Cannabis Stock Report Year In Review 2017 (Part II): Billions Made, Billions Threatened, Billions Stolen
“Obtaining our Dealer's License is a significant milestone in our international expansion strategy as it enables Aphria to have greater control over importing and exporting medical cannabis oil globally," Aphria Inc. CEO Vic Neufeld said in late November on the news of the company obtaining its dealer’s license. It was perhaps the understatement of the year in the cannabis industry.
In many ways 2017 was more than just a maturation year for legalized cannabis - it was a coming out party for the industry as a whole. While infighting and posturing occupied a hefty portion of the sector, smart, intuitive dealmaking embodied much of the cannabis industry’s royalty class. And let there be no doubt, in 2017 cannabis royalty emerged.
Much of that royalty resides to the north of the U.S.-Canadian border, a sticking point for cannabis investors in the states. Still, U.S. investors are not the only industry insiders waiting for Attorney General Jeff Sessions to determine the definition of the word “rational.” as American marijuana policy continues to hurt the Canadian cannabis industry. For one thing, 2017 proved that marijuana prohibition anywhere has lasting effects everywhere.
The year-in-cannabis 2017 was a necessary one - a bridge between the voter revolutions of 2016 and the fully realized world of legalization in 2018. Billions were made, billions were threatened, and billions were stolen. It continues to add up to an industry ready to break out but still waiting for permission.
Here is part two of the Cannabis Stock Report’s 2017 Year-in-Review of the Cannabis Industry.
No company climbed higher in 2017 than Aphria Inc. (TSX:APH), who began their streak of good news this year when they obtained their Dealer’s License in late November. In early December the company pulled off the second most significant deal of the year, next to the Canopy Growth-Constellation Brands agreement. Signing a five-year contract, Aphria became the preferred supplier of medical cannabis products for Shoppers Drug Mart, Canada’s largest retail pharmacy chain. Because Canadian law prohibits storefront and pharmacy retail sales, Shoppers Drug Mart will sell dried bud and cannabis-infused oils via the web. The deal was so big that industry experts called it “a watershed moment for the industry." Topping off the year, Aphria Inc. watched their shares jump 16 percent after the deal, pushing the company’s market cap to over $2 billion. The company becomes the third stock to value at over $2 billion behind Canopy Growth Corp. (TSX:WEED), valued at $3.6 billion, and Aurora Cannabis (TSX:ACB), valued at $3 billion.
“We have an impeccable record cultivating and producing high-quality, medical-grade cannabis,” said Vic Neufeld, CEO of Aphria in a statement regarding the Shoppers Drug Mart deal. “These traits make us a strong partner for an organization looking to serve and support Canadian patients.”
Insys Under Investigation
With a research focus on cannabinoids, Insys Therapeutics Inc. (NASDAQ:INSY) made much headway in the past few years marketing its synthetic brand of THC known as Syndros. The FDA approved drug helps patients with AIDS suffering from anorexia, as well as cancer patients undergoing chemotherapy treatment. Since it comes in a liquid formulation, it absorbs quickly and allows for more flexible dosing over other forms of the drug. Yet Insys made headlines this year for more unsultry reasons - their role in the ongoing opioid crisis plaguing America. Insys is also the producer of a drug called Subsys, which is a sublingual fentanyl spray. At the end of 2016, former CEO and president John Kapoor, along with several other high-ranking employees of the company were alleged to have bribed medical officials to prescribe the drug to patients. In late October Department of Justice, authorities arrested Kapoor, charging him with wire fraud and RICO conspiracy. Furthermore, it officials believe that Kapoor defrauded some health insurers as well. The incident goes to show how, in 2017, the legal cannabis industry is still walking the line between the open and black markets, trying to find its place in the world.
