Cannabis Inc: Biggest player’s legal battle shapes as boom industry’s turning point

The nation’s biggest medicinal cannabis company engineered a legally contentious referral scheme and set up an “independent” public lobby group as it built a dominant position in the booming industry.

The revelations about Montu, which last year pulled in almost $100 million in sales in Australia, have emerged as part of an investigation into the nation’s medicinal cannabis sector, raising serious concerns about the level of regulation, medical ethics, and risks to consumers.

Since legalising the sale of cannabis in 2016, Australia’s market has rapidly expanded, with nearly 3000 approved providers now registered to supply the drug nationwide.

Fuelled by the telehealth surge during the pandemic, hundreds of online companies have been established to prescribe and sell the drug without patients ever leaving their homes.

Many Australians do not realise it is now simple – with a medical script for chronic pain, anxiety, sleep issues or a range of other reasons – to get high-THC concentrate cannabis for smoking, vaping, taking as an oil, or as gummies.

Ethical health practitioners have now voiced concerns about the behaviour of some companies and warned that the wider industry must perform better if the drug is to achieve acceptance as a legitimate medicine.

Montu has quickly become an industry powerhouse, processing hundreds of thousands of sales in 2023, increasing its revenue by almost 500 per cent and doubling its share of the national market for legal supply of the drug, freshly obtained court filings show.

Founded in 2019 by Christopher Strauch, the company is majority-owned by his brother Raphael, via the German pair’s Kowloon-based holding company.

Raphael Strauch is heavily involved in cryptocurrency, and posts regular updates on social media showing him on private jets, on the ski field, with vintage sports cars and, this week, with a Porsche 911 in the Dakar rally.

In the five years since launching, Montu has become a $100-million-a-year company, importing cannabis and buying locally cultivated products. It also runs cannabis telehealth clinic Alternaleaf – whose medical practitioners and nurses partner with pharmacies to prescribe and dispense cannabis – along with a distribution platform, Leafio.

The company has developed a reputation in Australia’s medicinal cannabis industry for pushing the boundaries of health advertising laws, which insist health promotions must not “mislead or deceive” consumers “or create unrealistic expectations about products”.

Raphael Strauch is the majority owner of Australia’s biggest medicinal cannabis company, Montu, which is being pursued by the Therapeutic Goods Administration for illegally advertising its products. Credit: Instagram

After four years of warnings that the company’s advertising broke these laws, the Therapeutic Goods Administration in April commenced Federal Court action against Montu. The case returns to court on Monday.

An affidavit written by Holding Redlich partner Howard Rapke on behalf of the TGA accuses Montu, Alternaleaf, and their common director Christopher Strauch, of unlawfully advertising medicinal cannabis on its websites and social media.

Screenshot showing what TGA says is a referral scheme that would breach rules on sale of medicinal cannabis.Credit: Federal Court

Montu, the TGA says, aggressively advertised its product via marketing tactics like a “referral” system – which the company denies was widely used – and via setting up various groups to promote cannabis.

“The public is generally exposed to the risk of harm by the publication of information that encourages a person to use or seek out medicinal cannabis products in preference to other medicines that have been prescribed by the person’s medical or health practitioner,” the TGA warns in one of its legal filings.

A screenshot in the TGA affidavit from 2023 shows Montu promoting what the regulator says is a referral rewards program offering customers a $50 credit in exchange for sharing their story and a link with a friend.

Referral schemes like this, which offer discounts or incentives, are forbidden for medicinal cannabis and Montu denies running one.

Australian medicinal cannabis company Montu sells the Circle brand of cannabis.Credit: Reddit

Testing the TGA’s limits has allowed strong growth, with company filings showing Montu turned over $16.9 million in 2022. Last year its revenue was $96.7 million, generating an after-tax profit of $5.8 million.

The affidavit details how the TGA claims Montu and its online clinic Alternaleaf unlawfully advertised cannabis by using terms including “medical cannabis” and “plant medicine”.

