After bullish enthusiasm for medicinal cannabis stocks, expectations lower for the sunrise industry.

Buzz around the recreational cannabis referendum last year had investors seeing green with opportunities ranging from cheaper medicines to cannabis tourism. 

But after an initial spike in interest from early movers, enthusiasm for cannabis stocks has waned after the country voted ‘no’ on the referendum, Hatch general manager Kristen Lunman says.

Digital investment platform Hatch was one of the first to give local investors access to international medicinal cannabis companies in 2018, when medicinal cannabis also became legal in New Zealand.

Lunman said medicinal cannabis investors had since been on an “emotional rollercoaster”.

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Investors were keen about cannabis stocks in the United States and Canada when the drug became legal in states there. But regulatory hurdles quashed excitement. 

A similar trend followed in New Zealand with the referendum. 

Medicinal cannabis in New Zealand has been legal since 2018, and last year the Medicinal Cannabis Scheme came into effect in April 2020, to allow for widespread prescription.

However, despite the scheme launching more than a year ago, none of the local medicinal cannabis companies in New Zealand have been able to manufacture medicinal cannabis to sell locally.

Since the referendum results, the share price of the two NZX-listed medicinal cannabis companies has been falling.

Rua Bioscience’s share price fell from 70 cents, when it listed in October, to about 42 cents a share this month.

Similarly, Cannasouth’s share price has fallen from an all time high of $1.20 in the months before the referendum to about 48 cents per share this month.

Industry’s slow growth

The slow growth in New Zealand’s medicinal cannabis industry has been attributed to the industry facing onerous standards, some of the strictest in the world, and having to build from the ground up.

In New Zealand, companies need two sets of licences to manufacture and sell medicinal cannabis locally.

While a number of the leading medicinal cannabis companies have received licensing under the controlled drugs legislation, many are awaiting licensing under the medicines manufacturing legislation, which all pharmaceutical companies need.

The New Zealand medicines legislation follows the international Good Manufacturing Practice (GMP) standard which requires companies to be audited by a third party before submitting to its regulator. 

But part of being a sunrise industry means there are no labs in New Zealand that can peer review samples, companies are having to send samples for auditing offshore to get verified. 

Hatch general manager Kristen Lunman says the medicinal cannabis industry's slow growth may have left investors hoping to get rich quick disappointed. Photo: Supplied
Hatch general manager Kristen Lunman says the medicinal cannabis industry’s slow growth may have left investors hoping to get rich quick disappointed. Photo: Supplied

And Covid hasn’t made things easier either with shipping delays causing affecting manufacturing plans.

Last month Rua Bioscience notified the NZX that samples it sent to Canadian and Australian labs for GMP certification were being held up at international customs.

Setting up a pharmaceutical company also requires big capital investment.

Cannasouth chief executive Mark Lucas said to participate in the industry companies need to build facilities capable of meeting GMP manufacturing standards, build a team with expertise, have quality materials, air handling processing and correct documentation. 

Privately funded medicinal cannabis company Helius Therapeutics had spent almost $50 million in its three-year facility set up, its chief executive Carmen Doran said. 

Losing the referendum

Due to New Zealand’s already high quality standards for medicine manufacturing, many medicinal cannabis players were hoping for recreational cannabis to also be legalised as it would have allowed companies to recoup some of their investment through over-the-counter products.

NZ Medical Cannabis Council board member Shane Le Brun said there was a lot of confusion between the recreational cannabis referendum and the existing legal medicinal cannabis legislation.

The legalisation of recreational cannabis could have made it easier for medicinal cannabis companies to make over the counter nutraceutical products, such as supplements or cosmetics infused with cannabidiol (CBD) and CBD oil to control anxiety for instance.

Medicinal companies along with a number of companies in the natural health products industry are also hoping for natural health products legislation to make it easier to produce CBD products outside the Medicines Act.

Helius Therapeutics chief executive Carmen Doran says a move for low-dose CBD to be available over the counter or as a pharmacy-only product would be great for patient access for those using CBD as a wellness supplement.

Imported medicinal cannabis products can cost about $1000 a month. Photo: Unsplash

Le Brun said revival of the Natural Health Products Bill, which was quashed by NZ First in 2017, could be the silver bullet to preventing the “death of medicinal cannabis companies”.

“We’re talking millions of dollars worth of investors money being written off. For maximum survival we absolutely need to get the nutraceuticals bill.”

“There’s already loads of people using illegally sourced CBD than legally sourced. And the ministry just can’t police all the random websites shipping CBD from offshore so best to get it all above board and regulate it properly. And make it available on the shop counter.”

The current onerous standards the medicinal cannabis industry faced were also making the price of medicine expensive for patients, Le Brun said.

Imported medicinal cannabis products can cost about $1000 a month depending on the dose, according to the Ministry of Health.

He said companies planned to bring down the price of medicinal cannabis products once they started manufacturing, but this could take at least two years.

And after all that, it might be difficult for Kiwi companies to compete on price with international pharmaceutical companies like Canada’s Tilray. 

“Prices are going to up not down in the short term but also the way the settings are, companies will barely be able to beat Tilray on price without risking long term haemorrhaging of cash,” Le Brun said. 

Canada’s medicinal cannabis market is flooded with cheap cannabis as its recreational industry has overgrown the plant, dealing with a 1 million kilogram backlog of cannabis.

“It’s relatively early days, which makes it high risk. Investors are being a touch more cautious, because there’s disappointment around the speed at which these companies are growing.”
– Kristen Lunman, Hatch

But Helius’ Doran views the strict medicinal cannabis agency rules as holding the industry to a high standard giving local manufacturers competitive advantage on quality.

On price, Rua Bioscience co-founder and Chair of NZ Medical Cannabis Company,Manu Caddie said the industry was working hard to get some CBD products removed from the medicines system as well as  work with agencies to subsidise medicinal cannabis for patients through ACC, WINZ and Pharmac.

Genie’s out of the bottle

Last year’s referendum attracted some “get rich quick” behaviour, Lunman said, with investors hoping to cash in on a golden goose opportunity. Because the industry was so new, there would be some winners and losers. But this, only time would tell.

Investors had lowered their expectations for the industry but hadn’t lost interest completely, she said.

“It’s relatively early days, which makes it high risk. Investors are being a touch more cautious, because there’s disappointment around the speed at which these companies are growing.”

She said people were increasingly investing in medicinal cannabis exchange traded funds as well as investing in adjacent sectors that provided medicinal cannabis infrastructure such as property or hydroponics.

In the United States, real estate income trust Power REIT has been buying swathes of land for cannabis cultivation.

Since deciding to buy land for cannabis cultivation in 2019, its share price has grown more than 600 percent to above US$45 per share.

Lunman said the medicinal cannabis and its adjacent sectors were only going to grow as more countries legalised and regulated it.

“Look, the genie’s out of the bottle,” she said. “And it’s not going back in.”

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