POT INC.

Big Businesses Have Sprung Up Around the Fuzzy Legal
Boundaries of Marijuana Cultivation in Canada. Are Some Crossing The
Line?

Part Two of an Exclusive Vancouver Sun Investigation by Ian
Mulgrew.

Dr. Paul Hornby, the grey-haired, ponytailed scientist who leads
Advanced Nutrient's research and development team, admits he's
paranoid. 'I dream of the day when I can do this work without fear of
the door being kicked in,' he confided. 'Marijuana is a herb -- a
very, very useful herb. But the freedom to do research with no risk is
just a dream.'

Hornby pleaded guilty in March 2003 to growing marijuana for the B.C.
Compassion Club Society. He received a one-year conditional sentence
that was upheld on appeal.

Police seized nine boxes of marijuana weighing 18 kilograms, seven
plastic bags of buds weighing 980 grams, 43 dried plants, plus 367
living plants and 1,892 clones.

The estimated street value of the pot, they said, was more than
$500,000 -- but all of it was being sold at cost to medical patients,
who saw the prosecution of their main grower as police
persecution.

Hornby's work today for Advanced Nutrients of Abbotsford, he
emphasized, does not require him to break any laws.

"Any activities that directly involve cannabis plants are carried out
by other people," he said. "All I do is analyse data and assist in
product development."

Hornby has every reason to feel nervous -- marijuana remains an
illicit drug and there is considerable controversy about what is legal
activity and what is illegal.

The owners of Advanced Nutrients, which annually produces $30 million
worth of plant food and fertilizer products specially designed for
marijuana, found themselves charged in 2001 with serious drug offences.

But after two years, all of the charges were stayed and police
returned the bulk of the assets they had seized in their
investigation.

As a result of what they consider police harassment, the principals of
Advanced Nutrients became vocal opponents of the marijuana law and
harsh critics of the government's failure to help ailing patients
obtain medicine.

They believe sick people should have access to medical marijuana and
are committed to helping them get it.

If there is one reason the Fraser Valley plant-food and fertilizer
firm has become an international force in the booming marijuana
industry, it is the work of Hornby and his colleagues.

Not only have they designed and devised more than 100 proprietary
products for growing marijuana, they also have conducted some of the
most extensive private research into the plant. They have produced for
Advanced Nutrients sophisticated knowledge about how to manipulate the
chemical components of the pot plant and produce a multitude of
different strains from the two most used types of marijuana --
cannabis sativa and cannabis indica.

Hornby's products - especially Big Bud and Voodoo Juice, for example,
are designed to nurture marijuana that grows fast and produces large
resinous buds with a high amount of THC (delta9-tetrahydrocannabinol)
- - the predominant member of a family of substances known as
cannabinoids that give the plant its kick.

The University of Mississippi, the only official American facility
growing, analysing and providing pot for the U.S. government, tested
Advanced Nutrients' suggested feeding system. It produced buds that
were 20 per cent larger in terms of biomass and THC levels that were
three times higher than the norm.

And Advanced Nutrients is only one of several companies that hope to
cash in on the nascent but potentially massive medical marijuana
market based on these agents.

B.C. Cannabis Club Society founder Hilary Black (who was distributing
Hornby's pot), dean of cannabis researchers Dr. Lester Grinspoon from
the Harvard Medical School and Toronto lawyer Alan Young have joined
Cannasat Pharmaceuticals Inc. The Toronto-based firm was created by
former media mogul Moses Znaimer, clothing retailer Joseph Mimran and
Hill & Gertner Capital Corp.

The reason is simple -- people suffering from numerous ailments have
found pot and its derivatives offer relief and research indicates some
of the 400-plus compounds in the plant hold enormous medical potential.

Interest in the plant's medicinal properties also has been fueled in
the last decade by the discovery of an endocannabinoid system within
the body that chemicals in marijuana stimulate.

The respected journal Nature Medicine said this family of substances
"has an important role in nearly every paradigm of pain, in memory, in
[brain] degeneration and in inflammation."

As well, marijuana appears to be relatively benign with few
side-effects: Aspirin as a drug is medically a much more dangerous
risk for children than a pot plant. Even peanut butter poses a
phenomenally greater harm, given the prevalence of nut allergies.

In Canada, the government is supplying roughly 1,000 people with
marijuana for medicinal purposes or with the paperwork to allow them
to grow their own.

