Capitalizing On Cannabis: Medical Marijuana Interview With Steve Gdula

by: Alan Brochstein, CFA

Editors' Note: This article covers micro-cap stocks. Please be aware of the risks associated with these stocks.

One of the great benefits of being a Seeking Alpha author is the contacts that I make following contributions, whether through comments or private messages. Over the past six months that I have been exploring the marijuana-related stocks, I have, not surprisingly, received much more feedback than usual and from a broad variety of readers. Several people who work in the industry have shared their insider's perspective with me, and one of those is Steve Gdula, who serves as the Executive Committee Consultant for Integrated Natural Care, which is trying to become one of the licensed Medical Marijuana producers in the state of Connecticut. Please note that his company is currently seeking funding. My interview is not intended to serve as a solicitation for investment.


I hope that readers appreciate Mr. Gdula's "insider" perspective. If I can summarize a few key points:

  1. Steve discusses the medical marijuana regulatory environment for Connecticut, and it's clear that each state will have its own rules and regulations. Creating a national company will be very challenging.
  2. He expects that the market in Connecticut will include companies that operate as dispensaries and others that operate as producers, with the likelihood that some of the producers will also operate their own dispensaries.
  3. His perspective is that most of the publicly-traded stocks are not appealing and that the real winners will be actual cannabis providers or companies that provide critical infrastructure to these operators. Further, he goes so far as to suggest that companies trying to create pharmaceuticals from cannabis are working against the true interests of the patients.


Alan: Thank you so much for agreeing to share your views on the medical marijuana industry with me and my readers at Seeking Alpha, Steve. Let's start the dialogue with your background. Tell me a little about how you got to where you are and what you are trying to do with Integrated Natural Care.

Steve: Thank you, Alan, for this opportunity to share with you and your readers some of my experiences in creating a startup company in the medical cannabis sector. I hope it proves useful in your understanding of the business and financial landscape as it applies to medical cannabis and ancillary products and services. This is a tricky subject.

I have personally been interested in medical cannabis for quite some time. When I was a kid, our family had a close friend who suffered from lupus and who was one of, at the time, a very limited few in the country authorized to use medical cannabis which was supplied through a federal program. I believe now there are only four remaining survivors from that patient cohort who currently receive federal medical marijuana. In any case, she was always very open about it and, as a psychologist, seemed very aware of the pros and cons. The biggest "con" as she always explained was "the crappy federal weed." But she always seemed to have plenty of it nonetheless, and she said it worked for her condition.

More recently we lost my wife's step-mother to a long, painful, protracted battle with cancer and cancer treatments. She received conventional radiation and chemotherapy and it was equally as damaging to her health as was the cancer, as near as I could ascertain. She passed away just days after the Medical Marijuana Program began enrolling patients in Connecticut. It was a grim reaffirmation, in my mind, of the necessity for medical cannabis programs.

Aside from anecdotal experiences that have shaped my views, I am very well aware of the volume of legitimate research that clearly shows medical cannabis therapy to be an effective and safe treatment modality for a variety of fairly common and not-so-common ailments, from mild to extraordinarily severe. As a clinical scientist, I cannot ignore these facts.

Considering cannabis's clinically verified efficacy and my lifetime of professional experience in the healthcare sector, this - getting involved in medical cannabis - seemed a natural course to take. I believe it requires not only experts in the cultivation of cannabis, but also experts in healthcare delivery to meet the needs of patients in a proper manner and to protect their privacy. One without the other has very little value.

We built Integrated Natural Care from the ground up to be a provider of medical cannabis in the State of Connecticut. Our model is specific to the laws and regulations under which we intend to operate. I think this is an advantage because the law in Connecticut is materially different from most other states that allow medical cannabis and our regulations are very stringent. Firms intending to come to Connecticut from existing markets may find difficulty in meeting the quality assurance, quality control, security requirements, financial hurdles and the like promulgated by the Department of Consumer Protection. These are going to be extremely tightly run, very expensive businesses with a massive amount of oversight.

