Dr. Kyle Kingsley is the rare cannabis entrepreneur who did not grow up a stoner. 4/20 is just another day in his world. Kingsley developed an interest in medical marijuana as an emergency room doctor in Minneapolis, measuring the price America paid for its three grand addictions—opioids, tobacco, and alcohol. Vireo Health (pronounced VEER-ee-o) was founded in 2014 to create and market a safe alternative for humanity’s propensity to self-medicate, starting off with a bid for one of Minnesota’s two medical cannabis licenses. The company is now in 10 states and Puerto Rico and preparing to enter the nonmedical cannabis market.

Growth notwithstanding, the buzz didn’t last long, as the industry gold rush was not enough to overcome various state regulatory challenges, the failure of several high-profile cannabis companies, an ongoing federal prohibition, and a national vaping scare. TCB sat down with Kingsley, 44, on a winter morning at Vireo’s glass-walled offices in Uptown’s WeWork complex.

TCB | Give our readers the short dossier on Vireo.

Kingsley | We started in 2014 and we won the Minnesota license that December. I was an emergency medicine physician and transitioned out of that. We started as Minnesota Medical Solutions. We’re publicly [traded] in Canada. We’re one of the largest cannabis companies in the United States in terms of geographic footprint; [we’re in] places like New York, Pennsylvania, Arizona, New Mexico, [and have] north of 400 employees. Our headquarters is here in Minneapolis. We were founded by a bunch of farmers/investors from Harmony, Minnesota. We’re majority Minnesota-owned, but we’ve been public for nine months.

Q | Is there a majority owner?

A | I actually control the company with some super-voting shares. We have a robust set of directors and we continue to move toward independent directors.

Q | Where do you see the bulk of the market?

A | I’m very passionate about replacing opioids, which we’re doing now. But I also want to replace alcohol and tobacco over time.

Q | Purely medical cannabis, then?

A | Right now, yes, but that’s a bit of an artificial distinction. It’s like some legislators have determined XY [and] Z are a medical use and A,B [and] C aren’t. Most people should have access to this to improve their lives. If someone has bad anxiety and they use this to help sleep at night, instead of scotch, is that a medical use or is it recreational? It’s health and wellness. Most fall in this middle space where they’re treating clinical symptoms—anxiety, depression, insomnia—with cannabis. I think it’s a heck of a lot safer than the alternatives, including pharmaceuticals.

Q | How did your background as an ER doc place you here?

A | The way you see it is drug-seeking behaviors, people with horrendous addictions and overdoses. Most [addicts] die from prescription opioid overdoses, but if they survive long enough, they transition to heroin because it’s more cost-effective. I started to see affluent suburban teenage girls overdosing on heroin because two years before they got into the medicine cabinet and found prescription opioids. The endpoint is escalating doses and death. I assign no fault to folks; a lot of addiction starts through injury or genetically driven chronic pain.

Q | There is still a stigma attached to cannabis relative to alcohol, despite a wide disparity in health impacts.

A | There’s no reason-based understanding for it. It’s less addictive, it’s less damaging. Alcohol is a public health scourge. We now know even for one drink a day, the cancer risk outweighs the cardiovascular benefit. Alcohol is terrible. We used to joke in the ER that if you replaced alcohol with cannabis, we’d be out of a job. People would be home eating Cheetos instead of getting in a fight in the bar.

Pre-1930 there was no stigma. Then the marijuana tax act came about and that’s where the idea of “reefer madness” came to fruition. There was little debate in Congress. It’s a fascinating story of a couple powerful people from special interests changing the entire context of a substance for decades. Cannabis is one of the most benign mind-altering substances out there. As an ER doc, it was something we disregarded because it had no clinical consequence.

Q | When I look at the cannabis business, the thing that stands out is that it is regulated ad hoc on a state-by-state basis. It’s not the Wild West, but it’s a kind of chaos.

A | We have these siloed state-based programs with very idiosyncratic regulatory structures.

Q | You can’t produce marijuana in one state and distribute in another, can you?

A | No. That’s the kind of diseconomies of scale that will have to be addressed. The scenario I anticipate will be that the feds will formally declare it a states’ rights issue. It’s unlikely they’re going to force [cannabis] on a state like Mississippi. It’s going to take longer than people think. They are going to punt on legalization but not intervene. Then it’s a matter of time before the FDA gets involved. There is a regulatory apparatus for tobacco, which is sanctioned killing. Cannabis is on the other side. I hope it doesn’t get thrown in with tobacco.

