The CBD Oil Boom: Making Money on Medical Marijuana for the Masses
Chris Whetzel

The CBD Oil Boom: Making Money on Medical Marijuana for the Masses

Chris Martin is a medical-marijuana pioneer. He’s also a biker, ex-con, and father of five — a nice guy with a rough side, lots of tattoos, and a head full of business ideas. He got out of prison in February after serving a two-year sentence on a weapons violation related to a 2012 raid on his first medical-marijuana company, Zonka.

His Zonka chocolate bars and other edibles became popular for a while not long after Arizona voters passed the 2010 medical-marijuana law. But this was before state-authorized dispensaries; Martin sold the infused candy to unauthorized compassion clubs. Police raided the clubs and Martin’s home, finding guns (he says they belonged to his older sons) that he shouldn’t have had in the house because of a past felony conviction.

Now Martin, his family, and friends are back in the medical-marijuana business. And this time, they may have struck gold — or, rather, struck oil. CBD oil.

They’re tapping into a profitable industry of over-the-counter health products that is already generating tens of millions of dollars but may triple in total revenue in just the next three years. The growth is based on a compound found in marijuana plants called cannabidiol, a.k.a. CBD.

The products that Martin and others sell may produce a range of medicinal benefits, like reducing pain, inflammation, and anxiety — but don’t get people high.

To capitalize on the boom, Martin is renovating a dilapidated strip-mall space at 17th Avenue and Bell Road. He’s got a retail shop at the front of the unit and is outfitting the back with new appliances and equipment to help crank out their product lines for pets and people.

Through their two main companies, Hempful Farms and Paw Puddy, Martin and his crew make more than 30 CBD-containing items including tinctures, salves, patches, capsules, candies, edibles like s’mores and brownies, inhalers, vape cartridges, eye drops, and dabbable concentrates like shatter and wax.

They make their products with processed CBD — in powder and oil form — obtained from manufacturers of hemp, which is the name given to Cannabis sativa plants that contain only trace amounts of the better-known, psychoactive marijuana molecule, tetrahydrocannabinol, or THC.

Hempful Farms was a beehive of activity on a recent weekday in mid-October.

The shop seemed to operate like one big, happy family.

In the shop’s main production room, which was still half-empty, Billy “Irish” McMaster, who was Martin’s cellmate in prison, sat on a stool filling bags with Paw Puddy’s horse pellets. He also gives presentations on their products to local naturopaths.

At another stainless-steel table, Jay Thede, the cousin of Martin’s wife, Andrea (who goes by Andi), squirted CBD oil into a tray full of uncapped capsules with the intensity of a man working on a jigsaw puzzle.

Marnie Taylor, Andi’s longtime friend, was sticking labels on a CBD rub that smells like aloe.

“This is all about health,” Taylor said. “It’s busier and busier — the momentum’s going up. It’s fun.”

One of their machines poured a beige, CBD-rich gruel into bone-shaped molds — these will be packaged as dog biscuits and sold as a pain remedy for dogs. A bag of a dozen goes for $26. Each biscuit has 33 milligrams of CBD, as tested by Phoenix’s Delta Verde Labs.

Expecting many more orders, Chris Martin has been shopping for a “high-volume, high-capacity cookie machine” that can churn out as many as 3,000 biscuits a day, he said. He’s also planning to buy an automated pill-maker that will allow Thede to work on other projects.

Martin and his wife own the companies. Their 12-year-old son, Christopher, is the CEO of Paw Puddy. But Martin was clearly in charge — he’s the one with the connections, vision, and drive to make it all happen.

One minute, he’s directing two men there to install a new freezer. Then he’s meeting with one of his business partners, Payton Curry of Flourish edibles, who’s sipping from a mason jar of iced, dark-green, raw-cannabis juice. Later, he and Andi stood in front of a laptop in a small office, going over their latest sales figures.

“If I wasn’t standing here seeing it, I wouldn’t believe it,” he said. “We’re seeing 300 percent growth month-to-month.”

Since he was released from prison, the companies have netted more than $250,000 in revenue. He has 41 wholesale accounts. Every day, retail customers from all over the United States call or use the Hempful Farms website to place orders.

