When a doctor approached Nic Foreman at a conference and told him that a medicinal cannabis product had transformed his life blighted by irritable bowel syndrome and Crohn’s disease, it confirmed he was onto something.
He reckons it’s a sign that the much-maligned plant has “something really interesting” going on.
Foreman, along with Mark Lucas, is co-founder of Hamilton-based biopharmaceutical company Cannasouth.
Driven by the “high-end science” of the plant, the company aims to produce top quality cannabis compounds and medicines.
With the Medicinal Cannabis Scheme set to come into play by early 2020, the company is gearing up for what they believe will be a highly-competitive market.
Their team of scientists are now honing their processes to extract desired compounds from the plant and refine it down to a pure product.
They have been able to refine a sample to 99.7 per cent of the non-psychoactive cannabidiol compound (CBD), Foreman said.
In May, the company launched their initial public offering (IPO) and in June listed on the New Zealand Stock Exchange.
They have now grown their first crop of cannabis in their new cultivation facility – poised to harvest it in about two weeks’ time.
Cannasouth are growing about 60 cannabis plants in their cultivation facility, and have multiple different strains of the plant.
“This is a milestone for the industry,” Lucas said, who knows other companies are on the same path but believes Cannasouth are a few steps ahead.
About 60 plants are being grown under lights and fans in the undisclosed location, surrounded by security cameras and sensors.
They are growing a range of cannabis strains for research purposes only.
Anything they don’t use will be destroyed.
THC is the compound within cannabis that has the psychoactive effect. Some of the strains Cannasouth are growing have a higher proportion of CBD.
“We want to get away from the thinking this is about smoking dope and getting high,” Lucas said. “A lot of compounds in the cannabis plant have other medical uses and benefits.”
Different compounds have been linked with anti-inflammatory benefits, bone-healing, irritable bowel syndrome, and anxiety and post-traumatic stress disorders, Lucas said.
CBD, for instance, may help with epilepsy, and not just for humans.
Lucas and Foreman say the compounds in the plant are fascinating.
“We have people contacting us all the time with their animals, dogs, suffering from epilepsy wanting to know when medicinal cannabis will be available for their pets.”
It’s the endocannabinoid system that Foreman and Lucas find so fascinating – endocannabinoids being naturally produced substances in humans and animals which are similar to the effects of cannabis, and partly why the plant is thought to have health benefits.
But Lucas points out medicinal cannabis cannot solve all ailments.
“As a science company we say it’s not the panacea, but these compounds are really interesting.
“All due to the fact that they mimic the internal endocannabinoids that we produce,” Foreman adds.
And despite fielding criticism after the share price on the NZX slumped, Lucas believes the price will recover.
“When we listed the share price took a dip, which is unfortunate, we obviously can’t control that.
“We’re an early company in an early sector so you will get some volatility. We obviously want to see that price recover so we’re working as hard as we can to make that happen.”
He believes there is a growing demand for medicinal cannabis products.
“Patients are demanding access [to medicinal cannabis] because of anecdotal data. When the clinical data catches up over the next three, four, or five years as various studies go on around the world and doctors become more familiar with these medicines, we think there will be quite a big demand.”
Waikato firm Cannasouth has been building a big surfboard. That’s because it’s got a big wave to catch.
The wave is medicinal cannabis and the analogy comes from the company’s chief executive, Mark Lucas.
Cannasouth recently listed on the NZX, the first company to do so in two years, and the first medicinal cannabis company to take the step.
It recently appointed a new product development manager, scientist David Gill, and is well underway with developing cannabinoid products using its labs at Innovation Park and Hamilton East’s secure growing facility.
Timing is everything, and the introduction of the Misuse of Drugs (Medicinal Cannabis) Amendment Act last year has been followed by the release for feedback in July of a discussion document aimed at setting up a regulatory scheme, with Cannasouth set to be among those submitting before the August 7 cutoff.
Research has been a focus for chief executive Mark Lucas and the Cannasouth team.
“It’s like surfing,” Lucas says. “The big wave surfers get on the weather maps and they know when there’s a storm out there. It might be a week before the waves arrive. They fly to to get those waves. But to surf big waves you need a big board.
“We were out there and we realised, well this wave’s pretty big; to compete, or to get on the wave, we need to build a big board and that’s raising capital.”
The listing in June at 50c a share was oversubscribed and saw the company raise $10 million.
Lucas is at pains to stress they are in for the long haul, after being frustrated by some negative media commentary around the listing, which he says implied the cofounders and early investors would look to quickly sell their shares.
The price has since steadied around 37c at time of writing, and Lucas says the share price may have been affected by the commentary, as well as potential confusion around the medicinal cannabis scheme and the adult recreational debate.
He points out the rigorous process of listing involves extensive preparation and documentation.
“We’re building quality systems right throughout the business, all our policy document, everything we’re doing, is about long term success, not just about some short term flurry,” he says.
“We’re focused on building the business and we’re confident that as we hit our milestones that we’ve got lined up, that market will see that and see this business is a long term project.”
He and chief operating officer Nic Foreman can also point to long track records after working in the hemp industry since the ‘90s, first as importers and then as growers for fibre including research partnerships with Waikato University.
The idea for Cannasouth was born when they could see the uptake of medicinal cannabis overseas and calculated it would probably be only a matter of time for New Zealand to catch up.
Cannasouth has been heavily involved in research, developing its own IP, but Lucas and Foreman, with their business backgrounds, recognise the commercial realities as well.
“There’s going to be a lot of competition but the space itself is also looking like it’s going to be rather large.”
The medicinal potential of cannabinoids has been touted as potentially helping with a range of conditions from anxiety, through inflammation to epilepsy and crohn’s disease among others.
