Industry Report: Cannabis R&D in Colorado

By Eric Peterson / CompanyWeek | Mar 28, 2016

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There's a revolution underway in labs across Colorado, as researchers work to illuminate the "black box" that is cannabis for use in everything from pharmaceuticals and fuel to food and clothing.

At the University of Colorado campus in Boulder, Nolan Kane is decoding the cannabis genome.

He runs the eponymous Kane Lab, where his team is working to map the plant's underlying genetics, a first step in understanding how to maximize its potential as an agricultural commodity.

It's a new scientific frontier.

Cannabis science has been fairly limited to date. A half-century ago, scientists first isolated tetrahydrocannabinol (THC) and other cannabinoids in Israel, which legalized medical marijuana in the 1990s and is now an international research center.

But in the U.S., the Drug Enforcement Agency (DEA) classifies cannabis as a Schedule I drug with no medical value, which has kept federal money out of the science of the plant since 1937. DEA officials have since granted a few scientists waivers to study cannabis, including George Weiblen at the University of Minnesota.

Both Kane and Weiblen have crowdfunding mechanisms on the websites for their labs, as most traditional funding is not an option. But private and state pursestrings are loosening. The medical efficacy and industrial utility of cannabis can no longer be ignored.

In Colorado, it follows, Kane is not alone. Far from it.

At Colorado State University (CSU) in Fort Collins, John McKay is selectively breeding cannabis for desirable characteristics for large-scale agriculture.

In Fort Lupton, PureHemp has developed a bioreactor that can convert hemp to feedstocks for paper and fuel.

In Pueblo, former HMO executive Dr. Malik Hasan has started NuVue Pharma to make medical-grade extractions and start down the path of drug discovery.

At the CU Anschutz Medical Campus in Aurora and other facilities, there are nine ongoing studies funded by $9 million in state grants looking at the efficacy of marijuana as a replacement for oxycodone, as treatment for inflammatory bowel syndrome, sleep disorders, epilepsy, and PTSD.

And many of Colorado's booming recreational cannabis companies are moving into research and development of products intended for both recreational and medical use.

These are no small-time grow rooms and rinky-dink pot shops.

This is higher education and the private sector in Colorado potentially disrupting multi-billion-dollar markets like painkillers, textiles, antidepressants, and energy, and in a big way.

It all begs the question why the stuff was illegal in the first place.

Seeds of an industry

New West Genetics CEO Wendy Mosher founded the Fort Collins-based company with her husband and aforementioned CSU faculty member, John McKay, and Rich Fletcher. McKay is the company's director of genetics and Fletcher serves as director of breeding.

"We were actually living in Sweden when Amendment 64 passed," says Mosher. "Rich was [McKay's] Ph.D student. We all looked at each other and said, 'Hmmm.'"

Mosher says the "black box" nature of cannabis piqued the trio's collective interest. "It is very exciting to have an open species," she explains. "Cannabis has been so restricted -- there's so much to know."

McKay and Fletcher specialize in identifying specific desirable agricultural traits in plants, such as drought tolerance and harvestability.

Like Kane, they're looking at low-THC strains classified as hemp, not marijuana, and thus federally legal since 2014. "As of this year, you're legally allowed to import seed to this country, but they're not adapted for this latitude," Mosher says.

Rope and textiles are not New West's end-use target. "Because the U.S. is so behind in fiber production, we're not looking at fiber yet," says Mosher, citing nutrition as one of New West's initial focus. "We're looking at enhancing all those great fatty acids."

New West currently has five crops planted on an acre or less each for "pure discovery of biosynthetic pathways," says Mosher -- when an organism creates a complex molecule from smaller and simpler precursors.

"We'll have a variety that's mechanically harvestable and has stable traits," says Mosher. "As soon as it's federally legal, we'll pop the THC back in -- it's not that difficult."

And after Kane maps the genome, researchers like McKay and Fletcher will be able to pinpoint the genes associated with specific traits. "That needs to be done first," Mosher says.

The sales of cannabidiol CBD oils and other extracts will help fund research before the company is ready to license its proprietary seeds to growers starting in 2017.

But the market lacks clarity. New West recently had a deal in place to sell an organic harvest to a local processor. "The USDA said they'd organic-certify," she says, but then the agency reversed course. "It killed that whole deal."