There are also compassion clubs across the country that are illegally
supplying nearly 10,000 other people but that police won't close for
fear of public outcry.

Numerous other Canadians who rely on the drug for medical relief buy
it on the street or rely on their friends.

I have lost two pals in recent years to cancer and both found smoking
marijuana the only effective drug for nausea caused by the
chemotherapy. When my mother underwent the debilitating treatment a
year ago, I flew to Ontario to give her a bag of organic B.C. bud to
help her maintain her appetite.

Advanced Nutrients has a sheaf of similar testimonials from patients
who believe the quality of their lives, if not their continued
survival, is because of the marijuana the company has provided or the
support they received with their growing operations.

Patient groups say as many as one million Canadians want access to
medical marijuana but are being frustrated by the politics and the
stigma surrounding the drug.

Indeed, medical marijuana patients are among the loudest critics of
government policy and the media for treating the debate about their
needs as some kind of stoner joke.

Across the United States., too, in spite of heavy anti-marijuana
propaganda from Washington, a dozen states have medical marijuana
initiatives and have moved to decriminalize the plant.

Although the U.S. federal government continues to wage a global jihad
against the drug, California has more than 60,000 registered medical
marijuana users and cities such as Oakland have two dozen or so
licensed compassion clubs.

The illicit, primarily recreational marijuana market in Canada is
estimated at $7 billion -- the medical market by some estimates may be
in the neighbourhood of $20 billion.

Investors and even conservative think tanks such as the Fraser
Institute think that because of the economics and the tax revenue
potential, it's only a question of when, not if, the marijuana laws
will be changed.

And in the jockeying that has already begun among companies, people
such as Hornby and others who have long research-based involvement
with the plant, are being courted and hired.

He joined Advanced because of its commitment to medical marijuana and
activism to reform marijuana laws.

"I was arrested in connection with providing medicine," he said. "The
arrest, trial, conviction and media coverage were travesties of
justice. I was a non-profit provider and researcher of medicinal
herbs. It was totally wrong for law enforcement to have spent its
resources to attack me."

Some judges in other cases have been sympathetic to that argument --
that the criminal law should not be used against people producing,
selling, possessing or consuming marijuana for medical reasons.

Cultivation, trafficking and possession charges laid against
compassion clubs such as the Vancouver Island Compassion Society have
been tossed on the grounds the clubs are providing a needed medicine.

"The VICS has provided that which the government was unable to
provide: a safe and high quality supply of marijuana to those needing
it for medical purposes," said B.C. provincial court Judge Robert
Higinbotham.

Charges against the Toronto Compassion Club and others also have been
stayed for "not being in the public interest."

Advanced Nutrients has so far been the most aggressive company trying
to open that door to what is clearly a clamouring market.

It helps pay for marijuana magazines, lobbyists and various activist
events.

It has hired Carol Gwilt, who is facing charges of trafficking in
marijuana after Vancouver police dramatically raided her Commercial
Drive coffee shop last summer. She has chosen a trial by jury and part
of her defence will be that the shop was dispensing medicine, not
trafficking in drugs.

Advanced also helped finance The Cannabis Health Magazine based in
Grand Forks, although its advertising has since been scaled back.

(The magazine is one of the most articulate and reputable sources for
information on medical marijuana issues and patient concerns. Unlike
many pot-culture publications, it eschews associations with the
recreational marijuana industry.)

Other firms are being more low key.

Therapeutic Cannabis

Established in January 2003, a Toronto-based company called Cannasat
intends to produce therapeutic cannabis products -- just like a
traditional drug company, according to vice-president Andrew Williams.

Cannasat wants to conduct large-scale clinical trials with the intent
of seeking approval from Health Canada for new marijuana-based
medications.

To facilitate that goal, the company has bought a minority interest in
Saskatoon-based Prairie Plant Systems Inc., the 15-year-old private
biotech firm with an exclusive multi-million-dollar contract with
Health Canada to grow marijuana.

Pot grown by the company in a mineshaft at Flin Flon, Man., is
distributed across Canada by Ottawa to those who qualify under the
federal medical program.

Prairie Plant Systems is the only licensed grower and distributor of
cannabis in the country. Theirs is the only pot production facility
that meets the Good Manufacturing Practices biosecurity standard
required by the government.

