Episode 42: Working Together to Create a Robust Industry



Joe: On this episode of the "CBD University Podcast," we introduce you to the U.S. Cannabis Pharmaceutical Research and Development, hear from the CEO on the mission of the organization and its work on our evolving industry. Plus the latest on the CBD industry. And we're just heading on the final quarter of 2020 and into 2021. This is the "CBD University Podcast," and it starts right now.

I'm Joe Agostinelli, the host of the "CBD University Podcast." And if you are returning listeners, thank you for coming back to tuning in. And if you are a new listener, we are glad you found us on your favorite podcast platform of choice. Don't forget, you can also watch full-video episodes of our podcast on the Global Widget YouTube channel and the YouTube channel of our brands. The mission of the U.S. Cannabis Pharmaceutical Research and Development is to move society forward through legalized cannabis. And CBD is legal in all 50 states. It's still an evolving industry. Sometimes, it feels like it changes every single day.

My guest today is the CEO of U.S. Cannabis, Michael Patterson. Michael, thank you so much for joining us on our podcast. And for those of you watching on YouTube, once again, going remotely for this one via Zoom. So, Michael, thanks for taking time out of your usually very busy schedule to join us for the podcast.

Michael: Joe, I wouldn't pass it up. I love what you guys are doing, and I definitely want to provide as much information out there as possible regarding CBD and cannabis, hemp, everything regarding the U.S. as well as international markets.

Joe: Yeah. And first, let's start off. Talk about a little bit your past and the path as to where you are today with U.S. Cannabis. How did you get involved?

Michael: Sure. So, I'm a lifelong healthcare executive. Started as an occupational therapist and nursing home administrator. From college, moved from North Carolina. Yes, that's where my accent is. I'm not from Alabama. But went...and moved into Florida right when I was 23 as a therapist, and worked in rehab centers, outpatient hospitals for many years. Moved up into the nursing home industry to where I got my nursing home administrator license. And then I ran a chain in Florida called Avante Group. We had 20 facilities within the U.S. We were in four different states. We did about 230 million in total revenue per year. We had 2,500 employees. We had 2,500 patients. And we got sued all the time. So, a lot of that risk and compliance and regulation, I'm extremely used to.

Over the years, I saw a lot of destruction in the nursing home industry regarding medication. The average patient over 65 is on 13 prescription drugs per day. We would see people who were addicted to opiates in their 80s and their 90s. And then finally in 2013, I had a breaking point to where I realized, unless somebody who has a lot of knowledge in regulations and rules, and understands how this would move forward from a medical aspect gets into this business, I didn't see the ability to move forward. I felt like the industry needed some assistance at that time who had been pushing the industry from CBD as well as THC or cannabis-related. I felt that they needed somebody to really help push this forward and to be able to talk the same language to regulators that they needed to hear, and to move this forward as an industry.

So, started U.S. Cannabis in 2014. It's been an amazing journey. We started working with Indian tribes who were looking to legalize cannabis, THC as well as CBD products way back in 2014. For some reason, the Indian tribes decided not to at that time because they didn't trust the American government. I know that's very shocking to a lot of people. But...a lot of trust. And we all know the federal government keeps changing policies.

So, fast forward to 2020, we now operate to a joint venture in Africa with a company called MGMC Pharma. We have six licenses for medical cannabis as well as CBD, and we export product out of our main facility in Lesotho. It's pronounced Lesotho. It's the little country inside of South Africa. And we're currently shipping THC and CBD products to Australia. And we're getting ready to start shipping into Europe. We're also working with a cryptocurrency company that will be coming in to Oklahoma to help with the cash problem that we currently have there and the lack of banking. And this cryptocurrency is currently in the final stages of getting a U.S. SEC no-action letter. For those of you not familiar with that, basic, it would be the third no-action letter or approval by the SEC in U.S. history. And it would allow us to be able to bring in cryptocurrency legally, ethically, and not have any trouble bringing in investment. It's legit. It's legitimate. And so, working on that.

The two other main projects are, we're waiting any day for a medical cannabis license in the State of West Virginia. They're supposed to announce this week. And we are waiting for... We're working on...one of our big, big projects is to create a hemp and cannabis research zone in Florida. It would be 100 miles by 60 miles. And we equate it to a new Silicon Valley for the planet. We really need to bring in the experts of this industry and new companies, create a ecosphere and build this from the ground up. Because we feel America is the place for innovation, and we have taken a backseat in the CBD and cannabis industries. And we need to take our step forward and lead the world into this new cannabis economy.