Exporting is part of Cannasouth’s plan and it intends to take a broad approach in the market; while its focus has been on developing medicines, there is also potential in neutraceuticals potentially including fortified waters and sports recovery drinks.
“[You have] highly refined medicines at one end and very basic health and wellness products at the other end for generic conditions. We endeavour to be vertically integrated and playing in all of those spaces, so we are exploring all of those opportunities,” Lucas says.
“The market’s going to start small but there is the potential that there’s a very big market at the end of it.”
The “holy grail” would be to come up with their own medicine that can treat a specific condition and be “novel and unique”.
“We have to start producing the basic medicines that you see in this space but we also have to be looking well beyond that into the future and looking at developing these next generation medicines.”
Lucas is broadly happy with the discussion document that has gone out for feedback. “We have been involved with the New Zealand Medical Cannabis Council, which is a group of licensed companies, and as part of that we have regular monthly interactions with the Ministry of Health, who have been doing a great job of consulting with industry.”
He says the biggest concern they are hearing is around the need for specialist approval of prescriptions that include THC. “What is being implied at the moment is GPs aren’t qualified to be able to write a prescription for a medicine that may produce a narcotic effect – well they can do that already for a host of different medicines. I can understand the arguments; some doctors will say that we don’t want to be pressured into writing prescriptions, but doctors already face that pressure with a range of medicines today.”
He says a big challenge will be education of doctors, most of whom see the therapeutic benefit but will want data around what conditions to prescribe it for, the dosage level and drug interactions.
“Doctors will say, show me the clinical data,” he says. “As governments around the world are starting to allow these medicines to exist, now you’re getting clinical data starting to catch up.
“I think the thing to remember is it’s going to start off very slowly. Doctors are not just going to start writing prescriptions on day one of the scheme. It will move slowly but eventually it will be a common medicine.”
The final regulations are due out by the end of the year. That will be followed in Cannasouth’s case by applications for licences, which will potentially be issued within a month or two, and then by growing cultivars, with two or three months to grow the first crop. “Then we go into the manufacture medicine space. You’re not just doing a simple extract, there’s your product, you’re going into a space where it’s GMP [good manufacturing processes]quality, you’ve got to validate, you’ve got to have shelf life.
“It’s going to take time, and we’ve been clear all the way through, this is a marathon and not a sprint.”
That said, they are putting in a burst at the moment.
“We live and breathe it. We love it. Entrepreneurs just love this stuff, this is a dream come true.
“If you can’t make the most of a once in a lifetime opportunity by working hard and surrounding yourself with the smartest people you can find then you’ve made a mistake.”
Plant’s unique qualities
Once widely prescribed before prohibition in the early 20th century, medicinal cannabis is experiencing a revival as the endacannabinoid system becomes a subject of study.
“The premise of medical cannabis is everyone’s got an endocannabinoid system,” says Cannasouth chief operating officer Nic Foreman. “Us and all the animals have endocannibinoids that we use for the functioning of a lot of our physiological subsystems, and it just turns out that the compounds in the [cannabis]plant mimic the ones in the body.”
“It’s like you live in a house,” says chief executive Mark Lucas, who has a deft way with analogies. “You thought you had two storeys and then you realise there’s a third floor to the house, that’s how big a deal the endocannibinoid system is.
“The fact that the plant has cannibinoids is interesting but the fact that we have an endocannibinoid system that controls so many of our regulatory subsystems, now that’s really interesting.”
That sees Cannasouth using expensive equipment to research the individual cannabinoids in the cannabis plant, but also how they might work together in different combinations.
The two main cannibinoids are CBD and THC, the latter producing the high.
Treatment of some conditions may require an element of THC. “These things work in unison, if you isolate a single molecule it’s often not as effective, there seems to be some synergistic effect that goes on.”
He points out that most people taking the medicines don’t want to be high, but just want to feel better, though there may be a place for the wellbeing effect for the likes of palliative care.
“We’re really just at the beginning of the journey of discovery as to what the individual cannabinoids can do and what in unison with other cannibinoids you can start to target,” says Lucas.
“I put it this way: it’s like notes of music – there’s only a limited number of notes but you can put them together in an almost limitless number of ways.”
The Board of Cannasouth Limited (NZX: CBD) is pleased to advise it has appointed David Gill as Product Development Manager, who will take responsibility for bringing the company’s first medicinal cannabis products to the market.
Gill comes to Cannasouth after more than a decade with animal health multi-national Argenta, where he was the Chief Scientific Officer for the past seven years as head of Argenta’s innovation division. Previously he was Argenta’s Research and Development Manager, leading a team of 37 scientists.
Gill started his career in the Pharmacognosy Department of the University of London, where his lifelong passion began for medicinal products derived from natural sources. He then moved into mainstream pharmaceutical science, successfully developing products for both human and animal health.
“I have worked with a wide range of companies from start-ups to multi-nationals,” he explains. “One of the most enjoyable and rewarding roles in my career was developing novel pharmaceutical treatments for neurological disorders using specific components extracted from Omega-3 oils.
“The position at Cannasouth is an opportunity to work in this extremely exciting, challenging and rewarding area of natural product chemistry again.”
“I am excited to be part of the pioneering journey in the emerging medicinal cannabis industry with Cannasouth. I’m also grateful for the opportunity to be involved in establishing New Zealand’s reputation as a world leader in this innovative area of healthcare.”
In making the announcement, Cannasouth Chief Executive Mark Lucas says the company has been fortunate to have found someone of Gill’s calibre to join its leadership team.
“David is a key hire for Cannasouth and brings with him a wealth of experience in both human and animal pharmaceutical product developments.
