Evolving every day, strategic partnerships in the cannabis market are helping to shape the industry.

The spreading legalization of both medical and recreational cannabis here in North America and abroad is allowing the cannabis industry to advance both in terms of clinical research and technological innovation, from cultivation practices to cannabinoid delivery systems. At the same time the growing global health and wellness trend is opening up new market segments for downstream cannabis products.


Within this shifting paradigm, licensed producers are partnering with biotechnology, pharmaceutical, and health and wellness companies as well as other cannabis-based companies to develop new cannabis delivery technologies and beneficial cannabis consumer products. For example, Aurora Cannabis (NYSE:ACB,TSX:ACB) recently partnered with Evio Beauty Group to collaboratively develop a line of hempseed oil product formulations and CBD-infused cosmetics. The partnership will give both companies increased brand recognition and cross-selling opportunities.

Licensed producer Tilray (NASDAQ:TLRY) has partnered with Sandoz Canada, a subsidiary of one of the biggest pharmaceutical companies, Novartis (NYSE:NVS) to produce co-branded cannabis-based medical products such as gel caps and sprays for wholesale distribution to Canadian hospitals and pharmacies. Downstream cannabis extraction company MediPharm Labs (TSXV:LABS) recently entered into a strategic partnership with licensed producer Emerald Health Therapeutics (TSXV:EMH,OTCQX:EMHTF) in which Emerald will provide MediPharm with dried cannabis to create premium quality pharmaceutical grade cannabis oil.

High-margin cannabis consumer product market

Today’s cannabis market is moving well beyond big leafy buds as consumers are increasingly interested in alternative consumption methods to smoking dried flower. Cannabis legalization in Canada and many jurisdictions in the United States has led to growth in not only the medical marijuana and recreational adult-use markets — the health and wellness market now represents a third pillar in the global cannabis industry. The global health and wellness market reached a reported $3.7 trillion in 2016 and is expected to grow by 17 percent over the next five years, and cannabis infused products have the potential to play a significant role in that growth.

Whether medical, recreational or health and wellness, the overall cannabis industry is being shaped in large part by downstream cannabis product developers and consumers looking for new ways to integrate the plant’s many benefits into an active and healthy lifestyle. Cannabis product companies are already leveraging consumer desire for more health-conscious and discrete methods of cannabis consumption by offering an increasingly diverse range of cannabis infused products, including cosmetics, sports-recovery shakes, pet care, pain-relieving patches, sleep-inducing sublingual sprays, THC-loaded gummies, anxiety-relieving CBD oils, sex-enhancing topical creams, cereals and meal-replacement bars, and CBD-infused ice teas.

With the emergence of the legal adult-use market, analysts expect cannabis product innovation to continue on an even larger scale. In the North American cannabis retail market alone, sales of cannabis-based products are forecast to increase to $20.2 billion in 2021 from $6.7 billion last year, according to Arcview Market Research.

Beneficial strategic partnerships in the cannabis market

Cannabis product companies that can supply the medical, recreational and health and wellness markets early on will be strategically positioned as key players in the evolving global cannabis market. As the companies look to better position themselves to take advantage of this opportunity, strategic partnerships in the cannabis market are becoming increasingly popular, and they have many benefits for both partners.

By entering into strategic alliances with licensed producers, downstream cannabis product companies can obtain access to licenses, an established distribution network, as well as the expertise and knowledge of the management team. In over-supplied markets, licensed producers can ensure their flower will not be rotting away waiting for a buyer, but rather go into high margin cannabis consumer products. Brands with marketable cannabis products can partner with licensed producers as a way to enter a new market, either in North America or internationally, which can give both players a lucrative advantage over competitors. These partnerships can provide access to intellectual property and market share, as well as opportunities for further expansion. And product diversification can enhance competitiveness, profitability and brand recognition.

Companies producing downstream cannabis products can vertically-integrate their operations by partnering with a licensed producer on site, cutting costs and controlling product quality. Pharmaceutical company Canntab Therapeutics (CSE:PILL) has a collaborative partnership in place with licensed producer FSD Pharma Inc. (CSE:HUGE). FSD Pharma is providing Canntab with 10,000 square feet of space in its Cobourg facility in return for profit-sharing and the development of a line of cannabis oral dose delivery platforms and other types of cannabis-based products, such as sleep aids and pain relievers. Canntab’s co-location agreement with FSD Pharma also gives them access to the expertise of the World Class Extractions team also onsite as well as their extract products for use in Canntab’s manufacturing process.

“Co-locating with FSD Pharma allows us to differ capital costs but also reduces the footprint of our processes. You can imagine the headache of trying to move large amounts of cannabis material between two locations. Everything under one roof. Costs are minimized as we share space and processes are streamlined as we reduce transportation distances to 0. Having an unbroken chain also helps us satisfy the pharmaceutical standards we must respect,” Canntab CEO Jeff Renwick told Investing News Network. “Once we have the products we can then turn to FSD Pharma to complete the sales, at least until we have our own license application approved which could be as early as mid 2019.”

Canntab has also partnered with another Canadian licensed producer, Emblem Corp (TSXV:EMC,OTCQX:EMMBF), giving Emblem the exclusive right to utilize Canntab’s Extended Release (XR) cannabis tablets in Canada. These proprietary time-released tablets are designed to release a predetermined and consistent dose of cannabinoids over an extended period of time, giving the consumer longer lasting relief while reducing the worry of side effects.

Phivida Holdings Inc (CSE:VIDA,OTCQX:PHVAF) is partnered with WeedMD Inc. (TSXV:WMD,OTCMKTS:WDDMF, FSE:4WE) to develop and operate Cannabis Beverages Inc. (CanBev) at WeedMD’s greenhouse facility in Strathroy, Ontario. The agreement includes product development, manufacturing, marketing and distribution of cannabis-infused beverages for Canada and export to licensed international markets. “The Phivida team is excited to contribute our management, expertise and product knowledge to the CanBev joint venture,” said Jim Bailey, CEO and President of Phivida. “WeedMD is an ideal partner for Phivida and we are thrilled to bring our cannabinoid-infused beverages and brands back home to Canada. WeedMD provides CanBev with solid infrastructure, strong management, world-class genetics and proven success in the Canadian healthcare market.”

These strategic partnerships in the cannabis market can also help companies establish a presence in growing global markets. An established player in the US, Nutritional High (CSE:EAT,OTCQB:SPLIF,FWB:2NU) was able to enter the Canadian market via a strategic partnership with licensed producer Canada House (CSE:CHV). Through Canada House, Nutritional High is able to sell it’s FLÏ brand, gaining a foothold in the Canadian market.

MYM Nutraceutical’s (CSE:MYM) deal with Amsterdam-based Dutch Passion Seed Company is another good example of strategic partnership with an international edge. MYM has inked a series of production and distribution deals for Dutch Passion branded products and seed genetics in Canada, Australia and Colombia — benefiting the global expansion goals of both companies. “As legal production of cannabis has been rapidly increasing worldwide, so has the demand for seed genetics,” said Rob Gietl, CEO of MYM. “The Dutch Passion portfolio of seeds will prove to be a very valuable asset to MYM and its shareholders.”

Takeaway

As global demand for cannabis products continues to grow, more companies are pursuing strategic partnerships in the cannabis market which will allow their brands to establish a foothold in fast-growing markets. These relationships have significant benefits for both partners as well as providing their investors with better leverage to a global cannabis market with the potential to reach nearly $194 billion by 2025.

This article was written according to INN editorial standards to educate investors.

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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