In the context of a shrinking medical marijuana market, some Canadian companies are focusing on selling medical cannabis to patients whose purchases are covered by employee health benefit plans, citing improved customer retention and consistency.
Major licensed producer Aurora Cannabis and several other players have adopted a benefits-focused medical strategy, which comes as prices have fallen in Canada’s fragmented, competitive recreational marijuana market.
Although the benefits-focused strategy suggests an avenue for higher-margin growth in maturing medical marijuana markets, cannabis companies say serving benefits-covered clients comes with high costs for education, customer service and research.
Plus, adoption of medical cannabis benefit coverage has been relatively low in the grand scheme of Canada’s health industry, according to Canadian employee benefits expert Mike Sullivan.
Before adult-use legalization in October 2018, Sullivan expected benefits coverage for medical cannabis would become “an enormous area for these self-insured (benefits) plans.”
That prediction didn’t pan out.
“It’s almost like tumbleweeds,” said Sullivan, CEO of Toronto-based employee benefits consultancy Cubic Health.
“There are very, very few of these plans that have moved ahead with medical cannabis coverage.”
Medical cannabis benefits strategies
Alberta-based Aurora Cannabis has refocused its business on medical marijuana, with a particular reliance on insured consumers whose benefits cover MMJ.
The company has a leading Canadian medical cannabis market share of 24%, CEO Miguel Martin told MJBizDaily.
Aurora says sales to “insured patient groups” accounted for about 80% of the company’s 23.4 million Canadian dollars ($17.4 million) in Canadian medical cannabis net revenue in its first quarter.
“Those that are in an insured program, by their very definition, buy more consistently, stay with similar pieces of medication for longer periods of time,” Martin said.
“… The noninsured patients do appear to have a little bit of a smaller basket size, a little less interaction, and to be a little more variable.”
Privately held Nova Scotia cannabis producer Aqualitas told MJBizDaily about 75% of its medical sales are covered by insurance.
George Scorsis, CEO of Ontario cannabis company Entourage Health (formerly WeedMD) said about 90% of the company’s medical cannabis clients are covered by insurance benefits.
Entourage, which is phasing out its cultivation business, reported medical cannabis net revenue of about CA$3.1 million in its most recent quarter.
The company’s medical cannabis strategy is anchored by a partnership with the Laborers’ International Union of North America (LIUNA), whose Canadian pension fund owns more than 30% of Entourage’s equity and is also a major lender to the company.
Scorsis said LIUNA locals offer dedicated medical cannabis benefits with coverage of CA$1,000 to CA$2,500 annually.
He also said Entourage’s Starseed Medicinal medical marijuana platform has relationships with other construction and trade unions whose benefit plans cover MMJ, arguing that focusing on selling medical cannabis to laborers makes sense as a safer pain treatment alternative in light of the opioid drug crisis.
Entourage puts patients “on a proper treatment plan, which is X amount of dose, X amount of times a day, of a certain product,” Scorsis said.
“So the stickiness of them, and retaining them within our model, is significantly higher. … They’re consistent with our brand throughout the entire journey from education all the way to the end of treatment and don’t leave our portfolio for a multitude of reasons.”
However, Scorsis said profit margins on medical cannabis aren’t necessarily higher than for adult use, even though medical marijuana doesn’t involve the “wholesale middleman” common in Canada’s provincial adult-use cannabis markets.
Entourage absorbs the costs of educating patients and physicians as well as patient call centers, reducing medical cannabis margins.
“Just to give you an example, we go to actual union halls and spend days (discussing) cannabis as a medical alternative,” Scorsis said.
Aurora CEO Martin said medical marijuana margins, on average, are roughly twice that of recreational cannabis.
But, like Scorsis, Martin said that margin advantage is offset by significant costs.
“Everything from the clinical work, the filings, the product development, the packaging, the testing, (to) all of the call center stuff is very, very expensive,” he said.
“And so there’s puts and takes to the business model, and I don’t think margin, in isolation, is the right way to look at the health of the business.”
