily regulated one. Rather, if the U.S. legalizes cannabis, I expect to see pharmaceutical companies broaden their product development efforts to include CBD- and THC-based products and I expect to see alcohol, food and tobacco companies broaden their product development efforts to include cannabis consumables. For their part, I suspect traditional cannabis companies will realize they occupy a unique and privileged position as manufacturers of a profitable consumer product that people generally believe, rightly or wrongly, has therapeutic benefits even without clinical testing and FDA approval, and so will simply (and economically) broaden their product offerings to cover more “over-the-counter” cannabis goods. I doubt we will see many of them competing simultaneously in both the consumer products and life science markets.

Of course, in the end, only time will tell. Meanwhile, we at Rogoway Law Group regularly assist cannabis companies as well as life science companies. Please contact us for a legal consultation.

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