Joe: And speaking of which, we talk about, you know, U.S. cannabis as in the United States, and you alluded to this. You've been all over the world when travel allows. So...to discuss the industry. So, really, we're talking about the industry from a global perspective. For those who may not be, you know, familiar with the industry overseas as much as they may be here in the United States, how is it different?

Michael: Well, in three words, it's a mess. Okay? So, if you look at...in European markets, right now, they're pushing CBD and different countries are pushing different regulatory schemes, I call them. So, one is novel food. So, novel food is a certain regulation you have to make to have CBD. Right now, the UK is pushing that as well as Germany. Then the UK comes out two weeks ago or three weeks ago and says, "No, we're going to call it a narcotic." And so, everybody's hands was up in the air. This novel food regulation is going to go into effect in March of next year, as of right now. And so, if you're an American company and you're looking to sell your product into Europe, you've got until March of next year because if you don't register it by then, then you're not going to be able to sell it.

Another issue that we're finding is a certification called GMP...practices. Europe is special. And so, they want everybody to have EU GMP or European Union GMP. And right now, I'm not aware of any American company who has that certification. So, it becomes very difficult because we actually try to help American companies get their products overseas. And that's the first question when I get called is, "Hey. Can you sell my product in this country?" And I say, "Do you have your EU GMP certification?" And when they respond to say, "What's that?" then I know they don't have it.

So, that's the main challenge we see overseas is the perfect example I've got that we're selling too in Australia. And we're looking at the average price right now for EU GMP CBD, it can be somewhere between 5,000 and 10,000 a kilo. And now... And this is just raw crude. And so, now, you're looking in the U.S. it's down to 500, 400 a kilo for crude, sometimes even lower than that. Isolate, I've seen at $400 to $500 a kilo. So, it's a different market. And overseas, I tell people, "Product is important, but paperwork is more important." So, if you don't have the right paperwork, it doesn't matter what you're selling. You can't sell it.

Joe: You know, in the U.S., we've heard so much about regulations and guidelines at the government level. Interim final rules, guidance, you know, are all terms thrown out there. And we've talked, as I mentioned to Rod on past episodes about this, but where do you see the industry headed as we now get into the final quarter of 2020 into 2021?

Michael: That's a great question. So, three main things that I see: distribution, consolidation, and regulation. So, distribution, you really have to have your distribution down because if you have the best product known to man, if nobody knows where to find out or nobody knows how to get it or can purchase it, it's not going to help you. I think the online model is great. A lot of people do use that, but actually, you have it in the stores where people can find it. Start understanding what your brand is, is good. It's great.

Consolidation. I think a lot of CBD companies are going to go out of business. They got in early. They thought it was a cash...a money grab. And the challenge is, as more brands enter, then price becomes a factor. If you have 2,000 CBD brands... We're seeing this in Europe right now. You have it to where the pricing is still pretty good in the States, but in Europe, you're having 1,000 milligram CBD oils go for £25, which is like $50. It's very, very cheap. So, I think that's going to put a lot of pressure on a lot of companies and you're going to see brands consolidate under one corporate partner. And in that way, they have the staying power and they can use your distribution.

And then the last is regulation. We have to have clear regulation. It's just too ambiguous. Rod Kight, great guy. I love Rod. We've worked together for years. He knows better... He's an attorney. He knows better than I do that the regulation has to be consistent. So, to be able to get that investment from people to back your businesses, they have to understand where the industry is going from a regulatory aspect. So, they know that you'll be in business in two to three years, and you can eventually move past the U.S. border and go into international trade.

Joe: And we talked a little bit about this in that past response. You know, one of the biggest challenges...and you talked about it. I mean, thousands...and Rod has talked about it on past episodes. Thousands of companies have entered this industry thinking, "Oh, I'm going to make a quick buck." But do those evolving regulations, you know, really separate the companies who have that staying power because they can meet any of the guidelines and regulations, you know, with compliant quality and potent products that are independently lab-tested and have that staying power?