Around the globe -- in the United States., in Israel, in France, in
the U.K. and in the Netherlands -- other private and public companies
are researching and developing similar cannabinoid-based medicines.

But most are examining specific, synthesized components of the plant
rather than the organic, whole-plant, herbal medicine tack favoured by
Hornby and Advanced Nutrients.

GW Pharmaceuticals, a U.K.-based company founded in 1997 by Geoffrey
Guy, is considered a leader in the field in part because of its
partnership with one of the most experienced pot growers, Hortapharm,
a Dutch company founded by U.S. hippies.

Hortapharm, whose chief grower is said to have created one of the most
popular strains of marijuana, Skunk No. 1, has a licence from the
Dutch government to grow marijuana for research purposes.

GW expects that the strain-specific research Hortapharm has done over
the years (which is very similar if not identical to what Advanced
Nutrients has been doing) will help it develop non-smoking-based products.

Later this year, GW hopes to market in Canada a marijuana-based spray
called Sativex.

The firm's success and the announcement that pharmaceutical giant
Bayer was investing nearly $100 million to become a partner were among
the developments that excited the number crunchers at Toronto's Hill &
Gertner.

"We found out they were publicly traded and had raised $150 million,
had a market cap of between $300 and $600 million without even having
a product on the market," Williams said. "So, as investment bankers,
we looked at that and went, 'Hey, this is interesting!'"

Medical marijuana, he said, wasn't something the Bay Street suits had
heard about but the more they dug into the issue, the more they liked
what they saw.

"This plant is incredibly versatile -- which is probably why so many
people use it," Williams enthused. "Medically, there seems to be some
real medical applications."

So they hired Harvard's Grinspoon as their scientific adviser.

Grinspoon has been proselytizing about the benefits of marijuana for
more than 25 years. He put forward the first business proposals to
develop whole-plant products and has been a tireless crusader for
medical pot.

After a lifetime of studying marijuana, here are Grinspoon's
conclusions, which are prominently featured in Cannasat's promotional
literature:

"There is very little to support the proposition that smoking
marijuana represents a great risk to the pulmonary system. Although
cannabis has been smoked widely in this country for four decades now,
there are no reported cases of cancer or emphysema which can be
attributed to marijuana.

"I suspect that breathing a day's worth of the air in Houston or any
other city with poor air quality poses more of a threat than inhaling
a day's dose of smoked marijuana.

"Furthermore, those who are, in today's anti-smoking climate,
concerned about any toxic effects on the pulmonary system can now use
a vaporizer, a device which frees the cannabinoid molecules from the
plant material without the necessity of burning it and thereby
producing smoke.

"As for the psychoactive effects, I am not convinced that the
therapeutic benefits of cannabis can be separated from the
psychoactive effects nor am I persuaded that that is always a
desirable goal. For example, many patients with multiple sclerosis who
use marijuana speak of mood elevation as well as the relief of muscle
spasm and other symptoms. If cannabis contributes to this feeling
better, should patients be deprived of this effect?"

But there really isn't much existing research into marijuana's health
effects.

What there is, indicates the plant could be enormously useful in the
treatment of AIDS, multiple sclerosis, wasting syndrome, epilepsy,
glaucoma, hepatitis C . . . and a host of other ailments.

"I think a whole new class of drugs will be derived from the plant,"
Williams said. He pointed out that the opium poppy is used to produce
more than 20 drugs on the market today, but there are currently only
two medications based on marijuana available -- both used primarily in
cancer treatment.

"We think there is lots of room for lots of different drugs to be
developed."

But the strident anti-pot policies of successive U.S. administrations
has fettered research. In the United States., the medical program is
based at the University of Mississippi and it is it is next to
impossible for researchers anywhere else to get needed approvals.

In Canada and Europe, the climate is less oppressive.

Current Program 'Doomed'

Cannasat's Alan Young, the Toronto lawyer at the forefront of the
legal challenges launched against the criminal marijuana law over the
last decade, thinks Ottawa's failure to offer a viable medical program
will force open the marketplace.

"Due to a quirk in the way that litigation unfolded," he explained,
"we managed to merge the medical and recreational-use issue such that
the health and vitality of the criminal prohibition depends on having
an effective medical program."

The current controversial and expensive federal program is doomed
because it is being so ineptly run by Health Canada, Young and others
believe.