Those kind of stops and starts aside, Mosher believes Colorado is poised to leverage its head start. "We are going to be the center for R&D in cannabis," she says. "We have tons of research going on all over. Our chief competitor is Canada. Other states are making it so difficult."

Colorado also has a leg up when it comes to cultivating industrial hemp. "We're the only state that has been commercializing that," she says. "I have no doubt we're going to be the seat of innovation for this industry."

Mosher nonetheless strikes a familiar refrain. "There's no money for this and it's very difficult to raise money," she says. "We can't get grants for cannabis yet. That's impeding research quite a bit."

In the face of this funding vacuum, Duane Sinning, assistant director of plant industries at the Colorado Department of Agriculture, is working full-time to promote the nascent industry. About 2,200 acres of hemp crops were harvested in 2015, and the number of registered growers is rising all of the time.

"Colorado's the first state with a certified seed program" for hemp, says Sinning. Colorado officials are taking the same approach to hemp they have with other crops, selectively breeding for traits preferable for growing it in Colorado, and then certifying the resulting seed. "The only difference is that THC test," he adds, to confirm plants are below the legal threshold of 0.3 percent THC to qualify as hemp. The program is underway, and the first state-certified seed will be available to growers in 2017.

Courtesy New West Genetics

Sinning says Colorado's climate isn't as good as Iowa's or Kentucky's for cannabis cultivation, but the state has a feature that's a benefit over points east where hemp is feral. "You go back to where it grows like a weed, it's everywhere," he says. "If you want certified seed, you've got to have isolation."

While CBD oil extractors are currently the prime buyers, Sinning says the legality of shipping hemp to out-of-state customers is "unclear" and notes that farmers "do so at their own risk," adding, "Our rules don't preclude somebody from doing it."

"From what I gather, we're the number one producing CBD area in the world," says Sinning. "Will that change when all 50 states are doing it?" He thinks Colorado can maintain its perch through branding -- not unlike New Mexico's green chile -- and best practices.

But CBD oil might not be the be-all, end-all for the market. "Extraction methodology is in place, practices are in place, and processes are in place," he says. "It's got a 10-year head start on other processes."

Sinning says nutrition and biofuel are potentially big hemp markets -- although the latter is a non-starter until oil prices rise -- and points to demand from unexpected industries. For one, BMW and Mercedes are using hemp composites in high-end vehicles. "They're lighter weight and that means increased miles," he says.

And a luxury yacht builder recently called looking for a replacement for nylon carpeting that quickly degrades in salty air. "From Columbus to World War II, hemp was used in sails and ropes," says Sinning. "It handles salt well."

The lesson? "The industry will evolve," says Sinning, noting that manufacturers like John Deere are eying the market. "I know my crystal ball has been really bad."

Expectations that managing the hemp program would take less about 10 percent of his time were wildly low. "It's been a full-time position," he says.

"Two years ago, I knew nothing about cannabis. I didn't have a learning curve -- I had a learning ladder."

While his warp-speed education led him to believe cannabinoids are medically effective, "I don't think it will cure ebola," he says. "We do need the universities to do some serious research to get some of the snake oil out of it."

A manufacturing perspective

Chuck Smith is COO of Denver's Dixie Brands, the company that manufactures THC-based edibles and drinks at one facility and new CBD-heavy supplements at another. They import THC-free oil from Europe for the latter brands, Therabis (for pets) and Aceso (for humans).

He's increasingly working with state legislators to craft policy that's a win-win for the industry and the state, with the goal of keeping Colorado "the epicenter of industry growth."

Courtesy Dixie Brands

"R&D and innovation are a big part of this as we go down the road with cannabis and what can be done with it," says Smith. "Colorado provides a regulatory framework and a maturity in this industry."

"Now that we have a lot of water under the bridge, we're now learning to work hand in hand with legislators rather than having a regulatory framework imposed on the industry," he says. "It does spur job growth. It does spur investment."

California "doesn't have that framework," Smith adds. "You've got some pockets of innovation and some pockets of success," but ongoing dispensary raids in Southern California make investors wary. "Nobody wants to invest in that," he says.

States that currently have legalized medical or recreational marijuana "need more time to get where we are now."

