The cannabis industry is one of the fastest growing lines of business in the United States today. Despite the federal prohibition of cannabis, the state-legal environments provide opportunities for entrepreneurs to operate in this regulatory ambiguous industry. Arcview Market Research, a leading publisher of cannabis market research and information, released the 5th edition of their annual update earlier this year. In it, they describe a thriving industry that is projected to grow at a compound annual growth rate (CAGR) of 27 percent through 2021. Additionally, a recent Gallup poll found that a record 64% of Americans favor legalizing cannabis. This expansion is attributable to the 29 states, plus the District of Colombia, that have passed laws related to the “medical” and or “recreational” use of cannabis among their citizenry. Despite the prohibition at the federal level, state laws and public perception are trending in favor of supporting medical and recreational use of cannabis. Despite the fractured nature of the regulatory patchwork, well-managed companies have found varying levels of success operating in and around the various state-legal cannabis markets. Lines of business within the industry are quite diverse – some bear the risk of “touching the plant,” and others participate in ancillary markets that support the industry infrastructure. The best companies in each market segment seem to enjoy one commonality – the ability to adapt to the evolving nature of the industry.
One example of this evolution is the emergence of cannabis in the pharmaceutical sector. As countries around the world move towards ending cannabis prohibition, the amount of research aimed at studying the health effects of cannabis continues to grow dramatically. The cannabis plant is comprised of over a hundred unique molecules called cannabinoids. Most consumers associate the cannabis plant with the most common cannabinoid, delta-9 tetrahydrocannabinol (THC), due to its psychotropic effects on humans. However, the majority of the hundred-plus minor cannabinoids do not cause any psychotropic effects and in fact, have demonstrated medical benefits against a wide range of indications.
The next frontier in the cannabis industry is clinical studies for the medical benefits of these minor cannabinoids, and harnessing them as active ingredients for novel prescription drugs. Companies involved in the pharmaceutical cannabis space can be placed in two categories. One type, is companies that extract active ingredient cannabinoids directly from the plant. These companies must overcome issues inherent with utilizing a plant for prescription drugs. Variances in crop production cannot guarantee a consistent, pharmaceutically pure active ingredient, and growing enough plant to service a widely used prescription drug is prohibitively resource and cost intensive for all but the most abundant cannabinoids. The second group of companies use either chemical synthesis or biosynthesis to synthetically produce cannabinoids. Chemical synthesis technology is not advanced enough to consistently produce pure cannabinoids at scale, and many of the minor cannabinoids cannot be chemically synthesized. On the other hand, biosynthesis mimics the plant’s natural processes and creates cannabinoids that are structurally and chemically identical to plant based cannabinoids except they are manufactured in a bio organic lab instead of a traditional agricultural cultivation. Using biosynthesis, even minor cannabinoids can be produced at large scale pharmaceutical grade standards that are reproducible in a matter of days. The opportunity for metered dose, pure, GMP produced cannabinoids is important to the traditional pharma and investor markets.
As an investor, it is important to understand the nuances in this diverse ever-changing industry. Regulations and emerging technologies greatly impact the entire industry and cannot be overlooked. However, savvy investors that target the companies focusing on the cannabinoids – as opposed to cannabis – could be rewarded as medical research and global acceptance continue to drive this exciting industry.
Jeffrey M. Korentur is the President & CEO of Teewinot Life Sciences Corporation, a global biotechnology company focused on the biosynthetic production of pure pharmaceutical grade cannabinoids. Teewinot has developed patent-protected processes for the production of pure cannabinoids by means of biocatalysis and synthetic biology, and has also developed patent protected cannabinoid formulation technology, all with the goal of improving human therapies.
