ASX Cannabis Companies with Canadian Partnerships

Why did Canadian cannabis companies invest in Australia?

An early rush was brought on by Canadian businesses wanting to corner the Australian market, which today is thought to be the fourth largest medicinal cannabis market globally after leaders like the US, Canada and Germany.

Canada's relatively small population plus capital from the marijuana stock bubble saw entrepreneurial local producers set their sights on international markets like Australia where they thought future growth surely lay. A new market in Australia exists, but the original aggressive expansion without a clear progression to profitability has led to global aspirations crumbling as huge cost bases abroad are yet to match demand. The cannabis sector's maturity has been slower than many investors initially anticipated.

CEO and corporate advisor at Cannatrek Brett Schwarz previously told INN the dynamic between Australian players and Canadian companies has changed significantly.

"I'll call it a big brother kind of relationship," Schwarz said. "They came to Australia because they saw us ramping up, they saw that maybe we were an easier entry point into Europe.

"I think there has been a flip, I think that Canadians came here trying to find partners, but have realized… 'We actually have a lot of our own problems back home, let's close up shop.' A lot of them have actually sold their shareholdings in their Australian partners, because they realize that maybe they have just got to work in (their) own backyard first, before worrying about the big, wide world."

Why did Canadian cannabis companies lose interest in Australia?

The Canadian market itself has been slower to peak, with concerns of oversupply and suppliers being plagued with questions on the quality of products. There has also been the emergence of new growing markets in low-cost developing nations like Colombia and Thailand — which Canada and Australia would find hard to beat on costs.

Stringent regulation also means the cost of locally producing medicinal cannabis in Australia was thought to price out many Canadian partners, although we are seeing changes in this space.

This has ultimately led some Canadian companies to reduce their presence in Australia. In 2019, Canopy Growth (TSX:WEED,NASDAQ:CGC) sold its shares in AusCann Group Holdings (ASX:AC8), and Aphria (now Tilray (TSX:TLRY)) followed suit, selling its almost 16 percent stake in Althea Group Holdings (ASX:AGH) during the same year.

The most recent Canadian player to up sticks is Toronto-headquartered Flowr, who made the decision to exit all non-core jurisdictions in April 2021 — including Spain, Uruguay and Australia. This also includes selling TCann, the entity holding the medicinal cannabis licenses in Australia. The move signals the end for its business in Australia and an estimated annual savings of C$1 million.

Which ASX cannabis companies have Canadian partnerships?

Cronos Australia (ASX:CAU): The Melbourne-based entity has been doing well, with the revenue from sales of its medicinal cannabis products increasing by more than 230 percent from 2021 to 2022. The company sells medical cannabis products and a personal care product range, and it runs a dedicated medicinal cannabis clinic. The company also has an agreement to sell Tasmania-based ECS Botanics’ (ASX:ECS) terpene blend range, and has seen recovery in its share price thanks to regulatory changes in Australia. The company announced record revenue and the sale of its one millionth unit of medical cannabis in November 2022.

The Valens Company (TSX:VLNS): Valens is one of the global leaders in cannabinoid-based products with a focus on partnering with Canadian and international cannabis brands, including subsidiary Valens Australia. In February 2020, they announced their first international shipment of white-labelled products to Australia. They have also committed to running Australia's largest secret manufacturing facility in Melbourne, to be run by Cannvalate. The company is hoping to carve out a local market as the majority of medicinal cannabis in Australia is currently imported from Canada or Europe.

MediPharm Labs Australia (TSXV:LABS,OTQQX:MEDIF): After being certified by the Therapeutic Good Administration in May 2020 and securing a Licence to Manufacture, the business achieved revenue of AU$625,000 in its first month. In September 2020, MediPharm Labs secured 100 percent ownership of the Australian subsidiary. In December 2020, ECS Botanics entered into a three-year agreement with Medipharm Labs Australia to supply cannabis materials like flowers and crude resin, which started in November 2021.

"Since our founding, MediPharm Labs Australia has been a cornerstone of our strategy to develop a multi-jurisdictional, GMP-certified production capability chain to service worldwide medicinal, wellness and adult-use markets," said Pat McCutcheon, CEO of MediPharm Labs, in a statement.

Asterion Cannabis: Based in Vancouver, Asterion merged with privately owned Australian Natural Therapeutics Group (ANTG) in April 2021 with plans to build one of the largest medicinal cannabis facilities in the world. Construction began in June 2022 in the Darling Downs near Toowoomba. In 2021, ANTG signed a nine-year, AU$92 million deal with German-based Cannamedical Pharma to export Australian medical cannabis to Europe.

Regulatory changes and shifting attitudes are seeing slow gains in the market. Not-for-profit private health insurer HIF recently became the first to support medicinal cannabis offering a AU$105 rebate back per script to eligible members, and began a research partnership with Little Green Pharma (ASX:LGP).