Montu also operated a Medicinal Cannabis Awareness Week website last year, which the TGA said illegally advertised medicinal cannabis.

Separate to the TGA case, it has also emerged that Cannabis Council Australia, a lobby group set up to represent the entire industry’s agenda, is entirely owned by Montu and has as its directors Christopher Strauch and two of the company’s senior executives.

The TGA affidavit also details for the first time Montu’s unit sales for 2023 – revealing how quickly it has captured market share in Australia. Among the tens of thousands of units moved by Montu are its best-selling Circle “White Widow” (57,839 units in the 18 months to December 2023), its Sundaze Sierra Blaze (55,773) and its Upstate Carts Pineapple Express (30,735 units) cannabis flower products.

In 2022, Montu had around 6 per cent of total sales of the drug, industry data shows. By last year, its market share had more than doubled.

Christopher Strauch and the company filed their court defence this week, saying that “none of the alleged conduct … posed a risk to public health and safety because, properly construed, nothing published on the Alternaleaf website, the social media accounts, or the Medicinal Cannabis Awareness Week website constitutes advertising and Montu did not contravene the Therapeutic Goods Act”.

The company also argues that its growth is merely the result of good business practice.

In a statement, a Montu spokeswoman said the company was “committed to adhering to all legal and regulatory requirements” and that it worked constructively with regulatory authorities.

It said it could not comment on the TGA’s legal claim because it was before the court.

The company said it had succeeded because it was meeting unmet patient demand for alternative therapies.

“We are very proud that our patients see value in the service we provide, and so choose to come back to us for their healthcare. Fundamentally, the care that Alternaleaf provides to patients, combined with our commitment to the healthcare industry in Australia, both play a significant part in our story.”

Asked about majority owner Raphael Strauch’s involvement in Montu, the spokeswoman said that the company’s leadership team was “based in Australia”.

The spokeswoman said that Cannabis Council Australia, owned and run by Montu figures, had been established to represent the medicinal cannabis industry and unite it with a single voice.

“While Montu played a role in founding the council, membership is representative of industry participants and the structure is one of increasing operational independence.”

The TGA, meanwhile, has defended the amount of time it has taken to pursue Montu in the courts, which other cannabis companies argue allowed the company to become the industry’s dominant player.

A TGA spokesman said the administration had employed “various compliance and enforcement tools”, ranging from warning letters and infringement notices to court proceedings.

The spokesman said enforcement had escalated appropriately with Montu, and showed the TGA took strong action “to deter and disrupt unlawful advertising of medicinal cannabis, which is a priority”.

In the past five years, the TGA has issued more than 170 infringement notices and fined companies more than $2.4 million for breaching advertising laws around medicinal cannabis.

Royal Australian College of General Practitioners president Nicole Higgins remains unconvinced cannabis is an effective medicine, but stresses her main concern is how businesses are promoting it.

“This is a business opportunity, not a healthcare solution and because it sits outside our regulatory system, it’s being exploited by big business. And it’s often our most vulnerable who are being exploited. People with mental health issues or chronic pain. The advertising is pitched to say that ‘This is the solution for all your problems’.”

Higgins pointed to a GP in her practice who prescribed cannabis to a narrow group of patients.

“This doctor is hugely alarmed at the rest of the industry; with her patients, she knows them, she knows their history, and she has their trust and a relationship and continuity of care, which means that she’s able to monitor the impact of that cannabis,” she said.

Some in the industry also believe aggressive marketing of legal cannabis could undermine the entire sector.

Patty Holmes, executive officer of Medicinal Cannabis Industry Australia, said the best companies want to “rid the industry of unethical behaviour, which is the minority in our industry”.

Well-known industry figure Clare Barker, a former general manager of medicinal cannabis company Entoura, and now the principal consultant at medicinal cannabis education website honahlee, said the development of the medicinal cannabis industry could produce real and lasting benefits, including better healthcare and an economic boost from cultivation and manufacturing.