The Martins are not rich — yet. The earnings go into salaries for Martin and his employees, and get reinvested into the growing business. But business is booming, and Andi Martin marvels at how, just a few short months ago, while her husband was in prison, “we were counting change to get gas and kid clothes.”

There’s just one problem with this lucrative business.

It may not be legal.

HEMP IS NOW USED FOR A LOT MORE THAN MAKING SHOES

CBD’s entrance into the mainstream has been decades in the making. Sales have seen explosive growth recently, and not just in medical-marijuana dispensaries. Sales that take place outside of dispensaries are booming, too, and about to get even bigger, experts say.

The compound was discovered in 1940, long before scientists found THC. CBD is considered the second-most important molecule in cannabis plants. But because it has no psychoactive effects, its medicinal properties have potentially universal appeal.

CBD makers use a solvent like carbon dioxide or butane to extract the compound from plants, similar to how concentrates more commonly known to cannabis users are derived. It’s sold as an oil, whether in tinctures or for vaping, or in a drier format like powders, wax chunks, or whole-plant buds or particles.

Pot plants that are high in CBD and low in THC are more commonly grown now as demand has grown. CBD products made from cannabis plants may have low or high levels of the psychoactive compound THC. The more-common variety being sold over the counter and online is, or should be, from a low- or no-THC cannabis strain called hemp.

Hemp and marijuana are the same plant, but so-called industrial hemp has high levels of CBD and low levels of THC — typically less than 0.3 percent. That’s the threshold under the 2014 Farm Bill, which allows states that pass their own hemp laws to authorize the growing of industrial hemp for research and development. So far, that includes Kentucky, Colorado, and Oregon. (Hemp seeds and seed oil, which can produce things like hemp milk or soap, are different — they contain virtually no cannabinoids, and sterile seeds aren’t considered a drug under the Federal Controlled Substances Act.)

CBD makers extract their products from states where it’s quasi-legal to do so, if they can. Most apparently comes from overseas, as the result of a hemp-friendly U.S. Ninth Circuit Court ruling in the early 2000s, when hemp was more likely to be used to make jewelry or shoes.

“China supplies the most raw and processed hemp to the United States, followed by Romania, Hungary, and India,” according to a 2015 article in CannaLawBlog.

Now, with the trend in extracts, CBD is poised to take the lead in the possible uses of hemp.

In 2016, at least $130 million was generated from United States sales of hemp-derived CBD, with 92 percent of that sold online or in direct retail sales from the CBD companies or smokeshops, according to the Hemp Business Journal’s August 2017 “The CBD Report: Mid-Year Update.”

The totals may rise to $736 million by 2020, according to the publication. Pharmaceutical companies are expected to capture up to half of the market by then, but the prediction means the growth for retailers is still expected to nearly triple.

And that’s just hemp-derived CBD. Total CBD sales, including the varieties richer in THC that can only be sold in state-authorized dispensaries, have tripled in the last three years to $358.4 million in 2017, and are expected to triple again by 2020.

Google Trends shows that searches for CBD and cannabidiol have doubled in the last two years, indicating an increasing awareness of the substance.

New online outlets for CBD seem to be popping up like, well, weeds.

Two new CBD-only stores have opened in Phoenix in the past few months — no medical-marijuana card required. Meanwhile, some registered Arizona medical-marijuana dispensaries have begun putting over-the-counter CBD products in their lobbies, where any member of the public can buy them.

High Maintenance Smokeshop on Mill Avenue in Tempe began offering a CBD product line about four months ago. It sells tinctures, capsules, topical salves, and chunks of “crumble” CBD meant to be vaporized and inhaled. A 450-milligram bag of CBD crumble goes for $99.

What does vaporized CBD do for the body or brain?

The 20-something counter clerk at High Maintenance said it should provide a sensation of reduced anxiety or relaxation within 15 or 20 minutes. Ingested CBD does the same, but not as quickly, he said.

Sales of CBD products for pets have followed the trend, too. MJ Freeway, a cannabis-business software company, told Bloomberg News for a December 2016 article that pet-CBD sales doubled between 2014 and 2016.

Big-box retailers including Walmart and Target sold CBD-containing products for a while.

In early September, Target’s online division was selling CBD products by Colorado company CW Hemp, which makes the popular Charlotte’s Web CBD oil line. A month later, CW Hemp touted in a news release the Target sales were evidence that CBD was going “mainstream.” The retail giant suddenly pulled the products from its online store.