Michael: Well, that's a great question. What I see is, it really depends on the focus of the company. You know, you have all these companies right now that don't spend money on compliance. I just saw an article on LinkedIn where people were complaining that the bud tenders, when they go into a medical cannabis dispensary, are throwing out all these types of claims and there's no backing to it. And so, to me, that's setting yourself up for lawsuits. As I said in the beginning, I used to run nursing homes. I got sued all the time. I've done over 100 depositions. So, I understand more than most, you know, you don't want to be sitting there with a wrongful death suit because somebody took your CBD because you didn't want to spend the money to do a proper COA and you don't have a compliance program.

So, a lot of the companies that will succeed are the ones who invested in compliance. And the adage I always use is, you're always going to pay for compliance. And it's always cheaper if you do it upfront.

Joe: That's a great adage. I love it. I love it. What would you say... And we talked a little bit about this. But what would you say are the biggest cause for confusion in the industry among consumers, retailers, and the general public regarding CBD products? Is it that whole education and not really knowing what it's all about?

Michael: I think a lot of it goes back to cannabis, because they don't understand the difference between hemp and cannabis. I talked to a U.S. congressman a couple years ago before the hemp bill went through, the Farm Bill. He didn't know the difference between hemp and cannabis. So, if our elected officials don't even know the difference, and they think CBD is marijuana, then how do we expect the general public to know?

So, a consistent information and consistent education on CBD, continued research on CBD to be able to bring that information down to the everyman and the everywoman is something that...if brands can do that, half the battle, in my opinion, of a CBD company is getting through all the confusion about your product. And if you can break that down and have people trust your product and get specific dosing on your product with backed up research, that's the companies, in my opinion, that are going to stand the test of time.

Joe: And what would you say... You know, we've talked about the outlook for 2020 to 2021, but what would you say are the biggest threats to the industry as we head in towards this final quarter into 2021?

Michael: Well, the end of the quarter, I think the election. The election is going to have a big impact on our industry, not just for medical cannabis and recreational cannabis, which will be huge, but for also CBD. This current administration is not a big fan of anything to do with medical cannabis. And even though Mitch McConnell and his group tried to get...got the Farm Bill passed, they didn't think it through. Because it passed in December of 2018 and we still don't have FDA ruling on this product, and it's been almost three years. So, I think the election is the number one thing, and then the consistency of the regulation, which all goes back to the election.

So, I think, if you see the Democrats take control of congress, they're going to start pushing really hard on medical cannabis and recreational cannabis to make it decriminalized, which is fine. But decriminalized is step one. To move this forward, I think, CBD and medical cannabis are actually in the same boat. So, as we get more clarity on medical cannabis, we will get more clarity on CBD. But the number one thing that we need right now is FDA guidance because right now, the pharmaceutical companies really want to get in. But a lot of them don't want to touch it until they have that FDA guidance. So, I think that is the number one thing by the end of the year.

Once we have that guidance, I think 2021 will be a very good year. Me, personally, in our company, we're trying to really work with as many U.S.-based companies as we can to get their product overseas. For example, yesterday, we just shipped out samples of CBD flower with less than 0.2% THC because that's the legal limit in Europe. We just shipped that out to Spain. And if that goes well, we'll be looking at doing about two metric tons a year with that company. And then another thing that I see with CBD is in the flower base. Zero percent THC flower, if that can ever come out, that's like the holy grail. And I know that's something that we can really sell overseas because the U.S. is...even now, is an innovator. And we want to make sure we keep them at the top of the list as this industry moves forward.

Joe: Michael Patterson is the CEO of U.S. Cannabis Pharmaceutical Research and Development. Thanks again for joining me on this episode of the "CBD University Podcast." A reminder: if you had not yet done so, you could subscribe to our podcast on your favorite podcast platform of choice or on our YouTube channel, that's the Global Widget YouTube channel and the YouTube channels of our brands. You'll get notifications when new episodes are published each week.

I'm Joe Agostinelli, the host of the "CBD University Podcast." Thanks for tuning in.

These statements have not been evaluated by the Food and Drug Administration. The CBD products are not intended to treat, cure, or prevent any disease or condition. Always consult your personal physician about CBD and using CBD products. CBD should never be used by anyone under the age of 18. This content is not intended to provide legal advice regarding the legal status of CBD and CBD products.