“He has been with Argenta as it transitioned from a small company to a large multinational with a multi-million-dollar turnover. He played an important role in Argenta’s success and we look forward to tapping into his expertise as we work to develop next-generation cannabinoid medicines.”
Following confirmation of funding this week from Callaghan Innovation, (see NZX announcement 3 July 2019), Cannasouth and its research partners are in the process of applying to the Ministry of Health (MoH) for the necessary licenses to conduct proposed research and development projects in which Gill will be involved.
In his new role, Gill will lead the research, development and formulation of cannabinoid products. He will have operational management of research projects as part of Cannasouth’s drive towards new product commercialisation. He will also be involved in leading research into delivery methods of cannabinoid medicines such as oral, sublingual, buccal, nasal, pulmonary, topical and transdermal.
Gill will be relocating from Auckland to Hamilton to take up this role with Cannasouth, which he officially starts in October 2019.
The Board of Cannasouth Limited (NZX: CBD) is pleased to advise it has received confirmation of funding from Callaghan Innovation to support two of its medicinal cannabis research programmes, subject to completion of the formal contract.
Cannasouth applied for a project grant from the government-owned agency in March 2019 to fund research in the areas of Neuropathic Pain/Drug Discovery, and Drug Bioavailability/Delivery System/Optimisation Technology.
Callaghan has committed to contributing up to $347,008 (excl. GST) to the projects over the next three years. This is conditional on Cannasouth spending up to $566,172 (excl. GST) to match the projects funding.
Chief Operating Officer Nic Foreman says the proposed funding is essential to support the Company’s technical and commercialisation programmes.
“Securing capital to ensure we make timely progress in research is key to the commercial success of our therapeutic cannabinoids products.”
“This grant will allow us to take the next step towards the development of advanced cannabinoid formulations ready for human efficacy and drug delivery-controlled trials.”
Today’s announcement is in addition to three previous grants from Callaghan Innovation for projects that Cannasouth and its research partners have either completed or are underway.
“We are grateful to Callaghan for investing in the emerging medicinal cannabis sector,” says Foreman.
“We are excited about the potential for our research to enhance outcomes for patients suffering from a wide range of debilitating medical conditions.”
Foreman confirms that the Callaghan Innovation funding will enable Cannasouth and its research partners to apply to the Ministry of Health (MoH) for the necessary licenses to conduct the research and development projects specified in the grant application.
Plant material from Cannasouth’s Waikato-based cultivation facility will be used in its Waikato Innovation Park laboratory to extract cannabinoid compounds for the proposed projects. The first harvest of plants growing in the facility is expected in the next two months.
Today’s funding announcement comes following Cannasouth’s oversubscribed Initial Public Offering (IPO) of new shares and subsequent listing of the Company on the NZX Main Board on 19 June 2019.
Medicinal cannabis firm Cannasouth is poised to become NZX’s first initial public offering in two years and is touting its ability to secure licences and strong relationships with regulators as selling points.
The Waikato-based company wants to raise $5 million from invited investors and another $5 million in a public offer, selling as many as 20 million shares at 50 cents each. Provided it gets at least $5 million, Cannasouth intends to list on the NZX in what will be the stock market’s first IPO since Oceania Healthcare went public in May 2017.
The company filed its product disclosure statement with the Companies Office on Friday and said it plans to use the funds raised for research and development, investigating sites to build commercial operations, take on staff, and cover the cost of the offer and listing. It would also boost its working capital.
Fat Prophets head of research Greg Smith has invested in the company in his personal capacity and also intends to participate in the offer.
He acknowledges it’s a speculative investment and carries a higher degree of risk. But he says he has been impressed by the track record of the founders – Mark Lucas and Nic Foreman – who have been trialling and growing industrial hemp since 2002, and the suite of licences Cannasouth has already secured.
“It’s the credibility – they’ve been around for a long time. It’s not a fly-by-night operation,” he said.
Parliament passed legislation last year to improve access to medicinal cannabis and introduce quality standards for products. The Ministry of Health is designing the framework for how the law will operate to enable domestic commercial cultivation and manufacture of medicinal cannabis.
Cannasouth has so far secured licences to cultivate, extract, import and purify medicinal cannabis and cannabinoids for research purposes. It has also secured two import licences, which are needed every time the company wants to import a cannabis product.
Smith said the company’s ability to get those licences puts it at an advantage over its rivals, and he anticipates Cannasouth has a faster route to commercialisation than other firms.
“They’re doing the right thing ahead of the change.”
The offer is being handled by CM Partners, which will take a 5 percent brokerage fee. The estimated costs including legal fees, registry fees, NZX fees, brokerage and financial advisory fees and advertising and publishing costs, are estimated at $640,000 to $970,000 depending on how much is raised.
New shares will account for 11-20 percent of registered stock.
The offer opens on May 27, with the priority offer closing on June 7 and the public offer a week later. The shares are expected to list on June 19.
Joanna Lawn, NZX head of issuer relationships, congratulated Cannasouth for its intention to list and use the public market to raise capital.
“We look forward to supporting Cannasouth to develop and grow its company via the public markets,” she said in a statement.
“This industry is just beginning in New Zealand, and companies within the industry are looking at listing as an opportunity to aid development and growth. This also provides investors with access to an early-stage growth opportunity.”
Smith said the listing is coming at a reasonable time, with the benchmark S&P/NZX 50 Index holding near a record, and also given the shortage of market listings in recent years.
“If the market was in a different place, maybe a speculative listing such as this wouldn’t fly, but then again, in such a ‘topical’ segment, there was always going to be interest,” he said.