Although the company gave no reason for halting the sales, it’s believed that Target executives grew worried over the prospect of potential criminal liability.

The concern is that, in the midst of all these glowing CBD sales stories, the U.S. Drug Enforcement Agency announced in December 2016 that CBD remains a Schedule I drug like marijuana or heroin under the Controlled Substances Act.

DEA Special Agent Erica Curry, a spokeswoman for the agency’s Phoenix bureau, confirmed the position in early November.

Marijuana has “a potential for abuse and there is no recognized, safe, and effective medical use,” Curry said. “Marijuana, along with all its components or extracts, is a Schedule I controlled substance. CBD is a part of the marijuana plant and therefore, is a Schedule I controlled substance.”

Justin Strekal, political director for the National Organization for the Reform of Marijuana Laws, said NORML lawyers have analyzed the situation. CBD can be possessed legally under state law in Colorado, California, and other states where voters passed adult-use legalization laws, he said. It can also be possessed legally in states with medical-marijuana laws, like Arizona, but only by authorized patients.

Anyone who claims their product is sold legally in all 50 states is a “liar, a huckster, and a thief,” he said.

There are a “tremendous number” of people selling CBD, he continued. He frequently gets calls from owners of smokeshops and convenience stores in various states who tell him they were following the law but still got raided.

“I say, ‘You were deceived. You should have called the people who told you it was legal and demand they pay your legal fees,’” Strekal said.

Still, CBD continues to be sold online in ever-increasing volume.

The DEA hasn’t taken any action — yet. Curry said she can’t discuss any possible plans the DEA may or may not have in that regard.

In several cases of state police seizing CBD oil from store shelves, including a crackdown in July in Indiana, no charges were ever filed. Even advocates admit that CBD, in some situations, falls under a legal gray area.

Christopher Martin, the 12-year-old CEO of Paw Puddy, gets a hug from his mother, Andi Martin.
Christopher Martin, the 12-year-old CEO of Paw Puddy, gets a hug from his mother, Andi Martin.
Ray Stern

START OF SOMETHING BIG: 'CAN WE GIVE CDB TO THE DOG?'

Chris Martin was still out on bond one day in 2014 when he saw the family dog, a 120-pound Rottweiler named Sarge, having trouble coming down the stairs of their home.

“He was limping real bad,” Martin said. His son, Christopher — then 9 — knew his dad used a high-CBD strain of marijuana to treat his Crohn’s disease.

“Chris said, ‘Can we give CBD to the dog?’” Martin said. “So, we made cookie treats and fed them to him until he didn’t limp anymore.”

They decided to sell the product commercially. The boy wanted to call the company Paw Puddy.

“I’m not even sure what it means,” Martin said, smiling. “It just works. Ever since, he has always been part of R&D. He wants to be involved.”

At that moment, as Martin explained this in the small office inside Hempful Farms, the 12-year-old CEO was laying under a table watching videos on his phone.

He’s certainly been a big help to the company, though.

In mid-2015, the Martins got the email that changed their lives: The producers of The Marijuana Show, called the “ Shark Tank for ganjapreneurs,” were considering Paw Puddy and its boy CEO to star in their second season. They’d have a chance to pitch the company to a panel of possible investors who might throw some serious capital their way.

The producers, Wendy Robbins and Karen Paull, asked Martin to meet them in Denver and impress them so they could make a final decision. Chris Martin was thrilled — but also nervous as hell. His lawyer warned him that he wasn’t allowed to leave the state while on bond.

Martin decided to risk it, and drove north with his wife and Christopher in November 2014. If they had been pulled over, Martin might have been hauled off by police and thrown in jail, Fortunately for them, the drive — and audition — went smoothly.

Robbins and Paull approved the family and Paw Puddy for their show. When Martin arrived back home, though, he had to send the producers another email: He let them know that his wife and son would have to go it alone, because he’d be behind bars by the time of the taping.

Martin was sentenced on August 1, 2015, and taken to county jail. But Andi, who had a background in nursing, was worried she wouldn’t be able to make a proper pitch to the show’s investors.

On August 30, the day before he was sent to state prison, Chris Martin was allowed one 15-minute conference call with his wife.