"I was originally recruited in 2003 by venture capital people to see
what kind of market was available for cannabis because there was a lot
of feeling in 2003 that we were moving towards legalization," Young
said. "People actually thought we might be into that large, booze-like
market. I advised the venture capitalists that the only market
available right now is to develop the medical market."

Young said Cannasat is in the initial stages of raising capital,
submitting protocols to Health Canada and developing a working
relationship with Ottawa.

He was peeved the federal government is giving GW an early entry into
the market, even though its home country, the U.K., remains leery.

"Geoffrey Guy, founder of GW, his mantra is we will develop marijuana
that does not get you high," Young said. "One of the reasons I'm not
supporting GW and their product is I don't believe that's a
possibility. I also think it demonizes the plant unnecessarily and it
raises the spectre of genetic modification. I don't know where Health
Canada thinks they are developing good policy by approving a product
that can't be approved in its own country."

In spite of Young's criticism, there is no question that the market
will offer different methods of administration for marijuana-based
medication and both synthetic and organic products.

If you need a quick-action response, you will probably have to inhale
the drug, because if you have nausea, for instance, you can't wait for
an oral preparation to be metabolized through the liver. If you have
chronic pain, you may want a patch that delivers a steady, controlled
dose.

Regardless, everyone believes a whole class of people will choose to
continue smoking, whether they roll it or use some sort of vapourizer.

"What makes it interesting for us, too," Williams said, "is that it's
really tricky to describe what you are doing because so many people
have such strong feelings about this plant. There's a lot of
misinformation, a lot of myths. Our mission is really to understand
the science. We want to do strain-specific research similar to what
Hortapharm did. That's our goal."

But before the company can do anything, the long arduous road of
regulatory approval lies ahead. And to do clinical trials, it must
raise tens of millions of dollars -- which will probably require a
public offering.

"We're excited," Williams said. "We look at this as a long-term R & D
play. There will be lots of competition and lots of companies
interested in this plant. It is a pretty remarkable plant when you get
into it. Cannabis is so safe -- you can't overdose on it, you can't
smoke yourself to death and if you look at the side-effect profile of
other drugs that have got approved . . . well, it's only because of
the American War on Drugs and the incessant media barrage against cannabis."

Like others in the field, he emphasized that marijuana was outlawed
without debate or any scientific evidence to support a prohibition --
in the U.S. and Canada, historians have established, the anti-pot laws
were driven by questionable social concerns.

Different Strains, Different Pains

Back at Advanced Nutrients, Hornby says it was Black who initially
really turned him on to the plant's medicinal properties, even though
he has toked since he was a 15-year-old. She blew his mind, he said,
with her knowledge of what specific strains of the plant would do.

One strain, for example, would relieve symptoms of muscular sclerosis
but do nothing for glaucoma. Another strain of the plant seemed to
help with glaucoma but do nothing for nausea.

"The strain-specificity blew me away and I've been on that track since
that time. I wanted to know why," Hornby said.

"When we look at the chart of cannabinoids (in the plant), we see that
four or five of these compounds appear in different ratios. The THC
might be up here and the CBD (cannabidiol, another of the family) down
here. But if you put one up to here, you start going to sleep, if you
put another down here, you get more of a head stone. Right? It depends
where the CBD is in relation to the THC.

"This is my challenge now -- to figure out what cannabinoid ratio will
effect MS, which will effect glaucoma, which will effect epilepsy."

Hornby also runs a company called Hedron Analytical, which tests and
develops plant and human nutrition supplements, vitamins, and other
substances.

And at the moment, he said, he is investigating oral preparations of
marijuana.

He developed a method for pre-treating organically grown cannabis to
move the level of THC up or down and to produce an activated oral dose
of the medicine as if it were a brownie or a capsule.

"We have the first standardized medicine ever," he said. "We developed
it. We have it on the shelf. We do it the same way every time so we
measure how much is there and get a standardized product --
50-milligram caps. Whatever you like. And we're doing case studies
right now with six or seven people with these capsules to see the effects."

Worldwide Spinoffs

Robert Higgins, co-founder and president of Advanced Nutrients,
believes it is the work of Hornby and others that is fueling his
company's explosive growth.

It has offices in Australia, four distributors in the U.S., three
distributors in Canada, distributors in the U.K., the Netherlands,
Italy, Germany, France, Switzerland, Belgium and Spain.

