In the second part of an exclusive interview with Cannabiz, Cann Group chief operating officer Shane Duncan suggests the business will hit a rhythm in 2021 and says the industry must ‘put its big boy pants on’ to get products registered.
In delivering Cann Group’s interim financial results this week, chief executive Peter Crock spoke of the strong fundamentals underpinning the business.
While half year losses may have worsened to $9.4m, and its full-year revenue targets will be missed due to Covid-related regulatory delays, he insisted the foundations are solid.
“While the delays are frustrating, it’s clear that demand for Australian TGA-GMP quality product is strong and the fundamentals of our business remain unchanged,” Crock said.
“We are really pleased with the foundations we’ve continued to build at Cann. We’re executing on key elements of our strategy and have a busy and exciting year ahead.”
For chief operating officer Shane Duncan, it’s a year that needs “rhythm”.
And key to achieving that will be overcoming those regulatory frustrations.
It is delays to administrative processes – gruelling at the best of times – that Cann says has slowed progress in selling products in Germany, via distribution partner iuvo, and led to the revenue downgrade.
Once the regulatory clearance is secured, Cann will send 25,000 medicinal cannabis units to Germany, a number which iuvo recently upped from 19,000 following “strong demand from customers”.
When that first batch of 30ml extract leaves Australia for Europe in late March or April, and once there is clarity surrounding the S3, over-the-counter registration process for its newly acquired Satipharm product, the business will settle, Duncan said.
“It’s been a bit stop-start the past couple of years. You get going, you stop, you get going, then stop again,” Duncan said.
“But over the next six months we’ll get some cadence to the business. There will be a rhythm to it and that will make a huge difference.”
The German investment
The iuvo order came as part of an agreement which saw Cann Group take a 2% stake in the German firm. The relationship will provide Cann with exclusive external rights to manufacture and supply iuvo with medicinal cannabis extracts until the end of 2021, with supply shifting to a preferred agreement until December 2022. The medicine will be iuvo-branded.
Given iuvo supplies around two dozen wholesalers in Germany, and sells into 20,000 pharmacies, Duncan said the investment has given Cann Group a cost-effective way of getting “boots on the ground in Europe”.
The iuvo investment was preferred over a potential plan to establish its own operation in Europe, a strategy Cann ultimately concluded would be too difficult to sustain and manage, and which came with higher risk.
“We also felt it made more sense to take a strategic investment in an established business, rather than signing a raft of supply agreements,” Duncan explained. “Iuvo has the quality, regulatory relationships, the licences and the partnerships with wholesalers, so it’s a relatively low-cost and prudent way to establish a position and a beachhead in Europe.
“Other Australian companies have signed agreements with wholesalers, but there’s no activation beyond that. They will need representation on the ground, or to pay for representation, to tell pharmacists and doctors about the product. Strategically, we felt it made no sense just to have that distribution agreement.”
In addition to a team of reps in Germany, iuvo’s reach extends to Italy, France and Spain, Duncan added, providing Cann with future growth opportunities.
According to Duncan, the medicinal cannabis market in German is beginning to evolve. While high-THC flower has been dominant – which some commentators believe has created a pseudo-recreational market – that is starting to shift as more doctors become interested in prescribing the medicine.
Demand for balanced formulations is increasing, and may even have surpassed high-THC, for indications such as chronic pain, sleep disorders, anxiety and mood disturbance.
“The market is starting to evolve beyond the novelty value of flower only into more like the Australian market,” Duncan said.
In addition to iuvo, Cann also struck an export agreement with the UK’s Lyphe Group, with 1400 units of high-THC and balanced formulations shipped in December, to be supplied as part of medicinal cannabis registry, Project Twenty21.
Domestically, Cann Group will continue to pursue its B-2-B model, with Entoura and a compounding pharmacy group among its customers.
“We continue to see growth quarter-on-quarter from our Australian customers,” Duncan said.
Mildura development “definitely the right move”
Cann Group’s cannabis is currently produced at a modest facility near Melbourne. At the end of the year, however, the firm’s scaled-back Mildura operation is expected to open, with capacity to produce 12,500kg of dried flower annually.
Despite the stop-start nature of the Mildura project, Duncan stressed it remained core to Cann Group’s future, and will cut production costs of a gram of dried flower almost in half.
Such economies of scale will make Cann as cost competitive as any GMP raw material producer in the world, he claimed.
Additionally, Duncan said there is already demand for the 12,500kg of cannabis that Mildura will produce.
“We’ve got a horizon of demand and forecast that says we need the Mildura facility, so we’re not worried about where that 12,500kg will go,” he said.
“And that has been the upside of scaling back Mildura rather than building a larger facility and then trying to work out what we’re going to do with the material.
“W need to look around every so often for more material. For me that’s a good problem to have and it reinforces why we need Mildura.
“It’s definitely the right move for us.”
If lowering the cost of the raw material – and the resulting price of a bottle of oil or jar of flower – is one positive, another benefit that excites Duncan is the potential to develop more sophisticated medicine.
“The interesting bit is when you get high-yielding crops, or crops from our R&D program, and you start moving outside of commoditised cannabis into precision cultivation and isolating cannabinoids that are of much higher value or much higher therapeutic benefit,” he said.
The road to drug registration
For Cann, the aim is a patented drug registration, a prospect which Duncan believes could be accelerated by its acquisition of Satipharm.
If the industry – and patients – are to prosper, such pathways to registrations must be the aim, he said, citing the example of GW Pharma which last month was acquired by Jazz Pharmaceuticals for a cool US$7.2 billion.
For that to happen, however, Duncan suggested a shift in mindset will be needed.
“In true cannabis style, people were talking about the GW Pharma deal as the greatest thing ever. Well, it’s the greatest thing ever if you’ve done the work,” he said. “No-one is going to come in and offer $7.2b if you’ve got an unregistered product.
“The mindset of the cannabis industry has been to try convincing regulators that this compound has been around for hundreds of years… and asking for a separate regulatory pathway that allows cannabis products to be registered.
“In my opinion, that’s not how regulators work. We’re seeing this a bit in Australia where the TGA has been given a hard time. But it’s not the TGA’s fault. The TGA has a framework and if you want to register a product, there is the framework.”
Yet Duncan believes the Special Access Scheme will disappear as the industry evolves and matures and as more companies take the pharmaceutical approach.
“This industry is not necessarily a pharmaceutical industry. This is a cannabis industry. But it’s going to have to put its big boy pants on and become like pharma,” he said.
“Eventually, the SAS will go away as there will be enough people who will do the work and get product registered.
“You don’t go into this industry lightly. You go into this with your eyes wide open in terms of the cost and the time and what you’re prepared to do. But the price is worth it.”