In the second of a tw0-part interview, LeafCann chief executive Elisabetta Faenza tells Cannabiz of the company’s future plans – including the development of a $350m facility – and reveals how it will make medicinal cannabis more affordable for patients.
For those becoming restless over the progress of Australia’s medicinal cannabis industry, a relatively recent history lesson may be in order.
It should, argues Elisabetta Faenza, provide a little perspective on the progress made in the four years since legalisation.
The history lesson dates to the early decades of the 20th century when antibiotics were truly making their mark in the world of science and medicine.
“When we think about our sector and that stage of maturity we have reached, it is akin to the early days of antibiotics in the lead up to World War II,” the LeafCann chief executive says.
“Antibiotics went from a traditional therapy used to treat infections before we even knew about bacteria to a highly developed range of mass-produced medicine available throughout the world.
“What we know about antibiotics now in the many forms they are delivered, including dosing control, quality and information for doctors and pharmacists, has changed dramatically over the last 100 years.”
The first modern antibiotic was discovered in 1909 to treat syphilis, she adds. But it took another 30 years for the name antibiotic to enter the medical lexicon.
“Mass production of penicillin only started in the 1940s, mainly driven by the war, and since then antibiotics have saved millions of lives from common infections. So, when we get impatient about the quality and consistency of medicinal cannabis, we need to reflect on the path of other natural products from home remedy to reliable medicine.”
In short, medicinal cannabis hasn’t done so badly.
The patience game
Patience has certainly been the watchword for LeafCann.
Since its inception in 2016, the company has scoured the world for prospective partners that meet what Faenza describes as its core pillars of quality, consistency and value.
So far, it’s largely been a research game for the Adelaide-based firm. But product is not far away.
Later this year, the company aims to launch a number of Australian-sourced and manufactured non-cannabis products under its Alchemy brand. Next year, LeafCann intends to launch its Precision range of medicinal cannabis, with the aim of taking over various stages of production as the company expands its capabilities.
Initially, however, LeafCann will import whole-plant extracts and distribute “someone else’s very high quality product”.
“The LeafCann team has spent the last four years travelling to meet with prospective partners, and audit facilities around the world to find products that meet our core promise of quality, consistency and value,” Faenza explains.
“This includes production that meets Australian and European Good Manufacturing Practice standards around safety, hygiene, how products are made, handled, packaged and transported as well as manufacturing processes and product stability.”
Such exacting standards are, Faenza adds, one of the reasons why medicinal cannabis facilities require so much investment – and why illicit supply is vastly cheaper.
“The corner drug-dealer doesn’t have to provide any assurances around safety, toxic chemical contamination, or demonstrate that what they sell is even close to the type of cannabis medicine you need,” she says.
According to Faenza, the industry has shifted its approach from the very early days when promotion, rather than the fundamentals of making a medicine, was the focus. Today, the sector is proceeding more cautiously, and rightly so.
“You need to prove each component of your supply chain before you add more complexity,” Faenza says. “And that is what we have made a conscious decision to do.”
It’s been a gradual process for LeafCann. From building its internal IP, assessing equipment for controlled growing of cannabis and analysing different processing systems, LeafCann has made no secret of its strategy to build carefully and systematically, with a focus on R&D.
“There are a host of different methodologies, and the way you harvest and prepare the biomass for extraction makes a big difference. So we’ve been fine tuning and testing, and have spent a lot of time on R&D, determining genetics and growing methodologies and extractions,” she says. “We want to ensure we nail down and problem solve these parts of the supply chain.”
Faenza describes the LeafCann model as one of “facing the patient and building backwards”.
“Eventually we will own every part of the supply chain. We have the licences for every stage in Australia and intend to apply for those in the UK as well,” she explains. “But we’ll do it progressively. The model is that we build out a specific component. We perfect that, get the efficiencies, understand the pitfalls, develop markets and bolt on the next piece.”
To that end, LeafCann has just begun work on a $350 million facility in South Australia that will be progressively expanded over the next decade.
Starting with a high-security schedule 8 and 4 medicines warehouse and distribution centre, LeafCann plans to build out the supply chain with finishing, extraction, cultivation and genetics – in that order.
“This will allow us to bring product to market faster and reduce the cost of product to patients,” she says. “We will raise and deploy capital on an appropriate basis as we prove out each stage.”
It is a vision that earlier this year received major project status from the Australian Government for its economic and employment benefits. At the time Faenza said the political recognition will enable LeafCann to “expedite the expansion plans” and help Australia “cement its position at the forefront of global innovation”.
In addition to those plans, under a program called Accelerate, LeafCann is forging relationships with licensees, and prospective licensees, for the cultivation phase of its supply chain.
Essentially, the company will have oversight of the growing process, determine the genetics and design and oversee quality control. Having numerous partners diversifies risk and enables growing to be geared towards a particular outcome, Faenza says.
“The best way to diversify risk is to have growers in different places who are growing to particular end points,” she explains. “ For instance, a high CBD crop has a different requirement for growing than a one to one CBD/THC crop, or one where you want more of the minor cannabinoids.”
Faenza says LeafCann has so far resisted any temptation to list, insisting it made a conscious decision to remain private “for as long as we could”.
“We decided we wouldn’t look at listing until we had revenue and a pathway to breakeven and profit,” she says. “We’ve been very fortunate in that we’ve been able to attract private backers who have a passion for medicinal cannabis and health.”
The $350m required for the South Australia facility over the next 10 years is expected to be funded through a range of initiatives, including private equity and institutional debt.
Controlling the cost
One of LeafCann’s core ambitions is to address what Faenza labels the “inflated” price of medicinal cannabis. While executives debate the cost per gram of various growing methods, these account for less than a third of the total cost. The often unaffordable end price, she says, is generated by packaging and perhaps more significantly, distribution and warehousing.
The issue, she says, is the mark-ups pharmaceutical companies are putting on storage costs.
“When we audited the entire medicinal cannabis supply chain we found that most [of the cost increase] is not happening at the production end, it is in the outsourcing of importation, warehousing, distribution of the product,” she says.
“Most product in Australia is moving through third party outsourced services which each add 100-300% on to the cost of the product. The single most effective thing we could do to address this issue is to build our own warehousing and distribution centre.
“Owning that part of the model is the biggest difference we can make to reduce the cost to the patient.”
For those struggling to afford medicinal cannabis, that can’t come soon enough.