If someone has bad anxiety and they use [cannabis] to help sleep at night, instead of scotch, is that a medical use or is it recreational?

Q | The U.S. House passed legislation to allow you access to the banking system, right?

A | The SAFE Act? It’s stuck in the Senate right now. We work with half a dozen banks, so actual banking services aren’t the issue.

Q | What is the issue?

A | The issue is access to capital. A lot of [venture] funds don’t participate in the space and won’t until there are changes to federal law. We can’t [trade publicly] in the U.S. I would love to be listed in the U.S. instead of Canada. All the Canadian operators that don’t have U.S. operations can be listed here and access all that capital. That’s why they’re the biggest cannabis companies in the world. We have to list in Canada.

Q | How is the industry accessing capital then?

A | There are a few dozen significant players, particularly Canadian players based in Toronto. But 90 percent of the money is on the sidelines. We’ve accessed a lot of capital via a REIT and done sale/leasebacks on our facilities. But right now there’s a liquidity crunch in the space. Cannabis stocks have been hammered for the past nine months.

Q | Why is that?

A | A few bad players did some bad things in the space, and it’s such a small space that there’s a buyer’s strike. It’s hard to raise money. Lean operators like us will survive this and eventually thrive. We’re not bloated like some of our peers.

Q | Who is making money in cannabis right now?

A | I’m not aware of any company that’s free cash flow-positive. Certainly in Canada, they’re losing tons of money.

Q | One of the challenges in discussing this industry is it looks different in every state it operates in. But if I can generalize, can this be a good business if the sole market is medical sales?

A | It is a good business if you are allowed to sell flower [cannabis in smokable plant form]. Minnesota is one of the only medical states that doesn’t allow that. So that makes it nonviable.

Q | Explain.

A | [It’s] consumer preference and price point. You get the same medical bang for your buck for a third of the price. You get economies of scale on production relative to vaporizers or softgels.

Q | Is retail price still an inhibitor in Minnesota?

A | 100 percent yes. It will be a problem until flower is added.

Q | And does that require a regulatory change?

A | No, it’s a legislative change. There’s a ton of forward-looking legislators on both sides of the aisle [in St. Paul] and I think there’s enough interest that it is likely to pass this year.

Q | Illinois, the newest recreational jurisdiction, was the first to legalize by legislative act rather than citizen referendum, and it was presented as a social justice effort. Does the industry care how states do it?

A | A legislative process is cleaner and more thoughtful; it comes with more structure attached. For me, the most important thing with “adult use” [recreational] is you need to maintain safety standards and control the number of manufacturers to do that. I’ve really changed my tune; I’m open to adult use.

Q | So there was a time you were not?

A | I was indifferent. As an ER doc, I didn’t care about cannabis because it wasn’t making people sick or die. But now I object to any impediment to people of sound mind accessing things to improve their lives. I buy into this cognitive freedom concept. How sick does somebody need to be before you give them the tools to improve their lives? I’m excited to see how much alcohol we can replace with cannabis.

Q | Is there data on alcohol consumption in recreational cannabis states?

A | Younger people, who are more predisposed to cannabis use, drink less than in previous generations. Now, correlation isn’t causation, of course, [but] I would be shocked if we don’t learn of a direct correlation. There’s a big sober movement in California where young people are replacing alcohol with cannabis.

Q | Do you use cannabis?

A | I don’t have any access and it’s not my thing, but someday I may be that person [replacing alcohol with cannabis].

Q | The vape crisis focused attention on the phenomena of vaping. It entered the market as a smoking replacement, so it gained quick public acceptance and was not regulated. But the quantities of nicotine in a typical smoke are well in excess of that of a cigarette, and nicotine is highly addictive. That’s not a big issue for a smoker already addicted to it, but vaping has exploded among teenagers who are quickly addicted. And we know that nicotine is not a benign substance.

Now, cannabis is not nicotine. But should cannabis vaping not have to go through a more academically validated testing process?

A | The question is whether 30 years of vaping is going to be a problem. We won’t know for a long time. In our post-market surveillance of our products over the last six years in Minnesota and New York, we have not seen safety consequence from millions of uses. I’m very confident in the safety profile. For me, the benefits outweigh the risk.