“These guys didn’t know anything about the money side of the business,” Martin said. “My job was to try to get her a crash course on finance.

“I started spewing out numbers,” he said. “We had to give them an estimate of what the business will be.”

As Andi Martin related, “We had to ask for a $500,000 investment. I had to know exactly what our business was worth (and) what were the percentages to make back.”

That October, Little Christopher pitched the dog treats in front of a panel of four investors for The Marijuana Show’s episode two, which was titled, “How to Make Your Old Dog Young: Watch this 10-year-old make $5,000 in five minutes!”

They didn’t get a big investment, but they did land a big order — and tons of good publicity.

“First I want to tell you, you are really impressive,” an investor from Euflora, a Colorado cannabis store, told Christopher on the show. “You’ve got a bright future in front of you. Keep it up, okay?”

She then signed on for 300 dozen of the biscuits; another investor ordered 200 dozen.

“Oh, God!” Christopher gushed as the panel laughed.

In prison, Chris Martin didn’t find out about the win until a month later. “That got a lot of attention. Then Rolling Stone did a story,” he recalled.

In June of this year, the pet company found a new, and prominent, partner in American Green. The Tempe medical-cannabis company made headlines this year by purchasing the entire desert town of Nipton, California, population 18, with the intent to turn it into what American Green consultant Stephen Shearin called a “boutique cannabis destination.”

American Green now offers Paw Puddy products on its online store alongside its own CBD products.

Jesse Perry of Tucson’s Dope Magazine wrote a review of the biscuits in August, saying that his 2-year-old service dog wasn’t “sore” after an outing and that the product reduced swelling and pain in the dog after a recent bee sting.

“Although my fur-baby has no diagnosed medical conditions, the positive results are quite clear,” Perry wrote. “Max now gets his daily dose of CBD and continues to benefit from its behind-the-scenes effects.”

NORA VOLKOW: 'CBD APPEARS TO BE A SAFE DRUG' 

CBD proponents include not only the companies interested in keeping the lucrative sales rolling, but also the many patients and average people who swear by the stuff. Some believe CBD is better than pharmaceutical drugs in treating certain maladies and symptoms.

Medical marijuana has flourished in this country, with more than half of the states now having some type of decriminalization for medicinal use of cannabis. Word has spread about CBD and its potential as a medicine, especially for people who don’t want the fuzziness in the brain caused by THC.

“We don’t carry it,” said a clerk at northeast Phoenix pet store when asked about CBD products. She then added without prompting, “but I think it’s great for joint pain. I had this salve and I rubbed it on my elbow. It works great.”

Anecdotal reports on CBD are plentiful. Several scientific studies show it has promise to treat aches and pains, swollen joints, and seizures. But that’s not all.

CBD is also an antioxidant — which means that taking it might ward off diseases like ALS, Alzheimer’s, Parkinson’s, multiple sclerosis, and more. It’s being used to help people wean off opioids. Some believe it helps fight cancer. There’s almost no end to the problems CBD is said to solve. Even acne.

The cannabinoid was even endorsed, to some extent, by the director of the National Institute on Drug Abuse, Nora Volkow, in a 2015 op-ed in the Huffington Post.

“CBD appears to be a safe drug with no addictive effects, and the preliminary data suggest that it may have therapeutic value for a number of medical conditions,” she wrote. “Addressing barriers that slow clinical research with CBD would accelerate progress. NIDA will do what we can to address such barriers and expedite the study of this potentially valuable compound, as well as other components of the marijuana plant.”

The benefits for the body relate to how it interacts with molecule receptors in the body that are shaped, remarkably, like the cannabinoids in cannabis plants. These receptors are found throughout the body — in the brain, nervous system, eyes, immune system, etc. — and they’re usually fitted with naturally occurring molecules called endocannabinoids. When humans flush their systems with cannabis molecules, changes take place that are thought to be mostly beneficial.

“THC is a strong activator of the endocannabinoid system, while CBD has a weaker activation impact on the system, but its mechanism of action is more complicated,” states the website of Kalytera Therapeutics of California, a would-be CBD pharmaceutical company.

CBD reduces the brain’s production of a neurotransmitter that helps cause seizures, the site says. And it stimulates production of a natural endocannabinoid called anandamide, an important molecule that helps humans feel pleasure and performs a multitude of other functions.