Cannabis will be used to treat symptoms of dementia in the first major UK trial to test its use, scientists have announced. Pensioners with symptoms of Alzheimer’s disease will be recruited to see how cannabis-based treatment compares with a dummy drug. Scientists are testing whether Sativex – a Peppermint-flavoured mouth spray containing cannabinoids – could be used to reduce symptoms of agitation or aggression. Around half of the 850,000 dementia sufferers in the UK experience such symptoms, as well as memory problems and confusion.
The drug is already prescribed to some patients with multiple sclerosis to relieve muscle stiffness and spasms. Alzheimer’s Research UK is committing £300,000 funding to the Kings College London trial, involving elderly patients living in care homes. The study team will recruit 60 volunteers with Alzheimer’s disease between 55 and 90 years old who are living in care homes and have symptoms of agitation or aggression. Volunteers will take the medication for four weeks, with results compared with those given a placebo drug. Lead researcher Prof Dag Aarsland said: “While people most often associate Alzheimer’s disease with memory problems, this is just one aspect of a complex condition that can affect people in different ways.
“Many people with Alzheimer’s can become agitated or aggressive, and this can pose difficulties for the person with the condition and those closest to them” the psychiatrist said.
“Current treatments for behavioural and psychiatric symptoms of dementia are very limited, and we desperately need to develop alternatives. Doctors sometimes prescribe anti-psychotic medications, and while these drugs can have important benefits, these need to be weighed against the risk of very serious side effects.
Although Sativex is licensed for treatment of some MS symptoms, it is not currently licensed in the UK for any other indication, including treatment of the symptoms of dementia. The drug is a peppermint-flavoured mouth spray that contains a 1:1 ratio of two key cannabinoids found in the cannabis plant – delta-9-tetrahydrocannabinol (THC) and cannabidiol (CBD). If successful, the trial will be followed by a much larger study.
Audio Interview:
A Waikato company has been given a new licence to import and research dried cannabis flower.
This latest milestone for Cannasouth follows the announcement it intends to list its shares on the NZX- the first medicinal cannabis company in the country to do so.
Mark Lucas told Mike Hosking the new licence will speed up research programmes to refine the cannabinoid.
“THC and CBD are well known compounds and behind them are many other active compounds, which researchers are only just beginning to understand.
“It all comes back to the quality of the research programmes. This is going to be developing over time, you can look around the world and see what’s happening and the real demand for these medicines. ”
Cannasouth said last October it planned to list its shares on the NZX through an initial public offering (IPO) in the second quarter.
Chief executive Mark Lucas said having all three licences is a significant step forward for Cannasouth’s medicinal cannabis research and would enable the company to speed up its research programmes ahead of proposed legislative changes that will allow the manufacture and sale of medicinal cannabis in New Zealand.
“By importing a wide variety of cultivars, along with the dried flower from the Netherlands, we can further investigate the potential of both high CBD and THC varieties.”
The Misuse of Drugs (Medicinal Cannabis) Amendment Bill passed its third reading in December last year, laying the foundations of a medical cannabis industry.
In addition to giving the terminally ill a defence against the use of illicit cannabis products, the bill requires the Government to write a regulatory framework for the medicinal cannabis industry within a year – suggesting it could take until 2020 for a clearer indication of the shape the local industry will take.
Big developments in the Kiwi cannabis scene over the past few weeks. Let’s take a quick bird’s eye overview of the situation and players involved.
At the moment, there are fewer than 10 companies making moves this early. They’re preparing for the referendum in 2020, which will likely result in medicinal cannabis being legalised. A few of these firms hold state-issued licenses, but full-scale operations will have to wait until the law passes.
Let’s start from the top — regulation.
Under the Misuse of Drugs Act 1975, unauthorised possession of any amount of cannabis is illegal in New Zealand.
It’s been a controlled substance since the 1927 Dangerous Drugs Act, even though it was used as a prescription medication for a short period.
Today, if a person is caught with any amount, they can incur up to a three-month imprisonment or a $500 fine. Growers can get up to seven years. Sellers can get up to eight years.
Interestingly, cannabis oil and hashish are separately classified as class-B controlled drugs, which means manufacturers or suppliers can be hit with a 14-year imprisonment.
It’s in the same class as opium, MDMA, or morphine.
As greater research has been conducted on cannabis, the call for it to be legalised…or at least rescheduled…has grown louder.
It’s led up to the Medicinal Cannabis Amendment Act passed last December…and the announcement of a referendum in 2020. The Act allows terminally ill patients to consume the product for medicinal purposes.
And in December, the New Zealand police amended their approach towards cannabis to incorporate greater power of discretion and an emphasis on alternative resolutions over prosecution.
It’s a sign that the state is changing its unofficial stance on the substance…and warming up for an official legalisation next year.
Positive news for the industry.
In terms of providers, there are only a handful companies established this early:
Hikurangi Cannabis — Formed in 2015, this Gisborne-based firm already has a significant hemp operation running. They hold a licence from the Ministry of Health to cultivate and research strains with both high CBD and THC qualities. To date, the company has raised over $5 million in crowd-funded shares…and is planning a second offering in the near future.
Helius Therapeutics — Younger but better funded than Hikurangi, Helius Therapeutics has multiple large facilities in the Auckland area. They plan on focusing on the genetics side of the industry. Rich-lister Guy Haddleton has come on board with a group of local investors for a total of $15 million in investment. Helius holds a Ministry of Health licence to breed medicinal strains.
Cannasouth — Based in Waikato, Cannasouth claims a suite of licences allowing them to possess, extract, process, manufacture, import, and cultivate cannabis for scientific research. The company has been working with the substance since 2002, when it was granted one of New Zealand’s first cultivation licences. The company is planning an IPO on the NZX in April or May of 2019.