And states that have yet to legalize any form of marijuana are looking to Colorado for best practices as they craft policy. "I think they'll start out of the gate with a more cooperative arrangement."

Smith has met with legislators from an undisclosed state who "asked about tax credits, incentives, and economic-development credits. That's the first time I've heard of a state or any legislative body talking about credits you would hear associated with any other manufacturing industry. It was very exciting."

Treating cannabis like any other industry is one key to maintain a leadership position. Another is developing critical mass.

"You are seeing a lot of ancillary businesses -- testing companies, scientific labs, equipment manufacturers -- coming here," says Smith. "You're not only bringing job growth, but significant R&D."

At Dixie's in-house labs at its two manufacturing facilities, about 15 percent of more than 100 employees work in R&D jobs. "It's really focused on delivery method," he says. "We're innovating on things like oral sprays and transdermal patches. Cannabis is a very tricky oil to work with, so there's a lot of science associated with manufacturing with it."

Consistency is another key, Smith says, and transparency is required. "Every product has to be tested from the plant to the finished product, so you know potency, purity, and homogeneity. By law, we are mandated to do that."

The efficacy of Dixie's new CBD brands is supported by largely anecdotal evidence and a growing list of customer testimonials, says Smith. "There's lots of research coming out now. None of it is FDA-approved."

He says the CBD oil for Aceso and Therabis is imported, noting, "The law today would prevent us from using Colorado-derived hemp in products to ship out of state."

Smith sees outside investment as critical to advancing Colorado's status as a cannabis research center, and relaxed restrictions on out-of-state ownership of local companies will help. "I'd like to see continue to see businesses and legislators working cooperatively together," he says. "We're now stewards of a new, one-of-a-kind industry."

And that industry is filling the void for some of the biotech and pharma jobs the state has lost in recent years.

Take Tom King, who joined O.penVape, a Denver-based vaporizer and cannabis oil manufacturer, as senior director of research and development from GlobeImmune, a clinical-stage pharmaceutical company where he held a similar title.

"I've worked in biotech my whole career," says King. "Twelve years ago, I moved to Colorado for the GlobeImmune job."

After guiding 15 clinical trials in 12 years at GlobeImmune, King moved to O.penVape in Jan. 2016. "There are very few opportunities anymore," he says of the local biotech job market. "Most of them are on the coasts."

It started with Amgen's recent exodus from Colorado. "A lot of the bigger companies moved out of the state and closed their doors," says King of the local biotech landscape. Most of the companies are startups with staffs of five or fewer.

He sees his position at O.penVape as a vehicle for "separating fact from fantasy in terms of therapeutic effects," he says. "They seemed open-minded on the research level. It seemed like I would have more of an opportunity to direct my own research."

It follows that King is now setting up an in-house lab to improve the company's processes and also study cannabis' anti-cancer and anti-tumor effects. "Initially, I'm going to help them develop higher-potency, cleaner oils," says King. "We're already making changes that increase the profitability of the progress."

He's heading up a team of five O.penVape staffers, most of whom are focused on chemistry. "As we grow, we'll pull in more people with biology backgrounds," he says.

He says the biggest issue with cannabis-based anti-cancer drugs is drug delivery. Pills and other traditional means prove ineffective at targeting a tumor. "The oils are super water-insoluble, which is okay for smoking or vaping where THC is released by the heat," he explains. For cancer therapies, he adds, "The likely route will not be by inhalation."

Courtesy CW Botanicals

The lack of existing research on cannabis and cancer was a big lure for King to come to O.penVape. "There's some people working on it," he says. "It's definitely more wide-open than other cancer research."

The private sector is helping fill the funding void. "It's faster and more convenient to fund [research] programs off of cash flow rather than grants or large university collaborations," says King. In academia, cannabis research "is a bit more of a struggle because some universities are freaked out about it, to use layman's terms."

"In Colorado, there's more opportunity," he continues. "Places like CSU are starting to do more with cannabis, but I wouldn't say they're 100 percent comfortable with it. . . . What I think will happen is we'll start to see spin-off biotech companies coming from cannabis companies. It could be a revitalization of biotech therapeutic research in Colorado in the next three to five years."