GW Pharmaceuticals, a British company that hopes to bring CBD-based drugs to the public, submitted an application to the U.S. Food and Drug Administration in early November for its unreleased product, Epidiolex, an anti-epilepsy drug. Although the FDA hasn’t approved any CBD products for the market yet, GW’s anti-pain drug, Sativex, is approved in 21 European countries to treat muscle spasms and stiffness.

Apparently, CBD makes good medicine — for some people, anyway.

Yet many questions swirl over its use.

Not only is its legality uncertain, but so is the proper dosage. Questions remain whether it should be combined with THC or other cannabinoids, what originating cannabis strains are best, whether adding terpenes (aromatic oils) is beneficial, or what ailments it’s best used to treat. Sometimes it even may be unclear whether a product has any CBD in it all, or whether it contains contaminates. Unlike, say, aspirin or ibuprofen, CBD seems to work differently in different people. In other words, not everybody can expect positive results.

CBD doesn’t get people stoned and has the same, safe reputation as marijuana in general — as in, nobody’s ever died from taking too much of it. In fact, it’s said to take the edge off a THC high, and lessen any sensation of paranoia. But CBD may occasionally produce side effects. Some studies suggest that CBD may cause cottonmouth, drowsiness, or even vomiting and diarrhea in sensitive people. Other studies show it’s probably more likely to reduce nausea and other problems than cause them.

Dr. David Gorski, managing editor of Science Based Medicine, an online magazine that examines medical claims, produced a series in May that blasted reports that CBD can “cure” cancer or help with autism.

Gorski wrote in the series that medical marijuana was fraught with “massively overblown” and “miraculous” claims.

“Basically, the bottom line in terms of scientific evidence for medical marijuana is that it mostly doesn’t do what it’s claimed to be able to do,” he wrote.

One exception, he noted, is that in a study published this year in the New England Journal of Medicine, CBD showed promise in helping reduce seizures — when combined with other anti-seizure medications.

On November 1, the FDA sent warning letters to four companies that allegedly made “unsubstantiated therapeutic claims” about CBD: Greenroads Health, Natural Alchemist, That’s Natural, and Stanley Brothers (the maker of CW Hemp).

The agency “has issued several warning letters for similar violations in 2015 and 2016, and will continue to monitor and take swift action against companies that egregiously promote and sell unproven treatments,” FDA spokesman Michael Felberbaum said.

That’s Natural CEO Tisha Casida told New Times that her company would remove the offending language from its marketing material and remove links on its website to peer-reviewed studies about CBD’s benefits.

But Casida also said that, in her personal opinion, it is the company’s First Amendment right to let customers know about “over 20,000 journal articles on cannabinoids and their potential positive effects for disease.

“All free people have a right to experience health and wellness from naturally derived cannabinoids,” she said. “We should not have to only take FDA-approved synthesized drugs. We should be able to experience natural plant-based medicine in its truest form.”

IS CBD LEGAL OR NOT?

Dr. William Troutt, an Arizona naturopath who serves as the medical director for Harvest of Arizona dispensaries, gives a talk twice a month about medical marijuana for new patients, potential patients, and anyone else who’s curious about what the plant can do for health.

On Saturday, October 28, Troutt spoke to about a dozen people at a small conference room in Harvest’s Scottsdale location. Troutt was a humorous and animated speaker, always on point. He covered everything from the types of ingestion methods to how cannabinoids bind to receptor cells in the nervous and immune systems.

Outside the room, past a locked door that only state-authorized medical-marijuana customers can enter, a steady stream of customers came in to legally purchase buds, edibles, or vaping products.

Harvest has tried to be a leader in promoting the medical aspect of cannabis. The dispensary chain, reportedly the largest in Arizona, hosts support groups, including its own Harvesting Hope, a program that helps kids with epilepsy.

The people attending Troutt’s session are almost all elderly. Pam, from Sun Lakes, said later she was there because she was curious about it. Her friend had chronic pain and needed to get off opiates.

“He had so much to say,” she said of Troutt. “I think the education on what they do is so important.”

Troutt didn’t seem to shy away from some of the negative, or at least confusing, aspects of CBD.

When one woman complained about the smell of cannabis topicals, he acknowledged he’d heard others say the same thing. The woman then said she didn’t get much pain relief from a product she’d used.