Who has cannabis benefits?
Canada’s medical cannabis market was worth CA$93 million in the third quarter of this year, according to Statistics Canada, implying a CA$372 million annualized run rate.
Military veterans appear to represent Canada’s most significant group of benefits-covered medical marijuana patients: The Department of Veterans Affairs forecasts spending CA$195.2 million on cannabis reimbursements in its 2022-23 fiscal year.
In terms of private-sector cannabis benefits coverage, no one knows exactly how many Canadians are covered, according to benefits insider Sullivan.
Employee benefits plans fall into two main categories, Sullivan explained:
- Self-insured, or self-funded, plans in which employers underwrite their own benefit costs. These plans tend to be used by larger employers.
- Fully insured plans put the risk of coverage on the insurer and tend to be used by smaller companies.
Sullivan added that some benefits plans might also cover medical cannabis through employees’ health care spending accounts, but the annual spending caps for those accounts tend to be relatively small.
In comparison, open cannabis benefit coverage would treat medical marijuana “the same way as a prescription drug, where, if it’s approved, you can have coverage up to thousands of dollars a year, or potentially unlimited,” Sullivan said.
“There are very, very, very few plans that have that.”
Sullivan knows of no fully insured Canadian benefits plans that cover medical cannabis as an open benefit off the shelf, meaning cannabis coverage wouldn’t be a default benefit option for employers who use those plans.
However, he has seen employers choose to add medical cannabis coverage on top of fully insured plans – albeit with a requirement for “some form of prior authorization” or review.
Although medical cannabis market leader Aurora said it earned roughly CA$18.7 million in medical marijuana net revenue from benefits-covered patients in its previous quarter, Sullivan sees that quarterly total as a drop in the bucket in the context of the overall benefits market.
“There’s CA$15 billion-plus a year paid by benefit plans for prescription drugs,” he said.
Growing the benefits-covered medical cannabis market
Ned Pojskic is vice president of pharmacy benefits management at not-for-profit benefits provider Green Shield Canada, Canada’s fourth-largest benefits company.
Like benefits consultant Sullivan, Pojskic said early interest in benefits coverage of medical cannabis failed to lead to broad coverage.
In recent years, Pojskic said, human resources leaders and other benefits decision-makers have been focused on other problems such as rising drug costs, issues surrounding the COVID-19 pandemic as well as diversity, equity and inclusion efforts.
In the meantime, he said, “the maturity of the evidence on medical cannabis simply hasn’t grown” – and that evidence base would need to be stronger to justify increased benefits plan coverage of medical cannabis.
“I haven’t seen a single multisite, randomized, controlled trial emerge that has demonstrated the safety and efficacy of medical cannabis. … In the benefits-plan industry, we’re very much focused on the evidence, because we have these massive dossiers of clinical trials and information we receive from pharmaceutical companies to make decisions around coverage of their drug.”
Benefits expert Sullivan said that after adult-use legalization in 2018, Canadian cannabis companies lost their focus on medical marijuana.
“If you want to go after that market, and if you want to add value to that market, you have to dedicate time and effort and resources to understanding it,” he said.
Green Shield’s Pojskic said convincing the benefits sector to embrace medical marijuana would require the cannabis industry “to reengage the (benefits) industry anew on that.”
“Because they engaged the industry in 2017, 2018, 2019, but in a way, that clearly demonstrated their lack of preparedness to do so,” he said.
“They brought some doctors who were basically working for the cannabis industry, they brought others, but it was clearly unconvincing to our industry that what they were selling was good enough to buy.”
Aurora’s Martin agreed with Pojskic that more high-quality research could help increase the benefits industry’s acceptance of medical cannabis.
But he expressed optimism that such research is underway.
“You’re seeing it in key markets with key universities, and a variety of different agencies,” said Martin, citing the success of plant-derived cannabinoid medication Epidiolex in clearing regulatory hurdles.
“So, it absolutely can be done.”
Solomon Israel can be reached at email@example.com.