Setek Therapeutics — Backed by an all-star board, this Taupo-based company plans to deliver cannabis from ‘seed to shelf’…eventually offering a NZ-grown product in liquid or oil form. On the board is former associate minister of health Peter Dunne, who allowed for the first legal prescription of cannabis for a coma patient in 2015. Setek expects licences to come through in the next couple months.
Nubu Pharmaceuticals — TV presenter and former Newstalk ZB host Mark Dye founded his own firm at the end of 2017. He has already managed to raise $500,000 through seed capital. He plans on focusing on the high-end side of the market, establishing New Zealand as the premium source for high-quality product. Nubu has not yet been granted a licence.
Zeacann — As a partner with the Auckland University of Technology, Zeacann has enjoyed unique access into the research field. According to the founders, the company’s short-term goal is to facilitate a portal for medical professionals to find cannabis products. Eventually, Zeacann will cultivate and harvest cannabis for use in manufacturing oils, gels, and tablets. They opened a $20 million funding round through PwC in October of 2018. Currently unlicenced.
Greenfern — This recent arrival to the scene is based out of Taranaki and offers the unique characteristic of a hydropower-supplied facility. As electricity is a key cost for indoor growers, this clean and potentially unlimited source could offer a market advantage. They’ve raised $1.5 million via a crowdfunding campaign. Currently unlicenced.
THC Global — ASX-listed under ticker symbol [ASX:THC], this company plans to import high-quality goods from overseas into New Zealand as soon as it has Medsafe approval. Its key partnership is with Endoca, which produces a range of non-psychoactive cannabis products. It has a market cap of $68 million.
For investors, you can stake a claim in most of these companies now via their individual crowdfunding offers…and you can actually buy stocks in THC Global today on the ASX. In the next few weeks, we will likely hear more about Cannasouth’s IPO on the NZX.
But the big question is — will the referendum pass in 2020? If not, these companies may not have a leg to stand on.
According to Auckland University, half of New Zealanders aged 15–65 have tried cannabis. Half!
And one-in-six admit to regular use. That represents 1.5 million Kiwis who have dabbled…and nearly half a million who use on a regular basis.
According to the UN, New Zealand is among the top pot-using nations in the world…
In July of 2018, the NZ Drug Foundation conducted a poll and found surprising support for a positive referendum result. Here’s what they found:
Illegal Decriminalise Legal Decriminalise/legalise
Personal possession 31% 32% 35% 67%
Personal growing 38% 29% 32% 61%
Growing for friends 69% 18% 12% 30%
For pain relief 13% 17% 70% 87%
For terminal pain relief 10% 17% 72% 89%
Selling from a store 60% 9% 29% 38%
Data source: NZ Drug Foundation
The NZ Herald recently reported a newer poll, conducted by Horizon Research, that found similar results. When asked if NZ should legalise the personal use of cannabis, 60% said yes, 24% said no, and 16% were undecided.
Those aren’t small numbers. In fact, it seems likely that a referendum would result in cannabis being legalised to some degree. But the extent and structure of that plan will depend on the politicians advancing the legislation. We’ll simply have to wait and see what they come up with.
In the meantime, perhaps you can begin considering your opinion on the matter…and how you’d view cannabis companies as investments. The time for action is on your doorstep — best to be ready.
We’ll discuss possible investment strategies in upcoming issues of Money Morning New Zealand.
Waikato company Cannasouth, which plans to list on the NZX around April or May, said it had secured new licences to import, cultivate and research medicinal cannabis.
The Ministry of Health licences will enable Cannasouth to import and cultivate a wide range of cannabis cultivars for research purposes, the company said.
Cannasouth already has a licence to possess controlled drugs, which allows the company to extract, process, and manufacture cannabis products for scientific research.
One of the new licences allows Cannasouth to import an approved pharmaceutical ingredient (API) from the Netherlands – dried cannabis flower – for research purposes.
Cannasouth said last October it planned to list its shares on the NZX through an initial public offering (IPO) in the second quarter.
Chief executive Mark Lucas said having all three licences is a significant step forward for Cannasouth’s medicinal cannabis research and would enable the company to speed up its research programmes ahead of proposed legislative changes that will allow the manufacture and sale of medicinal cannabis in New Zealand.
“By importing a wide variety of cultivars, along with the dried flower from the Netherlands, we can further investigate the potential of both high CBD and THC varieties.”
He said CBD and THC are the most well-known compounds in medicinal cannabis, with both shown to relieve suffering from a wide range of medical conditions.
“What is less known, is how both compounds can work together in different compositions to alleviate suffering, and how other rarer compounds present in medicinal cannabis can also be used in treating medical conditions.
“We’re now in a position where we can use the imported dried flower to get going with our research p programmes while we wait for our own flower production to come through from our research cultivation facility.”
Lucas, alongside co-founder Nic Foreman, has been involved in the cultivation and research of industrial hemp, and now medicinal cannabis, since 2002 when they were granted one of New Zealand’s first cultivation licences.
Tim Preston of CM Partners, one of the seed funders of Cannasouth and NZX sponsor for its planned IPO, said Cannasouth was on track with its IPO plans.
The Misuse of Drugs (Medicinal Cannabis) Amendment Bill passed its third reading in December last year, laying the foundations of a medical cannabis industry.
In addition to giving the terminally ill a defence against the use of illicit cannabis products, the bill requires the Government to write a regulatory framework for the medicinal cannabis industry within a year – suggesting it could take until 2020 for a clearer indication of the shape the local industry will take.
Type the word “cannabis” into the New Zealand business directory on the Companies Office website and you’ll get a full three pages of businesses, most of them incorporated in the past two years.