“Some people say the topicals are great, others say no,” he said.

When it comes to what kind of CBD to buy, online or from a dispensary, Troutt said people seem to get more pain relief from varieties of products with THC, because the high provides some mental distance from the pain.

One question that came up twice for Troutt was whether taking CBD meant the user would fail a drug test. Troutt said it was a remote possibility.

He wouldn’t discuss the legal aspects of CBD, saying it isn’t his area of expertise.

That field belongs to Patrick Goggin, the Hemp Industry Association’s lawyer. The HIA, which represents CW Hemp and other makers of hemp extracts, filed a petition with the U.S. Ninth Circuit Court of Appeals against the DEA in January. It seeks “to block the implementation of the [DEA’s] recently announced final rule regarding ‘Marihuana Extract.’ The proposed DEA final rule attempts to unlawfully designate hemp-derived, non-psychoactive cannabinoids, including cannabidiol, as ‘marihuana extract,’ and append the Controlled Substances Act to add all cannabinoids to its Schedule 1.”

Goggin told New Times the petition hearing has been scheduled between February and April 2018, but a specific date hasn’t been chosen.

The “DEA’s position that all non-THC cannabinoids are Schedule I is inaccurate in my opinion,” Goggin said in an email. “They are scheduled when they come from ‘marihuana’ but not industrial hemp which includes all parts of the plant, including the flowers and the leaves where cannabinoids are predominantly found. I do believe the marijuana extract case will clear this up once and for all.”

If not, it’s unclear where that leaves companies like Martin’s.

MARTIN'S COMPANIES ATTRACTING MEDIA ATTENTION

While Chris Martin was away in prison, his wife and young son minded the stores. Hempful Farms, at the time, was located on Cave Creek Road and sold sandwiches and smoothies containing CBD and hemp flour. They attended numerous medical-cannabis events to stay in the public spotlight.

They also kept a good relationship with hemp wholesalers they’d met who were “sourced out of Kentucky,” Martin said.

“When I got out of prison, Jack Herer’s son, Dan, said ‘I watched the [Marijuana Show] video.’ He drove to the house. He brought a quarter-kilo of isolate powder, 99 percent CBD. … You can do anything with it. He wanted me to distribute it.”

So, Martin, using his connections, created the Weedless line of CBD vape cartridges.

“It’s whole-plant, full-spectrum, but it won’t get you high,” he said proudly.

Martin had found himself a new business angle.

Now, his companies are exclusive distributors of CloudCo Farms of Colorado and Herer Hemp Industries of Kentucky, Martin said. The out-of-state firms extract and distill CBD from the hemp using CO2, butane, or alcohol, then send the finished powder and hemp oil to Arizona, where it’s infused in Paw Puddy’s and Hempful Farms’ product lines.

As of mid-November, Martin’s companies appeared ready to take off like never before.

He was was considering an expansion into another property in the strip mall on Bell Road.

His retail store at the site opened to the public on November 6.

A Fox Business Network team interviewed him, Andi, and Christopher at Hempful Farms in mid-October. The news piece may air early next year. AsSeenOnTV.com is expected to feature his companies on its online vending site next month.

“We’re going to be before 100 million viewers in the next six months,” he said.

Martin said he knows that CBD’s legality remains in question, and that he’s “slightly worried.” But he’s too busy planning for success to dwell on the risk.

Production will soon ramp up big-time thanks to another deal with American Green, which operates a 12,000-square-foot medical-cannabis cultivation facility under the license of Natural Herbal Remedies. The agreement allows Hempful Farms to make and sell products with higher percentages of CBD and THC, which will be sold in licensed Arizona dispensaries, Martin said.

He’s also working with Payton Curry of Flourish to produce a THC-infused medical-marijuana candy bar that will go by a familiar name: Zonka.

Martin added that he’s just a “consultant” with American Green. Because of his record, he can’t be a dispensary agent or handle commercial cannabis under Arizona law.

“But I can sign in as a guest. I can’t be in the room if they’re growing,” he said.

He flashed a grin beneath his flat-bill cap.

Correction: Martin later corrected the information about the above-mentioned cultivation facility — it is licensed under Natural Herbal Remedies, not Swell Farmacy.

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