COMPANY LOOKS TO CREATE CANNABIS-BASED MEDICINES

Robert Melamede first used marijuana at age 16 - just as "a goof," he said.

"It was fun," he said. "You'd laugh, you'd do silly things."

These days, though, he's quite serious about marijuana and what he
sees as its myriad benefits.

Melamede, a biology professor at the University of Colorado at
Colorado Springs, is president and CEO of Cannabis Science, "an
emerging pharmaceutical cannabis company." The startup, which is
looking to establish its offices in the Springs, has about 10
employees, including a lab director. The company's goal: to tap into
the growing use of medical marijuana in Colorado and elsewhere by
developing cannabis-based medicines. (Cannabis is the botanical name
for the plant that marijuana comes from.)

Cannabis-based medicines would have the same health benefits as
marijuana, Melamede said, but with one key advantage: They could be
covered by health insurance. Right now, "anybody who's a medical
marijuana user, they don't have marijuana covered by health care."

There's precedent for such medicines. Sativex is a natural marijuana
extract developed by a British company, GW Pharmaceuticals. Bayer
Healthcare markets Sativex, which comes in the form of an oral spray,
in Canada to relieve pain related to multiple scleroris and advanced
cancer; in the United States, it's been approved for use in clinical trials.

Cannabis Science, partnering with an international
regulatory-compliance firm, is working toward approval from the Food
and Drug Administration for a clinical trial using a cannabis-based
medicine to treat post-traumatic stress disorder, or PTSD. After
that, it's targeting the chronic-pain market.

When all that might happen is one of the big unknowns.

"I couldn't give you a time frame for getting this done because there
are simply so many variables," said Richard Cowan, chief financial
officer for Cannabis Science.

Ideally, Melamede said, the company could submit an application to
the Food and Drug Administration within a few months. After that, "it
would very much depend on whether the FDA feels it is important
enough to fast-track us."

Early on, the company looked to follow in GW's footsteps and eyed the
Canadian market. But, Melamede said, "the Canadian bureaucracy is no
better. And the market is much smaller. So why not just go for the gold?"

Bumpy Beginning

Cannabis Science has its roots in Cannex Therapeutics, a San
Francisco-based company founded by Steve Kubby, an entrepreneur,
medical marijuana user and former Libertarian Party candidate for
California governor. Cannex became a public company last year
through a reverse merger with an oil company, Gulf Onshore; a reverse
merger is a fast-track way for a private company to go public without
a conventional initial public offering.

Shortly after, the company was renamed Cannabis Science. In a rocky
start, though, the board of directors ousted Kubby as president and
CEO last July and replaced him with Melamede, who had been science
officer. The public falling out involved accusations hurled against
both sides; a filing by Cannabis Science with the Securities and
Exchange Commission accused Kubby of "inappropriate and unauthorized"
behavior on several fronts.

With the change in leadership, Cowan said, the focus of the company
also changed: to Melamede and medical marijuana patients in Colorado.

"We refocused everything around him and around Colorado," Cowan said.

GW's approach to developing a cannabis-based medicine was a
conventional one for a pharmaceutical startup, Cowan said, with
millions of dollars raised upfront and everything "hush hush."
Cannabis Sciences' leaner approach is to farm out as much as it can
and to take advantage of starting in Colorado, "where the public is
clearly and strongly behind medical marijuana. We have both patients
and providers to collaborate with and study."

Melamede's reputation in the medical marijuana arena, meanwhile, is
the company's "secret weapon," Cowan said.

Melamede is a medical marijuana patient himself, using it to relieve
chronic back pain and other issues. At UCCS, he teaches a course on
medical marijuana - "one of the only ones in the world," he notes. He
calls marijuana "an anti-aging drug with incredible health benefits."

And one of the groups he sees reaping those benefits is soldiers
struggling with PTSD.

A self-professed "old hippie" from the Vietnam War days, "I've
learned over the years to really respect much of the military and
separate the military from the government," Melamede said. It tears
at him, he said, to see soldiers suffering after their return from
Iraq and Afghanistan - and the high rate of suicide among them.

Mitch Earleywine, an associate professor of psychology at the State
University of New York in Albany and a member of Cannabis Science's
Scientific Advisory Board, conducted a survey of more than 1,300
veterans and others with PTSD. "Veterans reported that cannabis
helped nearly all symptoms of PTSD, with special emphasis on three
important components: sleep disturbance, irritability and disturbing
memories," he said in a release announcing the study.

A state lawmaker from Pueblo recently introduced an amendment to
medical marijuana regulations that would have added PTSD to the
conditions covered under Colorado's medical marijuana program, but
the amendment was rejected in committee.

Sensible Colorado, a medical marijuana advocacy group, had backed the
amendment.

"We hear from dozens and dozens of veterans every year that say that
this helps them get off pain pills or just helps them get through
what's going on in terms of their PTSD," said Brian Vicente,
executive director of Sensible Colorado. PTSD, he pointed out, is
among the conditions covered by New Mexico's medical marijuana program.

If Cannabis Science won approval for a PTSD treatment, it could have
implications for a much wider group of patients, Cowan said.

"Twenty percent of prescriptions that are written are off-label use,"
he said. "The point is - if, for example, in our study of PTSD that
we determine cannabis helps them sleep, which we know it does, then a
cannabis-based insomnia medicine could be prescribed to people with
insomnia, whether they had PTSD or not."

Decriminalization Favored

Cannabis Science, in its SEC filings, cites two big challenges as it
seeks to move forward.

One is funding, but Cowan said undercapitalization is characteristic
of most startups.

"Like everybody else, we'd like a little more money," Cowan said.
"But really, up to this point, that has not been a significant factor
simply because we weren't ready to proceed with anything that would
take money."

Given the current drought in venture capital, Cowan said the most
likely sources of funding are "sophisticated investors who buy
restricted shares in the company or from other possibilities, maybe
licensing deals with larger companies." Licensing is how GW got most
of its financing, Cowan said.

The other issue for the company, the filings say, is "a significant
prejudice against development of smoked cannabis medical products in
the medical and law enforcement communities."

Marijuana, the company notes, is still classified as a controlled
substance by the federal government. But Cowan, who is the former
executive director of the National Organization for the Reform of
Marijuana Laws, and Melamede would like to see that change.

"We're fully supportive of total decriminalization because it's a
God-given plant," Melamede said.

If that happened, Cowan still sees a role for Cannabis Science,
perhaps with over-the-counter, cannabis-based medicines at an
affordable price. Sativex, he noted, is "terribly expensive," and not
everyone has the time or ability to grow his own pot.

"I live in an apartment," he said. "I suppose I could grow somehow,
but I don't have a green thumb."