“The sad part is that, like in any other start-up industry, players have seen the opportunity to make money,” says Barker. “This has resulted in them not putting patient care at the centre of their business operations. This has frustrated and incensed many product companies, clinics and practitioners doing the right thing – who see those who willingly and blatantly operate with poor practices thrive and grow, seemingly unchecked by regulators.”

Pharmacist Lisa Nguyen founded Astrid, a medicinal cannabis dispensary with outlets in South Yarra and Byron Bay, in 2020.Credit: Danielle Smith

Pharmacist Lisa Nguyen, owner of Astrid dispensaries in Melbourne’s South Yarra and Byron Bay in northern NSW, has watched as the market has grown from just three firms marketing a handful of products in 2017 to 144 brands now in the market and more than 1000 cannabis products.

Nguyen’s South Yarra temperature-controlled vault holds around 400 different Schedule 8 cannabis products. Lining the shelves are mostly cannabis products in “medicinal” packaging.

Other companies adopt packaging that makes the product look more like a lifestyle drug than medicine. With more than 1 million scripts issued since 2016 for medicinal cannabis, it has become a staple legal drug for many.

Nguyen says responsible dispensing and prescribing of cannabis has improved the health of hundreds of thousands of Australians, for everything from chronic pain to anxiety to sleep disorders, but there was still a stigma surrounding the drug.

“Once people realise that it’s actually changing people’s lives and we’re doing it properly and the framework is good, then it has potential to change,” she said.

She said that even if the TGA was alarmed at how some companies market cannabis, the authority was supportive of cannabis as a medicine.

“The TGA has classified medicinal cannabis as an unapproved medicine. We’ve seen how it can help patients but they want people to prescribe it sensibly,” she said.

“[If we] decide they are not eligible, we will turn patients away and let them know we can’t help them – just like any other medicine. There are a lot of models that just churn and burn through patients.”

Industry news website Cannabiz co-founder Martin Lane said the industry was “relatively new” and “working within a regulatory framework that wasn’t originally designed for it – so there’s bound to be growing pains”.

“There’s also been something of a green rush in other parts of the world which have legalised the medicine, so it does sometimes attract people who are more interested in making a quick buck than patient welfare,” Lane says.

“But the vast majority of those working in the space are doing so for the right reasons – often because they, or someone close to them, has benefited from using cannabis as a medicine.”

Lane, like others, argued that while cannabis can have adverse effects, they paled in comparison to those potentially caused by benzodiazepines and opioids if abused. “Plenty of GPs report life-changing results for their patients,” he says.

Support among Australians for legalising cannabis has shifted, with four out of five believing it should not be a criminal offence to possess it. And 45 per cent of people support its full legalisation.

Victorian Legalise Cannabis MP David Ettershank uses cannabis for his chronic inflammatory disorder and supports further liberalisation, but said the strength of cannabis now for sale via telehealth in Australia was alarming.

THC is the psychoactive chemical in cannabis that produces a “high” for users. “Forty years ago, cannabis that was 5 per cent THC was pretty decent weed, and 10 per cent was bonza,” said Ettershank.

“Now your standard issue cannabis is 20 per cent or more. I’m a medical consumer and the stuff I get is 22 per cent – it’s very strong. But it comes with a doctor’s advice on what I should and shouldn’t do. So when you get to 35 per cent you’re talking about incredibly strong weed.”

Alice Davy is a medical cannabis prescription holder. Credit: Jason South

Mother of two Alice Davy has endometriosis in the disease’s most severe form, along with multiple sclerosis, and uses cannabis.

Davy tried cannabis twice when she was a teenager; both times were bad.

When it was legalised, a friend taking cannabis for cancer suggested Davy try it, “because I was so sick and on every medication you could imagine – OxyContin, Endone, Temazepam”.

She started taking medicinal cannabis two years ago, both vaping it and in its oil form. “I’m no longer in chronic, debilitating pain.”

Davy still takes a mainstream pharmaceutical for her MS, but says without cannabis she would not have coped.

“I would be dead.”

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