"We have interest now from other parts of the world to distribute
through Asia and in the Middle East," he said. "And all the research
we've done -- we could apply that technology to the world's food
situation to give bigger yields."

He and his partners Michael Straumietis and Eugene Yordanov have
already envisioned a spinoff company, Advanced Plant Sciences, focused
on products to increase food production, improve golf courses and
cater to professional rose and orchid gardeners.

"What we have over our competition is we are researching cannabis,"
Higgins said.

"We have the largest facility anywhere in the world. We have doctors,
chemists, with a long history researching cannabis, trying to unlock
the mysteries. We talk about cannabis, we talk about marijuana, and we
do hard research -- about $500,000 a year on R & D."

He paused.

"Think about this: Health Canada has issued licences to people who
qualify for a medical exemption that permits them to grow and use
marijuana. These licensees are now sent out onto the street to find
cannabis. Take those cannabis plants or seeds home with them and, hey,
figure it out yourselves, kids, grow your own medicine."

Higgins is not alone in ridiculing Ottawa's marijuana program. It has
been attacked by many patients for providing only one strain of
marijuana, for providing pot that isn't optimum for smoking and for
having no cultivation support for those who want to grow their own.

In the Netherlands, which set up its medical program two years ago,
the government offers one of each main strain of pot -- an indica and
a sativa -- because they provide different kinds of relief.

"With all the varied strains," Higgins said, "we've been able to break
down the different cannabinoid profiles and determine which plants
work very, very well for pain management, which for appetite
stimulation. Some are excellent for MS patients, some are not. We are
researching which components, which plants, and which level is ideal
for which person with a given condition."

The government is doing none of this research, he complained, and is
stonewalling those who would establish their own program.

Among many other groups, the Senate and the Canadian Medical
Association have called for research on cannabis.

"No science lab, no licensed researcher or doctor allowed to grow
cannabis -- how insane is that?" Higgins said.

"Yet they are handing out these licences to sick people -- sick and
dying people."

Advanced Nutrients, he boasted, runs a program for marijuana exemptees
providing equipment, know-how, everything they need to set up a safe,
sensible growing operation.

In turn, they provide the company with tissue samples of the plant.
During the growing season, that allowed the experts to determine what
nutrients the plant needed.

At harvest time, the finished product allowed Advanced to test and
determine the results of that particular feed regime.

If you have a problem growing, the company has a hot-line number
staffed by a man named Tech Mike, who can diagnose and prescribe
solutions for everything from mites to the brown patches caused by a
chemical imbalance -- even if you're not using Advanced Nutrients
products and even if you're not a medical grower.

I sat with Tech Mike for a while in his office and listened to him
give a half-dozen American growers detailed advice on improving their
crop.

Most had spent considerable time working up the nerve to dial the
number, finding a phone booth and swallowing the fear that they were
about to talk to a Drug Enforcement Agent.

"We have about 20 labs," Higgins said. "It's all legal, but we still
feel the researchers are forced to dance around the bush and have to
work with the sick and dying people rather than having their own lab.
I think UBC should have a lab."

Higgins believes Advanced remains the leader in Canada in terms of
medical marijuana research in spite of the legal and regulatory problems.

"And we are going to maintain that position by employing the best
people we can," he said. "It's opening up. A lot of states have
compassion clubs now. They have medical marijuana laws in place and
large facilities that manufacture medical marijuana. Even with the
suppression, as it stands right now, it's not hindering us as much as
people think. If it becomes legal, our company will explode."

He and his partners expect to continue to expand the company until
sales hit about $100 million, then take it public.

"This industry is not dominated by large organizations," Higgins
insisted. "It's not the Hells Angels, it's not the Big Circle Boys,
it's not the Vietnamese. It's people like you and me. Hopefully the
U.S. will snap out of it and there will be some social change."

[sidebar]

CORPORATE CANNABIS

Advanced Nutrients is only one of several companies that hopes to cash
in on the nascent but potentially massive medical marijuana market.

B.C. Cannabis Club Society founder Hilary Black as well as Dr. Lester
Grinspoon from the Harvard Medical School -- he's known as the dean of
cannabis researchers -- and Toronto lawyer Alan Young, have joined
Cannasat Pharmaceuticals Inc

The Toronto-based firm was created by former media mogul Moses
Znaimer, retailer Joseph Mimran and Hill & Gertner Capital Corp.