INC is intended to be operated at the functional level of a pharmaceutical manufacturer or medical device manufacturer. It has been designed with an extremely robust Quality Management System and advanced, fully integrated information and security systems in addition to - in my opinion - the world's most advanced volumetric cannabis potency testing platform, among other innovative and exciting technologies and processes designed by our staff and our partner firms. All of our products will be trackable and traceable down to individual retail units and all of our cannabis will be tracked from seed to sale by the most advanced, medical cannabis-specific point of sale and inventory control software available today. All of this plus our solid, common sense, medically purposeful labeling and branding will make INC, in my estimation, an extremely advanced medical cannabis provider - a type that is yet to exist in the marketplace.

We embrace a simple formula and our name speaks to our intentions: Integrated Natural Care provides natural healthcare products in a manner that is fully integrated into our community and our healthcare delivery system to ensure the safest and best possible outcomes for all.

Alan: One of the big issues I have addressed over the past several months is that we are in the very early stages of the moves towards both legalized medical and recreational marijuana. I believe that 20 states now have a form of legalized medical marijuana, and, of course, Colorado and Washington voters approved recreational marijuana. How do you see the market for medical marijuana developing? I am curious about how the approach CT is taking may differ from that of other states. I am also wondering about your perspective on the supply chain. In other words, do you see dispensaries being vertically integrated or will there be opportunities for providers of products and services?

Steve: These are excellent questions and complicated matters and are therefore dependent on many factors and variables. And, yes, you are correct that there are 20 states, as well as Washington D.C., that now have approved some form of legalized medical or recreational cannabis. This has been a fairly rapid increase as well. Over the last few months that number went from 17 to 20 which represents a sizable increase in a short period of time.

Public opinion has been steadily coming around in favor of medical cannabis and now a clear majority of Americans favor it. Only a dedicated Luddite could avoid the barrage of positive coverage on various electronic media outlets, including broadcast television. It's all over the news and the internet on a daily basis. This contributes to the rapid swing in public opinion which, in turn, fosters changes in legislation.

Connecticut takes a very unique approach to medical cannabis. Patients who obtain certification from their doctor to use cannabis to treat one of the allowable presenting diagnoses - cancer, glaucoma, AIDS or HIV, Parkinson's disease, multiple sclerosis, damage to the nervous tissue of the spinal cord with objective neurological indication of intractable spasticity, epilepsy, cachexia, wasting syndrome, Crohn's disease and post-traumatic stress disorder - will be allowed to participate in the Medical Marijuana Program. A Board of Physicians is able to expand the list of approved diagnoses if medical research presented to them, in their judgment, warrants it. The public at large may petition the Board to add diagnoses, and, to my knowledge, that is happening currently for a number of conditions known to be palliated by medical cannabis, so the list may expand.

Patients in the program will have all of their purchases at a dispensary logged into the Prescription Monitoring Program to ensure limits haven't been exceeded, certifications are current and things like that. Doctors certifying patients for the program will be subjected to enhanced scrutiny by the PMP as well. Dispensaries must be staffed by Connecticut licensed pharmacists with special certification and training to dispense medical cannabis.

Essentially, Connecticut did not reinvent the wheel - we simply used the present monitoring systems for a new application and treated medical cannabis like any other new treatment modality or medical product requiring regulation and oversight.

Connecticut does not mandate any particular business alignment in regard to producers and dispensaries. Producers may own their own dispensaries or dispensaries may be unaffiliated with any producer, so I expect to see a mix of vertically integrated producer/dispensaries, unaffiliated producers and unaffiliated dispensaries. The law limits the number of producers to no less than three and no more than ten, while it mandates at least one dispensary be granted license to operate. The DCP has recently announced it intends to license between three and five dispensaries. I expect between three and five producers to be licensed as well. It seems foolish to authorize too few, because failure is all but certain for some segment of entrants, but also reckless to authorize too many, creating overproduction and incentive for criminal activity. In that respect, I think the DCP has struck the proper balance.