That only scrapes the surface and doesn’t begin to delve into the entities with slightly more creative names, such as variations of “cann”, “canna” or “phyto”.
Like the opportunist panners who rushed to gold-rich regions decades before, cannabis pioneers are also looking to strike it lucky.
The rivers may run green this time, but many pans will end up empty, even if New Zealand’s legal cannabis industry takes off.
We’ve already seen our first casualty, in the capitulation of cannabis firm Medicann.
Emails leaked to the Herald from an investor who put $50,000 into that business give a glimpse of how sour cannabis deals can go. “I will fly to NZ and personally extract my full investment from the company by whichever way possible,” reads one email to an executive. “Please don’t construe that as a threat … take it as a f***ing promise!”
You’d imagine an email like that would be enough to prompt a little trepidation. But already, with the Medicann file still open on the liquidator’s desk, some of the individuals previously involved in that business already appear as directors and shareholders for other cannabis firms.
Speculate at your own risk
Snowball Effect co-founder Simeon Burnett is well-versed in start-ups and he warns investors not to put any money into marijuana that they aren’t willing to lose.
“Investing in the medicinal cannabis industry is highly speculative, with most companies still at the ‘concept’ stage of their development,” Burnett says.
“The regulatory regime for the medicinal cannabis industry is yet to be determined and investors should remain conscious of the risk this presents for the companies they are looking to invest in.”
The Misuse of Drugs (Medicinal Cannabis) Amendment Bill passed its third reading in December last year, laying the foundations of a medical cannabis industry. In addition to giving the terminally ill a defence against the use of illicit cannabis products, the bill requires the government to write a regulatory framework for the medicinal cannabis industry within a year – suggesting it could take until 2020 for a clearer indication of the shape the local industry will take.
Added to this structural and legal uncertainty is the reality that the many of the companies emerging aren’t likely to ever turn a profit.
“Only a small number are likely to become meaningful businesses and that’s only if the industry can find its feet,” Burnett says, making the point that investors need to conduct due diligence before parting with their hard-earned cash.
Helius Therapeutics co-founder Paul Manning takes this a step further: he advises novice investors not to part with their money at all.
“Inexperienced investors should hold off until cannabis companies are licensed, operational and – ideally – turning a profit,” Manning says. “As attractive as the industry seems, this isn’t a ‘green rush’. Be extremely wary of unregulated crowd-funding initiatives.”
Government joins the party
The speculative nature of the cannabis industry hasn’t deterred the Government from hedging a few bets through Callaghan Innovation.
Callaghan spokeswoman Melanie Tuala told the Herald Callaghan Innovation had approved research and development co-funding grants to investigate medicinal, nutritional and tech applications related to the cannabis industry.
Project grants of this nature are designed to encourage innovation by co-funding up to 40 per cent of R&D projects that meet specific criteria.
Tuala says Callaghan’s involvement in cannabis extends well beyond medicinal applications, also taking in other uses, from fabrics to energy.
She says said there is potential for New Zealand to become involved in high-value research and extraction activities – meaning there will be more examples of this type of funding as the industry matures.
Hikurangi Cannabis Company founder Manu Caddie tells the same story, when he says New Zealand could emerge as a global leader in cannabis pharmaceuticals, given the right support.
“Israel has shown what it could look like to be a small country that invests in R&D and Switzerland has shown how to be the best manufacturer, rather than being a primary product, low-value commodity exporter,” he says.
“New Zealand could easily establish itself very quickly as the best in the world if we have the resolve to do so, but it will need to involve real commitment from our politicians, the industry and investors.”
Such support, however, looks likely to prompt criticism. As seen in the backlash against the $315,000 funding grant to loss-making crypto-currency startup Vimba, the public isn’t always enamoured of the Crown agency’s funding decisions.
And Callaghan wouldn’t need any reminding about oft-repeated parallels between the bitcoin hype and the current enthusiasm for the marijuana industry.
That said, while cannabis may be speculative, unlike bitcoin, it is at least a real product — with no shortage of consumers willing to pay for it.
Out of the shadows
Cannabis may be emerging from the black market, but the stigma associated with it remains difficult to shake. One way businesses are gaining some legitimacy is by applying for licences that allow them to cultivate cannabis for scientific or medical research.
As of January 25, the Ministry of Health had granted a total five cultivation licences to New Zealand organisations. Medsafe group manager Chris James wouldn’t comment on who those organisations are, but the Herald is aware that three licences are held by start-ups Hikurangi Cannabis, Cannasouth and Helius Therapeutics.
James says the Ministry is working through another 45 applications and that others have already been rejected.
“Applications have been declined because the application has not provided sufficient information that the necessary facilities, such as security, and systems, such as procedures, are in place to prevent diversion or misuse of cannabis material,” James says.
Six firms to watch
From the primordial ooze of the still-forming cannabis industry, several Kiwi companies have quickly stuck their heads above the mass around them.
What the six indicate is that there’s no blueprint for entering an industry that doesn’t yet exist. Each company has a unique approach, and as with any start-up scene, it’s anyone’s guess who will survive.
Hikurangi Cannabis
Founded in 2015 by a group of marae representatives on the East Coast near Ruatōria, Hikurangi has had a decent head start on its competitors.
Co-founder Caddie sees the firm’s humble origin story as one of its biggest strengths.
“We’ve seen the example of what happens in Australia when start-up companies with great marketing machines pump themselves up to attract a lot of investment but then can’t deliver on the expectations raised,” he says. “In many cases, founders seem to have done it as a way to capitalise on this latest trend with no intention of establishing a long-term business that is good for sick patients, shareholders, employees and the wider society.”
The company grew its first crop of industrial hemp in 2016, a time that coincided with the first strong indications that regulatory change was on the cards.
