Cannabis legalization is spreading across the globe, and it is triggering a wave of unparalleled medical cannabis research programs.

Since the discovery of the human endocannabinoid system in the late 1980s (and its role in the regulation of physiological and cognitive processes including appetite, pain, mood and memory), medical researchers have been interested to learn more about the potential therapeutic effects of cannabis as a treatment for a wide variety of illnesses. Unfortunately, the plant’s legal status and cultural stigma have made such research nearly impossible, leading to limited knowledge about the effects of the cannabis plant on the human body.

Now that the stigma associated with cannabis use is waning and legalization is taking hold, medical researchers at universities and government agencies are finding it easier to gain access to funding, lab space and cannabis itself in order to research its medical benefits.

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Medical cannabis research programs driving global legalization

The cannabis plant contains more than 400 active pharmaceutical ingredients in the form of cannabinoids, terpenes and flavonoids. Recent medical studies have shown that various cannabinoid combinations may be effective in treating a wide range of ailments including autoimmune disorders, anxiety, insomnia, chronic pain, epilepsy, cardiovascular disorders, Alzheimer’s, irritable bowel syndrome (IBS) and even cancer. Medical researchers are eager to finally get the green light to study how cannabis works on these diseases, what dosage is most effective and what delivery systems work best.

“[T]he stigma around cannabis has changed, and people are beginning to see that there is a credible reason for looking at medical cannabis seriously,” said Dr. Mark Ware, chief medical officer for Canopy Growth (TSX:WEED). A prime example of this global shift in the attitude toward cannabis is the recent announcement that the World Health Organization (WHO) is recommending cannabis be reclassified under the 1961 international drug treaty, moving it from the most restricted class of drugs — those seen as harmful with no medical benefits — to the least restricted, acknowledging its potential therapeutic properties. WHO’s recommendation will be voted on by the UN Commission on Narcotic Drugs in March 2019.

Canada and Israel lead in the development of cannabis research

According to Energias Market Research, the global medical cannabis market is expected to more than triple in value from 2017 levels to reach US$28.07 billion in 2024. The leading drivers of this growth include increasing awareness, demand and research and development (R&D) initiatives. As research begins to provide more concrete answers about the safe and efficacious use of cannabis as medicine, more governments are expected to follow others down the path to legalization, further driving growth in the global medical cannabis market.

In this evolving market landscape, Canada and Israel are leading the way as the top jurisdictions for advancements in medical cannabis research programs.

Canada’s legalization of medical marijuana in the early 2000s gave the country a huge head start in the global cannabis market. Today, Canada is one of the fastest-growing cannabis markets in the world and is expected to become a world leader in cannabis R&D. For years, obtaining exemptions from the Controlled Drugs and Substances Act to study the plant has proved a logistical nightmare for Canadian researchers. However, with the legalization of recreational cannabis in 2018, new licensing regulations give researchers a more streamlined process for obtaining permission to study the therapeutic properties of cannabis, further solidifying Canada’s top-dog status on the global stage.

The federal government is now investing in cannabis research as well. The Canadian Institutes of Health Research announced C$1.4 million in funding for 14 cannabis-related research projects in January 2018, and is also supporting a C$3 million grant opportunity announced in July 2018. The University of British Columbia (UBC) recently launched a new professorship to study the potential for cannabis to treat opioid addiction — a health crisis of epidemic proportions. The provincial government gave UBC half a million dollars in funding for the position, while Canopy Growth contributed C$2.5 million.

Israel has been a pioneer in medical cannabis R&D since the early 1990s, when researchers implemented a program aimed at helping cancer patients alleviate pain. Today, the country is home to one of the highest-per-capita rates of licensed medical cannabis patients in the world. The past few years have seen a growing number of Canadian companies partnering with Israeli research teams to forge new paths in the field of cannabinoid science.

Canadian companies and Israeli researchers are beginning to combine their expertise to further medical cannabis research. In November 2018, Canadian cannabis data and analytics company Strainprint Technologies announced it would partner with leading Israeli research teams Lumir Lab and Gynica to conduct what may be the world’s first international clinical study to explore cannabis as a treatment for endometriosis, which impacts an estimated one in 10 women of reproductive age. Besides the potential for cannabis to treat endometriosis, the work will also lead to the world’s first database of the effects of medical cannabis use on women. The end results may lead to the ability to develop researched medical cannabis products for international markets.

Legalization is making all this possible. “The real excitement around legalization is that we’ll finally be able to paint the whole picture of cannabis, not only the possible risks and harms that it presents to people but also the possible benefits,” said Dr. M-J Milloy, a recognized leader in the field of epidemiology with the BC Center on Substance Abuse and the first Canopy Growth professor of cannabis science at UBC. Under the professorship, Dr. Milloy will be investigating the potential to treat opioid addiction with cannabis.

Companies with medical cannabis research programs

Medical cannabis companies with a pharmaceutical approach to their business model are also taking advantage of the opportunities this shifting tide presents by partnering with medical research teams to bring new cannabis therapeutics to market.

FSD Pharma (CSE:HUGE) is one company adopting this approach and is looking to develop pharmaceutical-grade cannabis as well as novel cannabinoid-based treatments through clinical trials. Through its wholly owned subsidiary FV Pharma, the Canadian licensed producer has partnered with SciCann Therapeutics, investing $3 million in the Canadian-Israeli pharmaceutical company for a 15 percent equity stake. The agreement also includes an exclusive license in Canada for the production and distribution of a line of cannabinoid-based products developed by SciCann, which has developed a cannabinoid scientific research network comprised of leading researchers, academic institutions and medical centers.

The partners have had promising results from ongoing cannabinoid-based research for several central nervous system disorders. That research includes studying the use of SciCann’s “steady stomach” cannabidiol combination therapy in treating sufferers of IBS, which is currently undergoing clinical trials. FSD Pharma and SciCann have also launched an R&D program focused on developing proprietary cannabinoid-based treatments for the prevention and treatment of atherosclerosis, a serious cardiovascular disease.

Other companies that have adopted a pharmaceutical approach to developing cannabis-based therapeutics include Cardiol Therapeutics (TSX:CRDL), Kalytera Therapeutics (TSXV:KALY,OTCQB:KALTF) and Canntab Therapeutics (CSE:PILL,OTCQB:CTABF).

Takeaway

Government regulators, medical professionals and consumers want to see more clinically validated data about the effects of the cannabis plant’s various cannabinoids, terpenes and flavonoids on the human body and its various illnesses. Clinical research provides all stakeholders with scientific evidence concerning cannabis’ active ingredients and the plant’s medical efficacy. Those in the cannabis industry who are adopting a traditional pharmaceutical approach to bringing new products to market are helping cannabis to further gain global legitimacy as a therapeutic drug.


This INNSpired article is sponsored by FSD Pharma (CSE:HUGE). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by FSD Pharma in order to help investors learn more about the company. FSD Pharma is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with FSD Pharma and seek advice from a qualified investment advisor.

Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, where he worked on lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now seeing a return to form by way of the excitement for an ongoing opening process in the US.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes for cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

 

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“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro environment pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s current potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business potential, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed to work on the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be at the moment.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance.

In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadians waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent an increase to their already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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