Last year our people, along with the principals of two other potential Connecticut medical marijuana producers, created the Connecticut Cannabis Business Alliance to serve as vehicle for ancillary service providers - electricians, plumbers, builders, HVAC, water treatment, legal, security, etc - to make their services available to the new businesses starting up to engage in medical cannabis production or dispensing. We sponsored various workshops, meet-and-greets, lectures and so forth over the past year that were very successful in raising awareness and generating participation in major events such as public hearings on the MMP regulations. The CCBA, in my estimation, will be a key piece of the industry's development in Connecticut going forward.

Alan: Switching gears, there are a number of publicly-traded companies seeking to capitalize on the "Green Rush". I know that you follow the industry. Are there any that you own or that you think have strong business models?

Steve: OK, straight off the bat...I do not own any publicly traded marijuana stocks whatsoever, nor do I intend to in the foreseeable future and I'll tell you why in a moment. I view that entire sector of stocks as extremely shaky, with few exceptions.

I believe that the true value in this sector is in the products - mainly cannabis. Firms that don't sell cannabis, cannabis products, or equipment to produce or process cannabis, in my view, cannot gain or sustain profitability. The product is value-added. Selling the product generates revenue. It's simple. Why on earth would anyone try to impose "new economy" thinking on this perfectly old-school product? It's your classic widget from business school. What I see in the markets, in general, is a massive amount of paper pushing, stock swaps, equity agreements and so forth designed to make companies look profitable or successful and to generate the fodder for press releases. However, if one digs into their filings and publications, one simply cannot avoid the reality of it: market values in the tens of millions or more with book values near nil... or worse.

Most of these stocks trade on paid press releases rather than actual company news. Moreover, any company publicizing clinical trials or patents for drugs and things along that vein are many, many years away from realizing any revenue from those patents or products, if they ever realize any at all. Can a company with no facilities, no employees, and no revenue bring a drug through FDA clinical trials and to market? No, absolutely not. Not in less than a decade or so anyway, providing they have the millions and millions of dollars required to do the work in the first place. I deal with clinical trials and the FDA approval process every day and I can tell you with complete certainty that it takes tremendous resources and expertise to successfully navigate the process and bring a concept to market. But that's not even the salient point. The salient point is that patients don't need these derivative drugs if they have access to medical cannabis. They can get their benefit from the plant itself; the full spectrum of benefits from the full spectrum of active compounds. So the "medical marijuana" companies purportedly engaged in drug development are actively working against the interests of medical cannabis patients by attempting to create high-priced prescription drugs that patients don't actually need and that don't work nearly as well as the natural remedies from which they were derived or synthesized to resemble. Sound familiar? Dronabinol - that's Marinol by trade name - ring a bell? How could that be sustainable in an industry whose constituents generally represent polar-opposite principles?

And the cannabidiol product market is just flat to nonexistent. I really don't think many people know what CBD is and if they expect to get high from the products they bought online for hundreds of dollars from a "medical marijuana" company, well, they're destined for disappointment. Yet the companies selling CBD products know what will actually make them a tremendous profit and generate repeat customers - THC products. But they can't be transported across state lines or sold on the internet and most states with MMJ laws bar the transfer of cannabis from a producer to a processor, so the CBD companies actually would have to engage in cannabis production, which they are loathe to do. It puts them at risk with the federal government and jeopardizes their money making machines - their stocks. So they call themselves "marijuana" companies, but they don't now, and likely never will, produce, possess or sell any marijuana. Therefore, they will not ever be sustainable or profitable in my estimation - at least not in their present forms.

Again, I personally would stick to brick-and-mortar medical cannabis businesses or businesses that make the hardware and software those cannabis businesses rely upon to operate. Don't engage in fanciful or magical thinking and do your own due diligence. If it's too good to be true, as the saying goes, it probably is. I think many of these stocks are fine for traders because they swing pretty wildly, but also in timing with the news and paid pressers, so the swings can be pretty easily predicted and profit can be taken. But you'll not likely retire from any of the current pool if you hold them for the long run. There's just no basis in financial reality for their price per share in most cases. Of course, most would agree, perception is reality in the short run and these companies are masterful at shaping perception while studiously avoiding the facts.

Alan: There are a few companies out there that seems to be "picks and shovels" plays potentially. To the extent a company owns a grow facility or provides inputs to cultivation, it seems like they might be worth consideration from your perspective.

