Australia | Jul 26 2021
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Australia has the potential to become the international gold standard for production of medicinal marijuana and multiple ASX-listed companies are seeking to benefit.
-Manufacturing of medicinal cannabis products has been legal in Australia since 2016
-Australian revenue from medicinal cannabis projected to double in 2021 to $200m
-Australia has the potential to become international gold standard of production
By Nikhil Gangaram
Forget renewable energy, there is a new concept of ‘going green’ that has Australian investors buzzing.
Medicinal (or medical) marijuana has become increasingly accepted by the public at home and abroad.
Proponents advocate medical marijuana is a safe and inexpensive therapy for conditions such as chronic pain, multiple sclerosis, and glaucoma. On the contrary, opponents argue that formalisation of marijuana lacks formalised clinical testing and could lead to a whole range of perverse ethical conundrums.
Regardless of the ethical outlook, legalising all forms of cannabis has tremendous economic potential, both locally and abroad.
Five years ago, landmark legal changes paved the way for regulatory approval of medicinal cannabis products in Australia.
Amendments to the Narcotics Drugs Act in 2016 authorised the legal production and manufacturing of medicinal cannabis products in Australia. Although Australia’s progress on this is relatively nascent, the local sector is budding for growth.
According to the Australian Institute of Health and Welfare, approximately 600,000 Australians used marijuana for medical purposes in 2019. An additional 1.9m reportedly used the substance for non-medical purposes. In addition, over the last year medical prescriptions for medicinal cannabis have tripled.
Medicinal cannabis industry researcher FreshLeaf Analytics has projected that Australian revenue from medicinal cannabis could double in 2021 to $200m. Fresh Leaf Analytics also noted the number of products has more or less doubled each year since 2018, with 190 products now available for prescription.
In addition, a report from research consultants Prohibition Partners estimates that as various phases of legislation come into effect, the Australian cannabis market could break U$1.5bn by 2025. In addition to medical cannabis, changes in the regulatory landscape have some companies salivating at the prospect of a recreational market opening in the future.
Most recently the Australian sector hit a milestone after the country’s medical gatekeeper, the Therapeutic Goods Administration (TGA), downgraded cannabinoids (CBD) from Schedule 4 to Schedule 3.
As a result, consumers no longer require a prescription and can purchase CBD oils and pills over the counter. FreshLeaf estimates the pharmacist-only CBD market in Australia itself will grow to $250m in product sales at market maturity, capturing around 2m consumers.
In addition to a budding local industry, Australian medical marijuana companies are also chasing lucrative markets abroad.
Australian legislation requires that all companies adhere to Good Manufacturing Practice (GMP). As a result, the silver lining of Australia’s sluggish regulatory changes could see the local industry become a powerhouse in growing and producing medicinal marijuana.
Medicinal cannabis products in Australia are regulated by the TGA and the Office of Drug Control (ODC). These strict regulatory standards and ideal climate could make the Australian industry the gold standard of production.
Although many countries are ahead in terms of establishing a medical and recreational market, their pharmaceutical quality production standards have waned. In the US for example, marijuana producers must meet recommended guidelines set by the US Food and Drug Administration (FDA), however, they do not adhere to the same GMP standards as Australian producers.
Earlier this year, two medicinal marijuana companies announced plans to fast-track the development of a $400m greenhouse facility in south-east Queensland. Locally based Australian Natural Therapeutic Group (ANTG) announced a merger with Canadian Asterion Cannabis.
The merged entity aims to construct a facility in the Darling Downs with three greenhouses spread across 40 acres of land and creating hundreds of jobs. According to ANTG, the project will be capable of producing more than 500,000kg of medicinal cannabis a year.
A bulk of this production will be exported, with ANTG signing a $92m deal to supply cannabis flowers to German company Cannamedical Pharma over nine years.
The development of Australia as a production powerhouse could enable companies to tap into the lucrative and burgeoning global industry. The latest research indicates the global medicinal cannabis market is set to grow around 25% per year, reaching US$67bn by 2028.
Production is not the only avenue that Australian companies are looking to take advantage of.
The New Dealers
There is already a myriad of companies listed on the ASX that have a direct or indirect exposure to the sector. The value chain in the medicinal cannabis sector is broad, ranging from research and development, production, extraction and patient access.
Botanix Pharmaceuticals ((BOT)) is currently focussed on research and development. The company’s research is aimed at the development of pharmaceutical products in dermatology and antimicrobial applications. The research focuses on leveraging the unique anti-inflammatory and antimicrobial properties of cannabinoids.
As noted previously, Australia is uniquely positioned to become a production powerhouse of medicinal marijuana.
One of the listed companies that is focussed on this is Little Green Pharma ((LGP)). The company was recently backed by iron ore magnate Gina Rinehart, in the purchase of a cultivation and manufacturing site in Denmark. In addition to its European site, the company also has an existing facility in Western Australia that produces 23 tonnes of medicinal cannabis.
Another part of the medical marijuana value chain is patient access and distribution.
Creso Pharma ((CPH)) develops a range of therapeutic and lifestyle products for humans and animals, which are developed and manufactured according to GMP standards.
Emyria ((EMD)) is another company that focuses on patient access and drug development. Emyria currently has a network of independent clinical services (Emerald Clinics) and also operates a drug development program.
The Grass Ceiling
In Australia, the holy grail for medicinal cannabis companies is the inclusion in the Pharmaceutical Benefits Scheme (PBS).
However, Australia’s stringent and deliberate processing means the country could be a long way from having an approved and regulated supply chain.
In the meantime, Australian medical marijuana companies are looking to blaze a trail overseas. Regardless of their place on the value chain, there is no doubt the medicinal cannabis industry is budding for growth.
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