The visual appeal of that first crop proved a powerful tool for the company, attracting interest from journalists and making Hikurangi a household name in New Zealand.
That interest was later parlayed into a crowd-funding campaign, arranged through Waiapu Investments, which led to the PledgeMe site crashing twice as Hikurangi sold all its shares in six minutes, raising $2.4 million.
The company also attracted two institutional investors who, says Caddie, “contributed substantially more funds than what was raised through Waiapu Investments”.
Hikurangi, which now employs 22 staff, is also weighing up the possibility of another fund-raising round this year, which would again open the door to Kiwi investors.
The company has already established strategic partnerships with international organisations, researchers and local growers.
Combined, these factors have set up Hikurangi as one of the most influential voices in the early stages of the cannabis sector.
One caveat, however, is that it doesn’t always pay to be first in the start-up scene. In the case of cannabis, the earlier you start, the longer you have to wait in regulatory limbo and the more money you eventually burn through.
Helius Therapeutics
Helius Therapeutics may have launched about two years after Hikurangi, but the company has quickly established a prominent voice in the industry.
Founded on seed capital from experienced businessmen Paul Manning, JP Schmidt and Gavin Pook, Helius quickly positioned itself as the legitimate foil to the industry’s shadowy side.
“We’re attempting to convert a black market to a legitimate economy, while entering one of the most regulated environments in the world: medicine,” says Manning. “The path to success is fraught with extraordinary challenges.”
Paul Manning is one of the founders of Helius Therapeutics. Photo/Supplied.
Helius has won the attention of rich lister Guy Haddleton, who joined the company and helped raise $15m from local investors.
The Helius team put this money to work, acquiring two large Auckland sites which are being developed to create a highly controlled environment for the cultivation and production of high-grade cannabis products suitable for export.
“We are focused exclusively on medicinal cannabis and, unlike most other start-ups in this space, we have no plans to enter the recreational market,” says Manning.
Given the demands of operating in the medicinal sphere, Manning warns potential investors to be wary of companies that do not yet have a licence. “Just because a company has applied, that means nothing. We’re working in the field of medicines. The process is rigorous, iterative and takes a very long time to complete,” he says.
Another thing that takes time is legal change. And with large facilities, steadily growing staff numbers and ongoing marketing expenses, Helius will be burning through cash more quickly than other players in the market.
Cannasouth
Cannasouth co-founders Mark Lucas and Nic Foreman have been involved in researching and cultivating industrial hemp since 2002, when they were granted one of New Zealand’s first cultivation licences.
Cannasouth, however, was registered in May 2017 and has emerged as one of the first cannabis companies to express a desire to list on the NZX.
Lucas says planning for the listing is underway, with the company now being audited by Deloitte in preparation for listing in the second quarter of this year.
The company is already well funded, having completed two funding rounds that gave the business a strong capital base, which has been used to hire key staff, acquire processing equipment and invest in research.
The company’s research team has already shown its chops, producing New Zealand’s first Ministry of Health-approved pharmaceutical grade cannabinoid extracts.
Cannasouth has a partnership with the University of Waikato, and has received funding from the Agricultural and Marketing Research and Development Trust and Callaghan Innovation for two studies on cannabinoids.
Setek
The cannabis industry was always going to attract a few curious characters – and none seems more incongruous than retired politician Peter Dunne, who has joined start-up Setek Therapeutics as advisory board chairman.
Company co-founder Mark Mees says that from the outset he and his partner David Pearce wanted to assemble a team of expert consultants and advisers.
Dunne was invited to lead the advisory board and agreed to do so only after running an exhaustive due diligence process on Mees and Pearce, including police background checks.
Former politician Peter Dunne chairs the advisory board at Setek. Photo/Supplied.
Mees says they then built an expert team, consisting of businesspeople, academics and scientists, in a process that was completed in December last year.
Rather than seeking investment funding from the outset, Mees has taken a more cautious approach, balancing the danger of unnecessary cash burn against the risk of inertia.
“First mover advantage is good, but we’re more focused on doing it right than getting there first,” Mees says.
“In context with this particular industry, I think the ‘fast follower’ benefits are probably undervalued by many commentators.”
Setek has lodged an application for its cultivation licence and expects to have an answer in the coming weeks. The company plans to start raising funds only after acquiring its licence.
“A number of high net-worth New Zealanders have inquired … about investment opportunities with Setek and we are also in discussion with a very well-known international cannabis company,” says Mees.
Nubu
Another interesting character throwing his hat into the cannabis ring is TV presenter and former Newstalk ZB host Mark Dye.
With co-founder Will Douglas, Dye founded the start-up Nubu at the end of 2017.
Dye says the company has already raised $500,000 through its seed capital funding round and expects to raise up to $10m from its next round. He says this money will be used to develop a growth and extraction facility and also fund R&D.
Like Setek, Nubu has lodged an application for cultivation but is still awaiting Ministry of Health approval.
Dye says Nubu’s strategy is to avoid the commodity game entirely and focus on developing products that are unique to New Zealand.
“New Zealand will never be able to produce cannabis cheaper than some of the Latin American countries coming online, or Africa when they start to grow in volume,” he says.
“We want to import high quality but low cost finished commodity products so it’s as accessible as possible for patients locally, and instead focus on the premium end of the market.”
While Nubu is small, Dye doesn’t see that as a disadvantage. “There is room for multiple players,” he says.
“Think of cannabis like the New Zealand wine industry, where there are many successful companies exporting globally. We want to build a successful company and also a successful NZ industry – to do that we need a number of successful New Zealand cannabis companies.”
Zeacann
Another dark horse among the bigger players is Zeacann, a firm that has formed a strategic research partnership with AUT.