Steve: Sometimes these tricky financial plays out there tend to color the whole investment process as complex and confusing. It needn't be that way at all. Let's examine your question again: Are companies that produce and sell marijuana worth consideration for investment? To me, it's almost laughably rhetorical. The answer is, quite obviously, "Yes!" And, furthering our incredibly complex logical construct (sarcasm intended): Are the companies that provide the hardware, software and services to the marijuana producers and sellers worth consideration for investment? I'll humor you through the painful obviousness; "Yes," again. Just like parts and services suppliers to any industry, they are required for continuous operations. Again, I'm old-school. If your company makes a cool, useful widget, I'm interested. Cannabis is our widget. We buy useful widgets from other firms to make our widget. You can't have one without the other, right? People overcomplicate things.

This, in my estimation, presents a two-tiered opportunity - lower risks and lower rewards for ancillary business investments and higher risks and higher rewards for cannabis producer investments. But the trend is clear and unmistakable - the risk to producers is lessening daily, so in order to leverage an investment to the fullest, I believe now is the right time to formulate a strategy and set it in motion. Next year, the wave will have passed and the Johnny-come-lately's and hangers-on will be all that's left. The prime horses are the ones entering the gate right now. And I'd be willing to bet that any producer who successfully harvests his or her first few 500 pound crops will be, on the books anyway, worth more than the biggest players among the publicly traded, so-called "marijuana" companies. Their assets will be tangible and substantial. And all you would need to understand their businesses substantively is a quick read of a two column ledger - "This is what we made minus what we paid." After the financial implosions in our markets caused by all these complicated derivatives this simple appeal is spot on for me. I'm betting it is for others as well. I'm all in.

Alan: Thanks so much for your time, Steve. For my readers that are interested in learning more about your company or even potentially investing, what's the best way to learn more?

Steve: It was my pleasure, Alan. This is a complicated, nuanced sector and I'm glad to see you and Seeking Alpha publishing articles and information about it. It's certainly fun and exciting to watch the developments in real time as this industry gains a foothold and starts to take off in earnest. While we were talking I saw on my news alerts that the federal government just announced that they generally will not interfere in states where medical or recreational cannabis is allowed and will not litigate the issue. This is a very big piece of news and will likely set off a reaction in the markets. Buckle your seatbelt if you are getting into this business. It's going to be a hell of a ride. Anyone who wants to learn more about Integrated Natural Care can check out our website at

Alan: Great. Thanks again, and best of luck to you and Integrated Natural Care.

Steve: And to you, too. Take care.

My Take

I know my readers want this translated into what it means for the stocks. Again, Mr. Gdula has no position in any publicly-traded stocks. He clearly describes most of the current set of publicly-traded companies as shams in his view. If I understand his perspective, he seems to call out a company like GW Pharma (NASDAQ:GWPH) as working against the interests of patients by creating a prescription drug. While I understand his point, I think that the standardization that they provide in their Sativex has some benefit. Gdula also implies that Medical Marijuana, Inc. (OTCPK:MJNA) is not likely to succeed with its CBD products but rather needs federal legislation that will enable it to deal in THC products. Finally, and the news out of the DOJ yesterday sure reinforces this idea, companies that can directly benefit from cannabis cultivation could be winners. I have not thoroughly investigated Advanced Cannabis Solutions (PMAP.OB), and it seems very expensive, but they are in the process of buying grow facilities in Colorado to lease. Terra Tech (OTCQX:TRTC) is constructing a huge facility in New Jersey that will grow organic produce for now but that can eventually grow cannabis. Derek Peterson, the CEO, apparently co-owns a California dispensary. Finally, GrowLife (OTCQB:PHOT) participates in indoor gardening (grow-your-own).

These are exciting times, and the Green Rush looks like one of those megatrends in its infancy. I look forward to sharing more information like this and encourage readers who are interested in being interviewed to contact me.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Integrated Natural Care is currently in the process of raising money from investors. I am not an investor, nor am I intending to invest, and I have not even seen the private placement memorandum.