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How the U.S. Government Makes Money on Cannabis

Stocks in this article: GWPH ABBV

NEW YORK (TheStreet) -- The government makes money off of cannabis; the same cannabis it declares illegal. The same cannabis it throws people into prison for selling.

The National Institute of Health received a patent on cannabinoids in October 2003. Aidan Hampson, the scientist who made the discovery while working at the Institute of Mental Health said, "I discovered the cannabinoid receptor in the brain that THC [the active chemical in marijuana] binds to. THC mimics something that occurs naturally in the brain and I asked myself, what's the natural key to this lock?" Hampson said if a scientist believes something could be important, then you patent it immediately.

"Any discovery you make, you hope it has a therapeutic benefit," said Hampson. In order to eventually get that discovery to patients, a drug needs to go through clinical trials. No drug company will pursue drug development unless they know who owns the intellectual property. "It would cost approximately $30 million to do a test." said Hampson. "No company will give you a second glance unless you own the intellectual property." Meaning, they won't want to spend the money unless they can recoup the cost of the test and they need the patent or a license on the drug in order to do so.

In June of 2013, the NIH granted the exclusive license to phyto-medical company KannaLife Sciences. Dean Petkanus CEO of KannaLife said it was very difficult to get the exclusive license to the patent. The company has the license for only one disease, Hepatic Encephalopathy, that is associated with liver disorders. It occurs in people with cirrhosis from alcoholism or hepatitis C and B as a couple of examples.

Petkanus believes that KannaLife's product could be a $1 billion-to-$2 billion drug with a potential patient population of 1.5 million. Petkanus would not say how much they would have to pay to NIH as a result of the agreement saying, "We can't disclose the terms." However, KannaLife has made several payments already to NIH for royalty fees, continuous use fees and prosecution fees. "We have made payments to the NIH. Absolutely," said Petkanus.

The patent expires in February 2021, but KannaLife believes it will have a product to market before that time. KannaLife also believes the product will have FDA approval which means the FDA would have to reschedule the classification of cannabis.

Marijuana is currently defined as a schedule 1 controlled substance meaning it is a dangerous drug and has no medicinal benefits (even though the NIH filed for the patent stating the cannabinoids could treat diseases like Alzheimer's, Parkinson's, HIV and could limit damage in strokes and trauma.) Congress has many pieces of legislation addressing marijuana, but isn't expected to change the status anytime soon.

Allen St. Pierre of NORML believes that the government wants to have sole control of the cannabis patent and that others have requested it and haven't received it. However, several mainstream pharmacology companies have received patents including GW Pharmaceuticals (GWPH), AbbVie (ABBV). a spinoff of Abbot Laboratories. and Jenrin Discovery.

Mark Rogerson of GW Pharmaceuticals confirmed that "it has an extensive intellectual property portfolio that includes multiple patents directed to the plants, plant extracts, extraction technology, pharmaceutical formulations, drug delivery, and therapeutic uses of cannabinoids. In the treatment of cancer pain, we have a patent in the United States that expires 2026." Rogerson went on to say, "Our patent strategy is to cover all key territories and it therefore includes the United States, the European Union, Japan and other selected markets."

Neither Jenrin or AbbVie returned calls for information.

Hampson suggested that the NIH would protect its cannabinoid patent if it had to -- adding to the irony that one agency within the Department of Health and Human Services will protect its ability to make money off of cannabis, while another HHS agency, the Food and Drug Administration declares marijuana a dangerous drug.

Cannabis-Rx Is Growing the Field of Marijuana Real Estate

Washington State Sees July 1st for Marijuana Kickoff

-- Written by Debra Borchardt in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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