Five of the key emerging trends in the booming global medical cannabis and cannabinoid medicine industries.
The reappearance of cannabis as a tool in our therapeutic toolbox comes at an important time when we have not witnessed any real advances in pharmacological pain management in decades
Mark Ware, Canopy Growth
Against the backdrop of an opioid epidemic claiming an estimated 40,000 American lives every year and spiralling health expenditures as a direct consequence of adverse drug reaction from overprescribing, moves are afoot to explore alternatives to chemically synthesized medicines with the phenomenon of cannabinoid-based therapies increasingly in vogue.
“The reappearance of cannabis as a tool in our therapeutic toolbox comes at an important time when we have not witnessed any real advances in pharmacological pain management in decades,” notes Mark Ware, the chief medical officer of Canopy Growth Corporation. “Chronic pain, anxiety and insomnia remain significant health management challenges and the opportunity to harness the possible therapeutic benefits of cannabis is unparalleled,” he argues.
Meanwhile the unprecedented granting of FDA approval last year to GW Pharma’s cannabinoid prescription medication Epidiolex – a first-ever for a drug derived directly from marijuana – signals the increasing acceptance of what was once considered “rogue medicine.”
At the same time, the industry is becoming ever more professional. Nothing indicates this more strongly than last December’s surprise signing of a direct partnership between the Canadian pure-play cannabis outfit Tilray and Sandoz, a conventional pharmaceutical developer and subsidiary of the Swiss heavyweight, Novartis. Many insiders, however, say that this is just the pinnacle of a movement that has long been in the making, albeit somewhat stealthily.
“Big Pharma has actually been establishing a significant cannabis presence in the more mature cannabis markets like Canada with the registering of patents well in advance of legalization,” voices Ben Langley, CEO of Grow Biotech. Similarly, while many of the early medical cannabis players sought vertical integration covering the entire value chain, from research and development through to manufacturing and distribution, increasingly there has been a countervailing move towards specialization in an almost mirror image of the conventional pharma model. Indeed some of today’s most successful actors – such as Canopy Health and Tetra Bio-Pharma – seem to be taking their cues from the biotechnology industry and strictly focusing on clinical trials.
“Similar to traditional biotech, Canopy Health, as a specialty pharma-type play, aims to take away some of the risk associated with early stage clinical testing for larger pharma companies. We are thus dedicated to carrying out the Phase I and robust regulatory scale Phase II clinical work,” confirms Marc Wayne, CEO of Canopy Health, the R&D arm of Canopy Growth.
One by-product of the increasing professionalization of the industry has been a welter of M&A activity as the stronger players strive for critical mass and snap up their weaker rivals. In January 2018 Edmonton-based Aurora Cannabis raised eyebrows when it bought out CanniMed Therapeutics for roughly $1 Billion and then acquired MedReleaf Corp. for $2.9 Billion a mere four months later.
This gathering of pace of aggressive inorganic growth seems to be especially pronounced in the US market where firms have previously been kept small and contained by strict state laws that are only now beginning to relax. “We expect the trend of consolidation of the multi-state operators to gather steam in 2019, though it remains to be seen how many will be scooped up by other multi-state operators and who will be absorbed into big pharma, beverage or tobacco companies,” predicts Beth Stavola, CEO of US Operations for MPX Bioceutical Corp., a holding company that includes cannabis growing, processing and selling entities.
“We may even be on the brink of an acquisition race between existing multi-state operators, big pharma and the vice industry,” she confides.
The framework of a global medical cannabis market is also slowly starting to take shape linking producer nations (Canada and the US) with importers (Europe and Australia) and technology suppliers (such as Israel). Jurisdictional differences, however, hand Canadian firms a distinct advantage in the short term with no fewer than 80 Canadian operators already exporting or having made overseas distribution agreements, while their American counterparts still remain forbidden by federal law from shipping their produce abroad.
“Using the domestic market pretty much as a lily pad from which to leap to the rest of the world can lead to a lot of success for homegrown Canadian medical cannabis companies,” explains Sean McNulty, co-founder and adviser at Canopy Rivers Inc., the venture capital arm of Canopy Growth.
“There are sure to be a handful of Canadian companies that emerge from this process as global champions,” he predicts.
Uncertainty and Speculation
The cannabis industry’s long march to normalization remains one that is fraught with uncertainty though, with much confusion among stakeholders around how to properly value the sector as a result of the fragmentation and immaturity of many of the markets.
“Few producers currently have the capacity or capability to supply growing international demand. Several Canadian, European, Israeli and Australian companies have engaged in international trade deals, however these have mostly occurred between affiliates, or comprised small volumes of final product forms. This means that establishing a fair market price for international wholesale of cannabis is difficult,” posits Dallas McMillan, president and director of strategic growth at Rhizo Sciences. “A true market price requires liquidity, volume, transparency and open participation, none of which currently exist in the industry,” he emphasizes.
This endemic uncertainty over value and profitability is especially apparent when one monitors the performance of pot stocks on the financial markets. For instance, the dramatic rise and fall in Tilray’s stock – in three business days the company’s market cap dropped from a high of around USD 20 billion to USD 10 billion last year – offers a salutary lesson for potential investors in the still-emergent cannabis industry.
Meanwhile, the Economist Intelligence Unit (EIU) draws attention to the fact that, “though some of the 100 cannabis-related firms tracked by Bloomberg last year made money, they collectively lost around $1.2bn.” While it is entirely normal for an industry going through its growth stage to make a loss, consumer-goods firms typically trade at only two to three times turnover whereas the EIU notes that the same group of cannabis operators lay claim to a combined market value of $76bn yet generate revenues of only $2.5bn!”
“Business insecurity is pretty rampant,” confides Terry Lake, vice president corporate social responsibility at Quebec-based producer Hydropothecary. “To give you an analogy, it is like running in the forest at night—we do not know where the trees are!”