There’s no basis for cannabis being a schedule 1 substance as it is [with ecstasy, LSD, meth, and heroin]. First, it needs to be rescheduled to facilitate research. Cannabis is already in widespread use in every state. Anybody that wants cannabis right now can access it. So it’s a question of how do we move forward as a society? Have illicit products filter in and produce a public health crisis or have something regulated? My preference is to move it into the light.

Q | The benefits in transitioning people to cannabis from more dangerous substances?

A | Or using illegal cannabis that’s filled with pesticides and adulterants. The illicit market is Russian roulette.

Q | How confident can consumers of legal cannabis be that they are getting the concentration of THC and the intended effect that the products claim? I’ve seen some rather specific claims in recreational states.

A | It depends on the state. In Minnesota, absolute confidence. We have to exceed pharmaceutical standards. California is the flip side. It was the pioneer, but the cart was ahead of the horse on testing and safety, similar to the CBD industry now. If you buy a lot of over-the-counter CBD products and test them, they either don’t have any CBD or a fraction of what they represent.

Q | Can you provide that potency surety in flower cannabis?

A | You can.

Q | So is vaping the one delivery system whose long-term safety is unclear?

A | It’s a broad category. Vaping of oils is an unknown. Vaporizing flower is probably pretty darn safe because you’re not jarring those free radicals [by] burning.

Q | But most legal and illegal cannabis vaping is oil right now, right?

A | Yes. But I would have expected to see more complications from vaporizing in the last six years if it was going to be a problem. [Recent vaping deaths were almost all from users of illegal THC products imported from abroad that would never have met regulatory standards in any state.] Thirty or 40 years of use could be problematic. I would encourage patients to vaporize flower rather than burn it or vaporize oils.

Q | Is there a state that you consider a model for its approach to cannabis?

A | Pennsylvania has best balanced patient aspects with safety, I would say.

Q | What are the problems in the Minnesota system?

A | Very expensive pricing. Most people are not able to access the program and they stay with the illicit flower market.

Q | What do we know about the demographics of the medical cannabis user?

A | Our average consumer is a female in her mid-50s with chronic pain. They’re a demographic really affected by the opioid crisis, and if we can displace opioid use, it’s pretty exciting.

Q | Is the medical community offering cannabis as an option to patients? Or is the first inclination to prescribe opioids, or say “Tylenol is all I can offer”?

A | There are more than 1,400 health care providers that certify [medical cannabis] patients in Minnesota. Rank-and-file primary care physicians are less aware than specialists, but they are coming around. Physicians are evidence-based last movers, and some won’t come around until the FDA endorses it.

We used to joke in the ER that if you replaced alcohol with cannabis, we’d be out of a job. People would be home eating Cheetos instead of getting in a fight in the bar.

Q | Let’s talk about the recent explosion of legal hemp-based CBD. Is there a danger to Vireo that the marketplace becomes confused amid all the hype, and people dismiss all of it?

A | It’s tough. Hemp, to be clear, is a subsegment of the cannabis plant, with less than 0.3 percent THC. Hemp is grown for seed, the fiber. It’s an amazing and diverse plant. The CBD thing is very complicated. All these stores will give you a certificate of analysis but there’s no way to know whether the product matches because there’s no regulation. Ironically, our [CBD-dominant] products are competitively priced, even with all the regulatory overlay.

Q | If CBD provides the benefits of THC, what is THC’s necessity?

A | THC is a much better pain medication than CBD. Most people respond best to a combination of the two. THC is the most therapeutically beneficial. It also alters you. THC makes you hungry, makes you happy. I’m not afraid of people being a little bit high. The alteration is often tied to the therapeutic effect.

Q | Is there enough information for people to manage their use of medical cannabis and determine the right dosage?

A | Everybody’s physiology is different. It’s not like aspirin. Eventually we’ll be able to parse genetically how people will respond, but there is a lot of trial and error. We start low and go slow. We have pharmacy technicians in all our dispensaries. It’s a balancing act of side effects versus relief. We have 60 different products in our dispensaries, and they all affect people differently.

Q | The alcohol business is not vertically integrated by regulatory design. What about cannabis?

A | We are vertically integrated in Minnesota. In other states, we wholesale products to providers. Our sweet spot is the technical aspects of processing, creating proprietary products with evidence basis. I’m particularly interested in pain, sleep, and alcohol replacement.