Founded by Chris Fowlie and Thom Hooker in 2017, Zeacann put its New Zealand provenance in its name and at the core of the business.
Fowlie, who has pushed for cannabis law reform for the past 20 years, says that while others just want to grow cannabis, Zeacann is focused on developing intellectual property unique to New Zealand.
Zeacann has already launched an online portal that allows cannabis companies to list their products on a vendor-neutral portal designed to offer medical staff simple access to a catalogue of information on medically registered cannabis products.
The company remains self-funded, with Fowlie and Hooker running a lean ship as the industry develops.
“We want to retain control in New Zealand and are currently seeking strategic partners who share our vision and passion for helping patients,” Fowlie says.
Looking a little further ahead, Fowlie sees potential for the industry to become much bigger than most imagine – provided the Government doesn’t make it too costly.
“Colorado, with a population little more than New Zealand’s, has over 800 cannabis businesses,” he says. “These range from mom-and-pop farmers and hipster extractors, through to large multi-state operators.”
“But if licences are limited or made really expensive we could see it tied up by a few well-funded operators. We want to open it up. There is room for everyone, and especially if we focus on exports, then really the sky is the limit.”
There has been a dramatic increase in the number of children diagnosed with autism spectrum disorders (ASD) worldwide.
Recently anecdotal evidence of possible therapeutic effects of cannabis products has emerged. The aim of this study is to characterize the epidemiology of ASD patients receiving medical cannabis treatment and to describe its safety and efficacy.
We analysed the data prospectively collected as part of the treatment program of 188 ASD patients treated with medical cannabis between 2015 and 2017. The treatment in majority of the patients was based on cannabis oil containing 30% CBD and 1.5% THC.
Symptoms inventory, patient global assessment and side effects at 6 months were primary outcomes of interest and were assessed by structured questionnaires. After six months of treatment 82.4% of patients (155) were in active treatment and 60.0% (93) have been assessed; 28 patients (30.1%) reported a significant improvement, 50 (53.7%) moderate, 6 (6.4%) slight and 8 (8.6%) had no change in their condition.
Twenty-three patients (25.2%) experienced at least one side effect; the most common was restlessness (6.6%). Cannabis in ASD patients appears to be well tolerated, safe and effective option to relieve symptoms associated with ASD.
Are the bewildering number of cannabis-related companies coming to market signs of another boom and bust fad?
For example, emu chicks sold for eye-watering prices in the 1990s never made it to dinner tables, and shares in a company making crocs footwear soared and fell, while the jury is out over bitcoin.
Investment adviser Grant Williamson of Hamilton Hindin Greene thinks a more accurate comparison was the 1990s internet “tech wreck”, but some companies survived to became part of the orthodox business landscape.
“The cannabis sector is not an area we’re recommending at the moment. It’s high risk, speculative and not really our cup of tea for inclusion in clients’ investment portfolios,” Williamson said.
“Trying to pick winners in the early days is very difficult,” Williamson said.
Andrew Kelleher at JMI Wealth said cannabis could become a large market but had “the feel of a gold rush”.
Fisher Funds director Frank Jasper said medicinal use will become widely accepted.
“From an investment point of view it’s a bit similar to bitcoin – it’s a good idea but depends how it evolves.
“I doubt you will see cannabis stocks with Fisher funds soon because we’d want to see a more mature market evolve.
“We’d look for a company that can protect its competitive position. Recreation cannabis growing isn’t hard to do. The pharmaceutical side looks like it will go well long term.
“The tobacco industry started off with lots of small brands and ended up with a few as the market matured and the cannabis industry may be like that,” Jasper said.
Tim Preston, partner at CM Partners is advising a company that has a licence to research benefits of cannabis and expected to list on the NZX in early to mid-2019.
“We developed a growth fund to provide seed capital and we’ve just completed a further capital raising for Cannasouth with retail investors in New Zealand and Australia.
“It was oversubscribed 10 times which shows the level of interest. It’s probably the birth of the next global megatrend.”
Lisa Beach holds a harvested cannabis plant at a groundbreaking scheme near Ruatoria on the east coast of the North Island being legally grown for scientific testing.
Preston said there was a lot of social stigma around the psychoactive THC ingredient in cannabis which detracted from the science and the nutritional and pharmaceutical benefits
Cannasouth had strong links with Waikato university researchers.
“At the moment you can obtain a licence to grow cannabis but then you need further licences to do anything with it such as research, or develop products or export.
“There are a lot of steps to work through. You can’t deliver a product yet. All product must be disposed,” Preston said.
The Cannasouth team was closely monitoring work being done at government level and legislation.
“The real value would be specific products for specific ailments.”
Preston said some medicinal products had low THC while others had much higher levels depending on how they were intended to be used.
“Genetics becomes very important and that’s part of the market research.
“Our Ministry of Health will have plenty of overseas experience to draw on from the large number of places that have already legalised it,” Preston said.
Other New Zealand companies to receive a Ministry of Health research licence include Helius Therapeutics in East Tamaki in Auckland, Ruatoria-based Hikurangi, and Zeacann which is currently seeking $20m with the help of PwC.
Tim Preston, partner chairman of CM Partners enjoying weekend recreation recently as chairman of the Browns Bay Bowling Club in Auckland.
A report from one of PwC’s US offices recently warned about over-exuberance when investing in the “crowded” cannabis market when demand for products might not be as high as anticipated.
Companies would need to differentiate themselves and win consumer trust the PwC report said. Recreational market developments include Constellation Brands, maker of Corona beer, recently investing in a US cannabis company developing infused drinks to aid sleep and sociability.
And a California-based brewer owned by Heineken recently launched of a cannabis-infused sparkling water.