Mention the Canadian cannabis market and the clichés about a budding sector and jokes about valuations being sky high are soon trotted out. But make no mistake, the majority of big players operating in the space are deadly serious about the potential they see in medical uses for cannabis. Some are even predicting that their efforts will supplant drug companies' nascent activities in this field.
Speaking earlier this year at a Cannacord Genuity medical marijuana event Igor Gimelshtein, chief financial officer of Medreleaf, said: “GW Pharma is dead in the water.” He believes that people are already using off-label medical cannabis products in diseases including epilepsy, where GW hopes for approval of Epidiolex this year. Ironically, in a demonstration of just how fast the market is consolidating, Medreleaf has been the first to expire following its C$3.2bn ($2.46bn) takeover earlier this month by the industry behemoth Aurora Cannabis.
When announcing the deal Aurora clearly stated that one rationale for the takeout was strengthening its capacity to “service the rapidly expanding global medical cannabis markets”. In same week as its buyout of Medreleaf, Aurora also completed its earlier C$1.1bn acquisition of Cannimed, making it the biggest medical cannabis company in the world by market cap.
The heat is on
The question remains how big a threat medical cannabis could be to the likes of GW, Corbus Pharmceuticals, or the handful of other pharma groups currently exploring cannabinoids as FDA or EMA-approved treatments.
It has taken years for companies like GW to get close to regulatory success, and the paucity of gold-standard, placebo-controlled trials for many of Canada’s medical cannabis products make threats to traditional pharma groups sound like the posturing of a sector high on current valuations and new money.
As a demonstration of the current investor frenzy in the Canadian cannabis market, Aurora had to up its original hostile offer for Cannimed by 79%. The valuations of all listed cannabis groups have rocketed in the past year ahead of Canada’s decision to legalise sales of recreational cannabis this year and, while there has been recent cooling, the sector remains extremely buoyant. Aurora has seen its stock jump 235% over the past 12 months, and the enlarged group is now valued at C$4.7bn.
The recent investment interest in the Canadian cannabis market has largely focused on the recreational side of the industry, which most cannabis companies are not ignoring as legalisation approaches. But it is the sheer size of the international medical market that is drawing the interest of many of the biggest Canadian cannabis groups and, with unmet needs around pain and epilepsy, some are seeing a chance to carve out a position in the market.
By choosing both Cannimed and Medreleaf as acquisition targets Aurora has added much-needed production volume to service the upcoming domestic recreational market, an area where it was lagging its nearest rival, Canopy Growth Corporation. The scale-up has also set out Aurora's intentions in the global medical cannabis sector.
Medreleaf, which advertises itself as "The medical-grade standard", has sections on its website for patients and physicians, while proudly promoting its two state-of-the-art ICH-GMP certified processing facilities. In March, the company announced that it had signed an agreement to become the largest supplier of medical cannabis to Cannamedical Pharma, a medical cannabis distributor to pharmacies in Germany.
In turn, Cannimed’s long track record in the industry has seen it form collaborations with academia to study cannabis in a clinical setting, as well as unveiling one product in a phase I trial for childhood epilepsy. The group is also the sole supplier to Health Canada, serving some of the 250,000 registered patients in Canada who are eligible to use cannabis-based products, since medical marijuana was legalised in 2002.
It is this expertise in a strictly regulated environment that could help Aurora capture sales among consumers looking for alternatives to established treatments.
Speaking to EP Vantage last week at the Cannabis Europa conference, Stephen Murphy of Prohibition Partners said the size of the international medical cannabis market should not be underestimated.
Mr Murphy expects the market opportunity in Europe alone to reach €56bn ($65bn) within 10 years. “The players in medical cannabis really have the power to disrupt the existing pharma market,” he adds, by offering alternatives to existing medicines.
Outside Europe, Australia and parts of the US – at the state level – already allow the use of medical marijuana. With more countries expected to embrace cannabis products, Matt Bottomley of Cannacord Genuity believes that the prospects for cannabis-based medicines outside Canada far outstrip the domestic opportunity, saying: “The international markets will be fundamental to the industry.”
Canopy Growth, Canada’s second-largest cannabis company by market cap, is taking another approach to international expansion, and earlier this month announced plans to join its fellow Canadian cannabis company Cronos Group and list in the US.
As it does not sell any product in the US American investors are free to invest in Canopy without falling foul of drug laws, which have curtailed most US pharma groups’ efforts to develop medical cannabis products.
US listing will give Canopy access to fresh capital to continue its overseas expansion; the group already has medical cannabis operations in Brazil, Germany and Denmark, and partnerships in Spain and Australia.
Aurora and Canopy are not alone in their international ambitions to generate sales in markets that have until now been the sole province of pharma.
“While Canada has given us a start we are very serious about being a global player,” says Terry Fretz, president of Maricann. “We have a strong pharma pedigree, so we understand what it is like to work in highly regulated markets and build strong business in multiple jurisdictions.”
At present, the biggest treatment areas for registered medical cannabis patients are pain management, anxiety, depression and sleep disorders. But many patients are taking matters into their own hands and using cannabis-based products for other more serious indications.
It is here that tension could arise between pharma companies and existing medical cannabis producers. It was patient demand that led to the legalisation of medical cannabis in Canada and, if other countries follow as forecast, pharma could conceivably lose out to cannabis in areas where there is unmet need, such as childhood epilepsy and multiple sclerosis.
So far, much of the efficacy claims around medical marijuana have been patient reported, with many claiming success in seizure reduction, pain relief, and lessening multiple sclerosis symptoms to name but a few disorders.
It is little wonder that many cannabis companies are looking to legitimise the claims of users and are now starting their own studies into the effects of cannabidiol (CBD) and tetrahydrocannabinol (THC), the two active ingredients in cannabis.
If you can’t beat them
And while medical cannabis is always going to be a small part of the global pharmaceutical market, according to Mr Fretz of Marrican some pharma companies, perhaps looking at the success of GW Pharma’s Epidiolex, have started to show an interest in partnering. Tim Saunders, Canopy Growth’s chief financial officer, goes even further, saying: “They are all looking.”
What a relationship between a pharma company and a Canadian medical marijuana group might look like is difficult to conjure.
“It is a product that is already in the market, but does not fit into their mix or with their stakeholders,” says Mr Fretz. “But there is a level of interest in understanding how it might fit. So those companies that have consumer units might find it easier to participate in distributing cannabis products.”
This blurring of two worlds is, however, hard to imagine given the conservative nature of pharma companies big enough to have consumer units. And in global terms cannabis products are likely to remain only a small portion of the current $800bn pharmaceutical market.
But given the current cash-fuelled confidence and naked ambition of many of Canada’s medical cannabis groups they are angling to get as much of those global sales as they can, however they can. Pharma groups working in the field of cannabinoids might do well to watch these new upstarts.