The investment community’s appetite for the cannabis sector is transitioning from high-cost cultivation and extraction businesses to companies using clinical data to tailor products for specific conditions, an audience has been told.

Speaking at an investor session hosted by Proactive, Zelira Therapeutics CEO Dr Richard Hopkins said lower capex, higher margin companies focused on patient outcomes “represent the future” and would attract more sophisticated funds into the sector.

He said: “It’s true the sector has seen a pullback, but it’s transitioning from a focus on the cultivation/extraction side of the business, which has really become a commodity. And it’s been problematic because of the high capex requirements.”

“We use a hard, scientific approach to generate proprietary formulations where there’s good evidence to support that it works against a specific indication. We are not required to build out expensive infrastructure.”

Hopkins expects new funds to invest in the sector

Hopkins said Zelira’s recent capital raising in which it raised almost A$9m was an indication of ongoing interest from new and existing investors. He said he was particularly excited by the company’s upcoming Australian release of Hope, for autism, and insomnia product Zenivol, as both have proven effective in treating US patients.

“Each one has been positioned in the market to address a specific unmet medical need. We understand what the clinical end point is and the patient requirement.

“In Pennsylvania there’s been a huge take up [of Hope]. It’s got about 20% of the autism market for medicinal cannabis already. We’re expecting it to do similar things around the rest of the globe because it’s positioned well.

“Likewise with insomnia, [Zenivol] has clear material benefit for a number of indications that are linked to medicinal cannabis such as chronic pain.”

Meanwhile, Southern Cannabis Holdings CEO Tim Drury told the audience the over-the-counter CBD market will become worth between A$200m and $300m “pretty quickly” if it is down-scheduled as expected.

“So watch out for whoever manages to do that first, the early players, they will be good bets in terms of generating revenue.”

Drury added while there was no indication the Australian Government was minded to follow suit if New Zealand votes yes in its upcoming cannabis referendum, the economic impact of Covid-19 might lead to a change of heart.

“We are living in strange times,” he said. “Governments like Australia’s will have to figure out how to drum up a few extra hundred billion dollars to pay off Covid debts over the next couple of years and maybe legalising and taxing cannabis will be one idea that gets floated.”

Drury said upcoming data from the firm’s market intelligence arm, FreshLeaf Analytics, suggests patient numbers and product volume will grow significantly in the coming months.

He added: “The growth rate in Australia is close to 10% month-on-month. Having said that, less than 5% of the addressable market has been addressed at this point so there’s a huge amount of upside.”

FreshLeaf predicts demand will help revenues double in the next 6-12 months, but spend per patient will decline from $400 per month currently. It expects there will be 25,000 active patients consuming more tham 500kgs of cannabinoids by the end of 2020.

“That translates to close to $80 million of product revenues in Australia this year,” Drury said.

There are now more than 150 products legally available for Australian doctors to prescribe, up from 100 at the start of the year, with more than 95% imported from overseas.

FreshLeaf Analytics’ Q3 report is released next month.

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