Q | Where do you operate retail dispensaries?

A | Pennsylvania and New York.

Q | Is the retail business good or a free-for-all?

A | Depends on the state. If it’s well regulated, it’s a good business with one exception, and that’s taxation. There’s an obscure tax code called 280e that forbids deduction of standard business expenses for distribution of controlled substances. I have a pharmacist delivering life-saving medicine to a kid with a seizure disorder, and we can’t deduct the bulk of that pharmacist’s salary as an expense. Federally we’re raked over the coals on taxation. It’s why it’s so hard to compete with the illicit market.

Q | Is there a sense that it’s a generational issue at the governmental level?

A | It’s the old guard in D.C. that’s the problem. Even the elderly, overall, support the industry.

Q | Still, I don’t get the sense there’s quite an organized effort on a national level to “normalize” the industry.

A | It has taken a while for professionalism to creep in. My first conference in the industry was in Denver in 2014 and I couldn’t have a conversation with someone who wasn’t stoned. We also don’t have the economic chops to participate in D.C. as an independent lobbying entity. There are also powerful special interests opposed to the legalization of cannabis—the private prison systems, tobacco, alcohol, big pharma. How else can you explain 92 percent public support and there’s no movement? I’m not a conspiracy theorist, but I do appreciate how the sausage gets made.

Q | Private prisons?

A | Absolutely. They’re loaded, particularly in the South, with marijuana sentences, three strikes and you’re a 20-year cash cow.

Q | Vireo had a seven-figure loss in the last quarter. Talk a bit about your P&L.

A | We’re at an inflection point. We’ve had to modulate our capex plan because of the capital markets, decrease operating expenses; 2019 was suboptimal but we built a lot of infrastructure to capitalize on growth. We have six markets on the cusp of adult-use legislation, which really opens things up.

Q | So it’s a waiting game?

A | We’re hunkered down from a cost standpoint, hesitant to raise additional capital with the current valuations. Our enterprise value is maybe $125 million, but if we were to liquidate our [state] licenses, we would get multiples of that. The last sale of a New York license was in excess of $110 million. Being a multi-state operator is a safety valve for us. If we need to sell one license to access capital, rather than through the public markets [in Canada], that’s probably our path.

Q | What are those potential adult-use markets?

A | New York, Pennsylvania, Maryland, New Mexico, Arizona, Rhode Island. Minnesota is not quite ready for adult use. Flower is an important first step.

Q | Do you need a Democratic-majority state legislature and governor to get there?

A | That facilitates things as a broad generalization. You have reasonable people on both sides of the aisle, though. The dynamic is not identical from state to state.

Q | Was it wise for Minnesota to only authorize two manufacturers? The state’s system seems attenuated compared to others.

A | It was. It’s much easier for regulators to regulate two in Minnesota or 10 in New York than thousands in California.

Q | A criticism has been that Minnesota will be difficult to transition to adult use because there is no dispensary network, whereas California and Colorado had hundreds of retail outlets when they were still medical use.

A | It was an easy conversion in California except that there was no testing, and many products had pesticides, heavy metals, and random potency testing. Minnesota is doubling the number of dispensaries to 16. Do you double again to 32 before adult use? You could. You don’t need hundreds of dispensaries to serve people in the short term. Right now, Minnesota’s retail apparatus is a bit small, but you’re not talking about converting to adult use in the next year or two.

Q | Where do you expect Vireo to be in three to five years?

A | We will be a dominant player with regard to proprietary products, intellectual property, and the science of cannabis. I think that’s the future in the space. It’s not producing a commodity. We’ve seen with CBD [the non-psychoactive component of cannabis] how the prices have fallen through the floor as it commoditized. The same will happen with THC [the psychoactive component of cannabis]. [The winners are] going to be substantial brands built on [a] proprietary secret sauce.

Q | What does this look like at maturity? Is cannabis sold in grocery stores?

A | Many products will go the FDA route and be treated like pharmaceuticals. But there will be an over-the-counter component similar to tobacco. I hope it replaces tobacco. You will go into a gas station and get well-regulated cannabis products. That’s pretty compelling. That may be 30 years from now, but that’s the endpoint. How does something with this safety profile not end up available in a more widespread way?

Adam Platt is TCB’s executive editor.