Financing

Private

What private financing options are available for cannabis businesses in your jurisdiction, and what are their respective advantages and disadvantages?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Further, in Texas, a person can be found guilty of the acts of another if “acting with intent to promote or assist the commission of the offense, he solicits, encourages, directs, aids, or attempts to aid the other person to commit the offense” (Section 7.02(a)(2) of the Texas Penal Code Annotated). Therefore, financing a cannabis business arguably constitutes aiding in the commission of a criminal offense. In addition, it is illegal in Texas to invest funds in an operation when the investor knows or believes that the funds will be used to further a drug offense (Sections 481.126(a)(1) to (4) of the Texas Statutes & Codes Annotated).

With the enactment of the Agriculture Improvement Act 2018, the hemp industry is expected to see a sharp increase in private financing opportunities.

Public

What rules and restrictions govern cannabis businesses’ listing and admission to trading on recognised equity securities exchanges? What are the advantages and disadvantages of public listing?

Cannabis is an illegal Schedule I hallucinogenic substance under the Texas Controlled Substances Act, and its possession, use, cultivation, and distribution is illegal in Texas (Sections 481.032 and 119 to 122 of the Texas Statutes & Codes Annotated (West 2001); 43 TexReg 2825 (2018)). Further, in Texas, a person can be found guilty of the acts of another if, “acting with intent to promote or assist the commission of the offense, he solicits, encourages, directs, aids, or attempts to aid the other person to commit the offense” (Section 7.02(a)(2) Texas Penal Code Annotated). In addition, it is illegal in Texas to invest funds in an operation when the investor knows or believes that the funds will be used to further a drug offense (Sections 481.126(a)(1) to (4) of the Texas Statutes & Codes Annotated). Therefore, financing a cannabis business or listing it on a securities exchange in Texas arguable constitutes aiding a criminal offence under Texas law.

Medical cannabis

Medical use

Which medical conditions qualify for treatment with cannabis products? What other rules and restrictions govern medical use of cannabis (eg, dosage limits)?

Despite the illegality of cannabis in Texas, under the Texas Compassionate Use Act, Texans are permitted to use low-tetrahydrocannabinol (THC) cannabis for the treatment of intractable epilepsy (Sections 169.001 to 169.005 and 487.001 to 487.201 of the Texas Statutes & Codes Annotated (West 2015)). “Intractable epilepsy” is defined as seizure disorder that has been unresponsive to treatment by at least two U.S. Food and Drug Administration approved epilepsy drugs (Id. at Section 169.001(1)). In addition, to qualify for the compassionate use program, the individual must:

  • be a permanent resident of Texas;
  • have a qualified physician determine that low-THC cannabis is an appropriate remedy and prescribe the low-THC cannabis; and
  • have a second qualified physician concur with the determination. (Id. at Sections 169.003(1) to (3)).

Once a qualifying patient receives a prescription for low-THC cannabis, the treating physician will submit the prescription to the Compassionate Use Registry of Texas, and the patient can visit any qualified dispensary to collect the prescription. In addition, the medical use of cannabis is limited to ingestion by means other than smoking (Section 169.001(3) of the Texas Statutes & Codes Annotated).

“Low-THC cannabis” is defined as:

The plant Cannabis sativa L., and any part of that plant or any compound, manufacture, salt, derivative, mixture, preparation, resin, or oil of that plant that contains: (A) not more than 0.5 percent by weight of tetrahydrocannabinols; and (B) not less than 10 percent by weight of cannabidiol. (Id. at Section 169.001(3).)

Any “dispensing organization” under the Texas Compassionate Use Act must obtain a license from the Texas Department of Public Safety (Section 481.032 of the Texas Statutes & Codes Annotated). Under the Texas Compassionate Use Act, a “dispensing organization” is any “organization licensed by the [Department of Public Safety] to cultivate, process or dispense” cannabidiol permitted under the Compassionate Use Act (Id. at § 487.001(3)).

Physician licensing

What licensing requirements apply for physicians seeking to prescribe cannabis products to patients?

To prescribe low-THC cannabis in Texas, a physician must satisfy several qualifications.

First, the doctor must be licensed in the state of Texas (Section 169.002(b)(1) of the Texas Statutes & Codes Annotated).

Second, the doctor must dedicate a significant portion of their practice to the treatment of epilepsy (Id. at Section 169.002(b)(2)).

Finally, the doctor must be certified by:

  • the American Board of Psychiatry and Neurology in epilepsy, neurology, or child neurology and be otherwise qualified for certification in epilepsy, or neurophysiology; or
  • the American Board of Clinical Neurophysiology in neurophysiology (Id. at Section 169.002(b)(3)).

Pharmacy licensing

What licensing requirements apply for pharmacies seeking to dispense cannabis products?

Only qualified dispensing organizations are permitted to dispense low-THC cannabis in Texas. Thus, there are no licensing requirements for traditional pharmacies. However, a “dispensing organization” under the Texas Compassionate Use Act must obtain a license from the Texas Department of Public Safety (Section 481.032 of the Texas Statutes & Codes Annotated). Under the Texas Compassionate Use Act, a “dispensing organization” is any “organization licensed by the [Department of Public Safety] to cultivate, process or dispense” cannabidiol permitted under the Texas Compassionate Use Act (Id. at Section 487.001(3)). To be eligible for a license as a dispensing organization, the applicant must have:

  • the technical ability to cultivate the cannabis-related products allowed under the Texas Compassionate Use Act;
  • the resources necessary to operate as a dispensing organization;
  • the ability to secure premises reasonably located to allow patients listed on the compassionate use registry access to the applicant;
  • the ability to maintain accountability for the cannabis-related product and its raw materials and by-products to prevent unlawful access or diversion of those materials; and
  • the financial ability to maintain operations for at least two years following the date of its application (Id. at Section 487.102).

In addition, each director, manager, and employee of the applicant must register under the Texas Compassionate Use Act (Id. at Section 487.151).

Health insurance

How are cannabis products covered by health insurers (both public and private)? Are there any rules or restrictions in this regard?

The Texas Compassionate Use Act does not address the role of health insurers in regard to medical cannabis. Consequently, health insurers do not currently cover the cost of low-THC cannabis in Texas.

Product development

What opportunities are available for cannabis businesses to cooperate with healthcare providers, pharmaceutical companies and research institutes in the development of new medical cannabis products? Are there any notable regulatory considerations in this regard?

The Texas Compassionate Use Act permits a licensed dispensing organization to cultivate, process, or dispense low-THC cannabis (Section 487.001(3) of the Texas Statutes & Codes Annotated). However, the act does not contemplate the cooperation of pharmaceutical companies and healthcare providers in the development of products. According to the Texas Department of Public Safety, only licensed dispensaries can test low-THC products. Currently, only three such facilities have been licensed by the state.

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