“We continue to reiterate our efforts to be part of the solution to the opioid crisis by focusing on assisting patients and developing alternative pain medications in our research and development programs,” the company wrote in a statement in September. “The solutions to this serious national challenge require serious commitment by, and coordination between, governmental authorities, manufacturers, prescribers, patients and other stakeholders in the healthcare community. Encompassed in our desire to bring solutions is our continuing commitment to take responsibility for actions by our former employees and ensure high standards of integrity from our current employees.”
TSX Warns Canadian Cannabis Companies With American Ties
While U.S. cannabis investors and industry insiders continuously worry about the cloud of federal prohibition that hangs over state-level legalized cannabis, Canadian investors breathe a little more comfortable, free from such burdens. That was true until October 16, when the Toronto Stock Exchange and the TSX Venture Exchange issued a memo “clarifying” their rules for cannabis companies with U.S. dealings. According to reports, the TSX declared that any company with U.S. marijuana interests, meaning any business that “touches the flower”, will be delisted from the exchange. It was an unprecedented mid-game rule change, according to some experts, that immediately forced some companies to make tough decisions. The day after the memo came out Emerald Health Therapeutics Inc. (TSX-V:EMH) saw share prices drop 5 percent, while Aphria’s prices took a 13 percent hit. Both companies have interests in the United States. Some companies have already begun divesting from their U.S. interests, while others are still in negotiations with the exchange, trying to determine their options. It goes to show just how far and wide the ripple effects of U.S. prohibition can reach.
“This could capture joint ventures, streaming agreements, royalty agreements, profit-sharing agreements. If you’re providing some sort of technology, or you’re providing recipes for guys who manufacture edibles, you’re caught. If you’re providing financings, if you provide real estate to entities that grow, you’re caught,” Andrew Powers, a partner with Borden Ladner Gervais told Business Vancouver in October.
Medical Marijuana Inc. Takes Kannaway Global
Medical Marijuana Inc. (OTC:MJNA) proudly touts itself as being the United States first publicly traded cannabis company. This year their subsidiary Kannaway LLC, a company that specializes in the marketing and network sales of hemp-based botanical products, helped MJNA expand past the borders into the global market. It was a sign that in 2017, even with federal restrictions, U.S.-based cannabis companies still had the tenacity to grow. The deal was quite impressive, as the company will now use European-sourced materials, creating a distribution network throughout both European Union member nations and non-member nations. It is another first for the company, as they are now the primary cannabis business to make hemp-based CBD wellness products available to all of the European market. Kannaway reminds the industry that there is a way around the pitfalls of politics and federal law, at least in the U.S., and that growth is possible outside of Canada. Whether or not it becomes a trend in 2018 is something the industry will just have to wait and see.
"There is already a huge sense of enthusiasm in the air when I meet with potential customers in Europe," Kannaway’s International Vice President, Alex Grapov commented. "People are excited by the opportunity to get involved in our exploding industry with such a credible company and amazing product offering."
GW Pharma Re-Acquires Sativex
Earlier this year GW Pharmaceuticals (NASDAQ:GWPH) saw stock prices jump on the news that they submitted their drug Epidiolex to the FDA for approval. The drug, according to the company, "is a pharmaceutical formulation of purified cannabidiol (CBD), which is in development for the treatment of several rare childhood-onset epilepsy disorders." Overall, the company saw share prices increase over 30 percent in the past year off of news from their research department. Following that report, in mid-December, GW Pharmaceuticals announced the Sativex (nabiximols) licensing agreement that they once held with Otsuka Pharmaceutical Co., Ltd. ended. The company now has complete ownership of the U.S. production and commercialization rights to the product. It is a sign that, in 2017, the cannabis industry was genuinely making its way into the mainstream, with big-name companies performing peer-reviewed research on the drug, bringing to it a status and acceptability never before seen.
“We are pleased to have amicably reached this agreement with Otsuka, which enables GW to develop, seek approval for, and commercialize Sativex in the United States,” said GW CEO Justin Gover. “We have previously conducted several positive Phase 2 and 3 trials for Sativex and believe that this product represents an important new late-stage pipeline opportunity for GW in the U.S. market.”
Until next year…