Large pharmaceutical companies have only just dipped their toes in the cannabis industry. Within five to ten years, though, we think they may make a sizable splash. Our expectations for big pharma follow the wave theory, our framework outlining how we think the legal cannabis industry could mature over the coming years.
But before large pharmaceutical players dive deep into cannabis, we believe a few milestones must be achieved. Here are some catalysts that could help unlock the big pharma opportunity in cannabis.
In pharmaceuticals, it is important to ensure that new medications are safe and effective. To assure product quality and establish practitioner and patient confidence, active pharmaceutical ingredients (APIs) are held to high standards of purity and consistency. However, for the most part, the cannabis plant currently lacks stable genetics, meaning it cannot yet reliably meet these standards repeatedly. Innovation in cannabis seed research and biosynthetics may enable companies to produce cannabis- and hemp-based APIs at a lower cost, in higher quantities, and with greater consistency in the future.
There are currently hundreds of ongoing clinical trials examining cannabinoids’ ability to treat various conditions and symptoms, such as chemotherapy-induced nausea and chronic pain. The purpose of conducting a clinical trial is to prove if something is effective or not. Many clinical trials focus on a single ingredient’s intervention (or “effect”) on a particular symptom or condition. For example, CBD has shown positive results in reducing seizure frequencies in epilepsy patients in some clinical trials.
But cannabis research is still in its infancy primarily due to regulatory barriers and funding challenges. For instance, the inclusion of cannabis whole plant extracts may not follow the clinical trial blueprint perfectly due to regulatory hurdles. Many of the products that successfully went through clinical trials and are approved for use had incorporated synthetic cannabinoids (such as nabilone), as extracting cannabinoids directly from the plant is prohibited in some jurisdictions. Incorporating whole plant extracts—where various cannabinoids are present—into clinical research may provide further support to whether specific cannabinoids, like THC, are helpful or not.
Like clinical research in other domains, we expect that the cannabis sector will continue to pursue the gold standard of clinical research, being double-blind placebo-controlled studies with large participant sizes that aim to verify the types of health claims that can be made for cannabis and inform physician dosing guidelines.
Many big pharma companies are publicly traded. Among other things, forays into cannabis could cause some of these companies to be offside of their stock exchange requirements, depending on which exchange(s) they are listed on and in what jurisdiction(s) they are conducting cannabis research. Federal legalization in the U.S. may reduce the risk, whether real or perceived, for some publicly-traded pharma companies eyeing the cannabis sector, as it would open up a new jurisdiction to conduct research in. In the meantime, smaller steps towards U.S. cannabis legalization may expand the addressable market for cannabis-related therapies and make insurance coverage more attainable as well, potentially increasing interest from pharma companies.
Since known molecules (such as THC and CBD) cannot be patented, pharmaceutical companies generally cannot operate with exclusivity for prolonged periods. To address this challenge, many companies are working to create patentable cannabinoids or related molecules with adjusted molecular structures that can then be licensed. These patents, as they are in other science-backed industries, could be the backbone of licensing and M&A activity.
Cannabis use still carries a stigma. Even in places where medical cannabis is legal and available, some physicians remain hesitant to prescribe it. What’s promising is that in some jurisdictions, clinical practice guidelines for physicians have included cannabinoids as adjunctive therapies. With greater education and more clinical research supporting its therapeutic effects, more medical practitioners may begin to make more informed decisions around prescribing cannabis to their patients. We believe the cannabis industry should also continue to focus on patient education and support programs that can further encourage safe dosing and therapy adherence.
Generally speaking, the pharmaceutical industry has an outsized impact on the global economy, with many of the top pharmaceutical companies having a market cap of over US$100B. But before big pharma can inject more capital and resources into cannabis, we believe the industry must reach certain milestones. Until then, we’re keeping a close watch on the sector, evaluating which verticals and which companies in these verticals might be one of the catalysts that pharma needs to see before placing a larger bet on cannabis.
This is not an offer to sell or a recommendation to trade in any securities. This information is provided as of the date hereof. This document contains data obtained from third parties that Canopy Rivers has not independently verified. This document also contains forward-looking information within the meaning of Canadian securities law, which is based on certain assumptions. While management believes these assumptions are reasonable based on information available as of the current date, they may prove to be incorrect. Many assumptions are based on factors outside of Canopy Rivers’ control and actual results may differ materially from current expectations. Forward-looking information involves risks, including, but not limited to, the risk factors set out in Canopy Rivers’ most recent Management’s Discussion and Analysis and Annual Information Form. You should not place undue reliance on forward-looking information. Except as required by applicable law, Canopy Rivers assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances.
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