Pubdate: Wed, 17 May 2017
Source: National Post (Canada)
Copyright: 2017 Canwest Publishing Inc.
Author: Sunny Freeman
Page: FP 1


AGRICULTURE * MedReleaf was top beneficiary, documents show

Veterans Affairs paid out $44.5 million for medical marijuana expenses
in the year before Ottawa cracked down on soaring reimbursement costs
- - more than three times what it covered in the prior two years combined.

The department covered 3.7 million grams of marijuana at an average
cost of $12.01 per gram from October 2015 to September 2016 - 30 per
cent higher than what it considers market value.

The cost breakdown was included in documents released under an
access-to-information request ahead of a Veterans Affairs policy
change this month that will significantly reduce the amount of medical
marijuana eligible for reimbursement.

The move is part of an effort to curtail government spending on
skyrocketing medical marijuana costs as the number of ex-soldiers
claiming medical marijuana expenses rises rapidly.

Veterans Affairs Minister Kent Hehr announced in November the
department would cap reimbursement at $8.50 per gram - the so-called
"market value"- and reduce the eligible amount to three grams per day
from 10 for new patients. As of May 22, the volume limit will apply to
all veterans.

Reimbursement costs in the four months since the November policy
change totalled $16.8 million, compared with $13 million spent in the
entire two years from October 2013 to September 2015, suggesting
spending is still on an upward trajectory despite recent cost
containment measures.

Veterans Affairs began a review of its medical marijuana reimbursement
policy in March last year following an auditor general's report that
found program costs were ballooning amid a massive increase in users
and would soon account for nearly one-third of all federal drug
coverage for veterans.

The review was completed in April 2016, but the changes weren't
announced until November. In the meantime, allegations emerged that
some licensed producers were abusing the system with aggressive
campaigns seeking out veterans by paying fees to doctors and clinics
for patient referrals and purposely directing veterans to their most
expensive products.

Veterans Affairs told the Financial Post it cannot provide details of
investigations into specific companies due to privacy regulations, but
said it conducts regular audits on licensed producers and if
questionable practices are identified it can deregister the provider
and refer to Health Canada for further action.

A departmental review found that retired soldiers were authorized for
10 times the amount authorized for other patients. At least seven in
10 veterans were being reimbursed for amounts greater than the new
three-gram limit, according to the documents.

The department also found that one unnamed physician was responsible
for 57 per cent of veterans' medical marijuana authorizations.

It noted that "some family members have been distressed by how easily
their veteran has been able to obtain MM (medical marijuana) from one
heavy prescriber," according to minutes from a meeting of experts.

Veterans Affairs did not address those specific allegations when it
announced changes to the reimbursement program, despite their
potential impact on rising costs.

Taxpayers covered $63.7 million in medical marijuana reimbursements
for veterans last year, compared to just $19,000 in 2008, when five
retired soldiers were reimbursed.

The department's reimbursement costs have exploded since 2014 when the
Conservative government launched a free market for medical marijuana
and prices shot up to as much as $14 a gram from $5 per gram.

As of March, 4,474 veterans had their cannabis bills covered, up 154
per cent from the 1,762 covered in the year prior.

Veterans Affairs is among only a handful of Canadian institutions that
cover the cost of the drug, which makes veterans a particularly
lucrative market opportunity for licensed marijuana producers.

According to the documents, licensed producer MedReleaf Inc. - the
biggest beneficiary of medical marijuana reimbursements - charged
Veterans Affairs $22.4 million, half the total amount the department
paid out to cover veterans' medical marijuana costs between October
2015 and September 2016.

The Markham, Ont.-based company, which plans to list on the Toronto
Stock Exchange soon, booked $30 million in revenues in the nine months
ended in December, representing growth of 141 per cent from the
previous year, according to a prospectus document filed May 9.

A "significant portion" of revenue came from veteran sales, according
to the filing, however a spokesperson declined further comment because
the company is in a quiet period ahead of the initial public offering.

MedReleaf is conducting a study on cannabis for veterans with
post-traumatic stress disorder, has a separate shopping site for
veterans and holds meetings and events targeting former soldiers.
Spokesperson Darren Karasiuk declined to say whether it pays referral
fees to clinics and doctors.

The government's policy changes started to take a toll on MedReleaf's
sales as early as December, when it offered a discount to offset the
price difference between veterans' preferred strains and the $8.50 per
gram reimbursement cap. It had been charging Veterans Affairs an
average of $13.02 per gram, according to the government's cost breakdown.

The company's regulatory filings identified future changes to the
veterans' reimbursement program as a risk, noting that some veterans
will be authorized to be exempt from the limit. "If a significant
number of the company's eligible veteran patients do not obtain such
an exemption, MedReleaf's sales and revenues could be adversely
affected," it said in the prospectus document.

Leamington, Ont.-based Aphria Inc. charged the department the
second-highest bill: $6.6 million at an average cost of $12.04 per
gram, documents show. Retired soldiers represent about 20 per cent of
its patient base and account for half of its revenue. As part of its
patient acquisition strategy, the company pays referral fees to
"patient aggregators" such as clinics.

The reimbursement cap hit the company's most recent quarterly revenues
as its average selling price decreased from $8.18 per gram to $7.85
per gram even as the volume sold increased.

However, the impact of the new three-gram reimbursement limit will be
mitigated by strong growth in other areas of the company's business,
chief financial officer Carl Merton said in an email.

"We anticipate that the existing demand for our products from
registered patients, the demand associated with new registered
patients in the quarter and the increased demand for wholesale product
(sales to other licensed producers) will increase in the quarter,
offsetting the decrease in grams paid for by Veterans Affairs."

While licensed producers cope with the impacts of the changes on their
bottom line, the new policies have already reined in taxpayer-funded
reimbursements. Even as the overall program costs continue to rise as
the number of veterans participating soars, the average cost per
patient in the six months since November's announcement was $5,872,
down from $10,996 in the six months prior - a drop of 47 per cent.
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MAP posted-by: Matt