In this rosy scenario, however, funding is still a hurdle. "Investors in biotech and pharma are skittish" about cannabis, King says. And funding becomes increasingly important when a drug enters clinical trials, where $5 million is a minimum threshold for Phase I. "That's when outside investors need to come in."

But what about the FDA and cannabis? "The hope is the THC level will be below the definition of marijuana, or some synthetic derivatives might emerge," he answers King. "If it becomes legal [nationally], it's a win-win."

"Maybe it's a fresh start for biotech in Colorado," he muses. "It's a proven safe substance and that's huge to start with."

Denver-based CW Botanicals has garnered international media attention for oils extracted from Charlotte's Web, a CBD-heavy strain of cannabis. Developed by the Stanley brothers in Colorado Springs, it took its name from Charlotte Figi, who enjoyed a notable reduction in epileptic seizures after she started taking doses of supplements from the strain at age five.

More recently, CW has partnered Colorado Springs-based nonprofit Realm of Caring Foundation is fundraising for cannabinoid research as a therapeutic for chronic traumatic encephalopathy, or CTE. Former Broncos quarterback Jake Plummer has touted its efficacy.

Scott Hansen, CW's director of R&D, is quick to point out that the company can't make claims about the efficacy of its products or label them as medicine, rather as nutritional supplements, but medical marijuana can make a wide variety of claims, as will future cannabis-derived drugs that garner FDA approval. "At some point, the federal government is going to step in and say who can do what and who can say what," he says.

A 25-year veteran of the pharmaceutical industry, Hansen oversees a team of five scientists at CW's lab at its production facility in Boulder. "Most of our research is going into making commercially viable products," he says. "It's not academic, unfortunately."

That means making better, cleaner oils and improving manufacturing efficiency. "Process improvements are huge for corporate R&D," says Hansen.

The team has grown from one person to five since late 2015, he adds. "I've been able to snatch a few people from biotech and pharma," he says. "We try to pull people in with science and research backgrounds, not necessarily cannabis backgrounds."

Hansen says Colorado could emerge as the world's foremost cannabis research hub, but it's no sure thing.

Courtesy CW Botanicals

"We could have done more in the early days," he laments. "But I think Colorado has a pretty good regulatory framework, which leads to good analytical testing, which contributes to the ability to do research. The real question is who's going to pay for it?"

Continues Hansen: "Will we be the leader when everybody can work with it? I don't know. It depends. New Jersey's not going to warm up to it until it's federally clear they can."

Other states "are wading in very slowly," he notes. "Colorado pretty much jumped in."

Hansen thinks there needs to be a concerted push by the state's economic development leaders. "Now is the time to do it," he adds. "We put more money into enticing films to be made here than we do into cannabis research, and it could pay much higher dividends."

He expects consolidation if federal prohibition is lifted, but likens the situation to the state's thriving craft brewing sector, where leaders "took risks and allowed a lot of entrepreneurial opportunities," he says. "I think we did the same thing with the cannabis industry, but how can we maintain it?"

"A lot of this is driven by small, entrepreneurial businesses," Hansen says. "Maybe it'll stay small because people want to know who's making these things." Colorado's cannabis industry "basically started out of craft," he adds. "You already have a craft scene, and will have Philip Morris or whoever trying to buy it after the fact. It'll be interesting to watch."

A vision for Pueblo

At NuVue Pharma in Pueblo, the aforementioned Dr. Malik Hasan wants to use cannabis R&D to transform the city from a working-class steel city to a university town.

Hasan practiced neurology in Pueblo from the 1970s to the 1990s before growing Qual-Med from a tiny HMO into one of the largest insurers in the U.S. He's since founded HealthTrio, a provider of healthcare IT, but has focused on cannabis since starting NuVue in 2014.

"Cannabis has 489 biologically active molecules," he says. "That's very unusual. Usually a plant has one or two."

Research is demonstrating efficacy treating numerous conditions -- Hasan cites cannabis’ neuroprotective qualities and ability to modulate brainwaves associated with pain or, say, epilepsy -- but there's a broad need to associate molecules with specific maladies. "One is not sure which molecule if effective in PTSD, is effective in chronic pain, is effective in glaucoma, is effective with Alzheimer's," he says.

