This is a copy of the April 21st edition of our weekly Newsletter, which we have been publishing since October 2015.
Happy Easter Friends!
This is one of the rare holidays where several world financial markets are closed at the same time, so we hope that many of our readers can get in some downtime to catch up with some of the recent game changing events detailed below. Additionally, we really enjoyed the chance to catch up with and meet many of our readers in Toronto this week.
It was less than a year ago, right as the Benzinga Cannabis Conference in Toronto was about to kick off, that Canopy Growth and Constellation Brands took their partnership developed in late 2017 to a new and unexpected level, with the the companies designing a structure that effectively resulted in the creation of the first large-cap multinational corporation gaining a leading position in the global cannabis industry. Of course, this deal didn’t really include any sort of near-term reach into the United States, though changes in U.S. laws opened the door to the company entering the U.S. in a limited fashion through CBD from hemp.
Just 8 months later, leave it to Canopy to once again change the game, ironically six months to the day after Canadian legalization and also at the same time as a Benzinga conference in Toronto. The complex deal to tie up Acreage Holdings and to enter the U.S. cannabis industry with brands initially and ownership ultimately has significant and obvious implications for the industry. Just as we have seen other cross-border cross-industry partnerships emerge subsequent to the Constellation C$5 billion investment into Canopy Growth, we expect that this structure will lead to more effective investment into the U.S.
One can only imagine how different things will be in six months, when Benzinga brings what has become the most important industry conference targeting investors to Chicago, a city that has emerged as the bridge between the very different East Coast and West Coast cannabis industries. Between now and then, we expect the land grab to continue, a trend we have previously highlighted, but now the door is open to Canadian LPs following in Canopy’s path to position themselves to own key assets in the American market. It seems plausible that we could see some CPG companies skip the Canadian detour and partner directly with American MSOs as well.
We typically discuss just a single theme in our weekly newsletter, and we will stick with “changing the game” but add another layer.
This week, also in Toronto, Paradigm Capital hosted a truly spectacular event focused on a topic we have been sharing with our readers for quite some time, biosynthesis. We learned that many in the industry prefer to call it “cellular agriculture”. The event was well-attended by investors as well as the industry, with many Canadian LPs in the crowd, including some who have made investments already and others who appear to be quite interested. Most of the companies were private, though two, which are reincarnated biofuels developers, are public. Only two of the dozen or so companies were pursuing cannabinoid biosynthesis just two years ago. Many appear to be well-funded with ties to Silicon Valley and other sources of biotech capital.
For those not paying attention, this is a technology that appears to be getting closer to disrupting the cannabis industry. The premise is that natural cannabinoids will soon be able to be produced more cost-effectively and with greater standardization than through the processing of cannabis or hemp. Most of the players are using yeast, but there were a couple of presenting companies that are pursuing microalgae as well.
Scaling up is quite difficult and not assured, and there are some challenges that must be overcome, like the creation of potentially of harmful by-products in the yeast fermentation process, but we see tremendous opportunity for companies selling products with cannabinoids to benefit from biosynthesis as they substitute for flower-derived extract inputs. There will always be a place for flower, and surely many companies will market premium products (non-GMO!) that are extracted from flower, but there is a potential risk to companies building large-scale cultivation and extraction infrastructure should this technology become feasible.
Watch Alan Brochstein Discuss Cannabinoid Biosynthesis Value Proposition
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
As it continues its senior management transition, Liberty Health Sciences announced earlier this month that it will open its 13th Florida dispensary in Bonita Springs and has recently been approved to dispense pre-roll products across Florida.
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Alan & Joel