Courtesy CW Botanicals

Hasan sees perhaps the most potential in helping people with neurodegenerative conditions, but is dubious about CBD as a miracle drug in and of itself. "If it has no THC, I have a suspicion the effectiveness is being compromised," he says.

Now he wants to move from "anecdotal evidence" to scientific consensus with research at CSU-Pueblo, but first, there's a need for consistent, "pharmaceutical-grade" cannabis harvests. "It tends to be inconsistent from batch to batch," he says. "That's not going to work for clinical trials."

NuVue has planted its first crops, and Hasan's also looking at setting up multiple greenhouses at the company's 16.5-acre property.

And Pueblo, he adds, is just the place to scale up production. "The raw materials of growing cannabis are sunlight and water," notes Hasan. Pueblo is one of the sunniest spots in the country, he notes, and the city has an abundance of water.

Beyond these "natural advantages," Hasan adds, "You need somebody who passionately believes in it and is pushing the project forward. That's me. You need a sponsor. I don't know of anybody at other places who is taking on the same role."

With the 20-employee NuVue acting as a research partner and "facilitator," Dr. Jeff Smith will study the effects of cannabis on animals at CSU-Pueblo says Hasan. "I want to do it in a university setting," he says. "They have the infrastructure. They have the investigators. It will be so much easier."

Adds Hasan: "The future of innovation in this country depends on the work done at the universities. . . . I would prefer it to be down at CSU-Pueblo because I'm a citizen of Pueblo and I want Pueblo to prosper."

He describes a vision of "a pharmaceutical Silicon Valley" in Pueblo, an ecosystem of research and commercialization. "If my plan succeeds, I'm looking forward to creating several thousand jobs," he says. "It will transform Pueblo into a university town, the Boulder of the south."

He's working with Sen. Michael Bennet to push for legislation that will clear the way for clinical trials funded by federal grants. "The NIH is ready," he adds. "We are basically navigating it right now."

"The classification by DEA is absurd," he says of the Schedule I bundling of marijuana with heroin, LSD, and other substances with "no currently accepted medical use." "There are very vested interests in keeping cannabis illegal," adds Hasan, reeling off a list that includes law enforcement, drug rehab centers, private prisons, and smugglers. "They're hurting the country."

Because researchers from University of California, San Francisco, and John Hopkins University in Baltimore have published papers on medical efficacy of cannabis, no future administration will be able to challenge the legitimacy of medical marijuana, says Hasan. "We have the evidence to show it is clinically useful."

It is big business as well. A cannabis-based drug for chronic pain "will be a $10 billion drug, minimum," says Hasan. "Look at OxyContin. It's a multi-billion-dollar drug. Basically, it can be discarded. Xanax is a big drug. It can be discarded."

And Hasan thinks there's potential for 3,000 to 4,000 new drugs in all. "It's a 50-year project," says Hasan. "We should start seeing results in three to five years."

Colorado has a notable head start, sure, but won't established pharma hubs in California, Massachusetts, and New Jersey eat the Centennial State's lunch if federal prohibition ends? "That is why I'm a man in a big hurry," answers Hasan. "Location does matter."

Colorado currently has a leg up, but "that leg up will not last very long," he adds. "We need to create a magnet center to attract these people. Human resources are attracted to these centers," says Hasan. "If we can create a magnet to attract talented people, we have it made. If we don't have it when the big boys come to play, we'll be lost in the shuffle."

He points to the Mayo Clinic in the Minnesota "wilderness" of Rochester, founded before there was even a paved road to Minneapolis. "We can do better than California," he says of Pueblo. "California doesn't have water. New York and New Jersey and Massachusetts don't have the sun."

Regardless where the country's cannabis research centers take root, he adds, there's no way the federal government can put the cannabis cat back in the bag. "We've made a lot of mistakes," he says of the U.S. "In cannabis, it has taken 78 years to realize our mistake. Then we reverse course. We don't continue with mistakes. We correct them."

When he was practicing neurology 30 years ago, he had a different outlook. When patients told him they indulged in a little marijuana to manage pain or other symptoms, "I thought they were making excuses to be a pothead." But a 2006 story in The Economist changed his mind and he's since come full circle on the topic.

Hasan's takeaway: "The misfortune of cannabis is that it has been known for 3,000 years." But if someone went into the Andes discovered it recently, "Everybody would have hailed it as a miracle."