Industry leaders have spoken of the need to generate revenue, the imperative of creating trust and the importance of drug registration as Australia’s medicinal cannabis sector continues its slow but steady development.

During a wide-ranging discussion at the ACannabis EVOLVE conference, senior executives depicted an industry that continues to experience growing pains, but one preparing for long-term sustainability.

Australian cannabis firms have been warned not to rush to profitability

Access to capital, regulatory barriers and the dubious quality of imported products all remain issues, the conference heard.

Equally, Australia’s rigorous quality and compliance standards and cutting-edge medical science is likely to put the country on a strong footing both locally and in international markets, business leaders said.

Cann Group chief executive and Medicinal Cannabis Industry Australia (MCIA) chair Peter Crock described the regulatory environment created by the TGA as a “badge of honour”.

Yet some regulations continue to hamper the industry’s progress, he said.

“We need to get the regulatory environment right. Our objective, and a key role for the MCIA, is to develop an industry that is trusted, and I think the research environment in Australia is absolutely world leading.

“But we’ve still got regulations where La Trobe University can hold no more than 200g of cannabis, and that is crippling us in terms of getting analysis done.

Peter Crock: it’s not about kicking the regulator in the shins

“They can work with radioactive material, they can handle genetically modified crops… but we’ve got legislation where someone can go to jail if they end up with more than 200g of cannabis on site.

“We’ve got to get the dialogue right with the regulator. It’s not about kicking them in the shins, but working with them to get the balance right to leverage the capability we have in Australia.”

Praise for Australia’s stringent quality requirements was echoed by Cronos Australia chief executive Rodney Cocks, who said the standards are being recognised around the world.

“If I talk to colleagues off shore, whether in Europe or North America, they are very impressed with the regulatory framework we have here, the standards we are upholding and the level we are held to as an industry,” he said.

“It is certainly reverberating beyond our shores, which I think will bring commercial success and outcomes for patients both here and abroad.”

Concerns persist over level playing field

While recognising the benefits of Australia’s quality requirements and medical science expertise, AusCann chief executive Nick Woolf renewed calls for regulators to adopt a level playing field to ensure local manufacturers are not disadvantaged.

“There should be a level playing field to ensure we are not being beaten by competitors that have lesser hurdles from a regulatory perspective,” he told the discussion.

Nick Woolf questioned the quality of imported product

“It surprises me every time I read of a competitor who has done a deal in Macedonia or Slovenia to bring in a product. I put my head in my hands and question what the quality of that product is.”

Cocks said the issue of quality is among the reasons why Cronos has adopted a strategy of supporting Australian manufacturers.

Not only is it a commercial decision, but one made “through the lens of a patient”.

“We do get feedback about the frustration felt by patients in terms of the quality of, frankly, some of the junk that has been imported over the years,” he said.

Drug registration and evolving business models

Zelira Therapeutics ex-US managing director Dr Richard Hopkins told the industry to expect an increasingly regulated market in the longer term that “will require a path to registration in order to land products”.

Describing the “tension” of having widespread distribution of unregistered products, Hopkins said regulators overseas are raising the bar around the data needed to support products “and to have a clear path to registration”.

Citing the example of Jazz Pharmaceuticals’ acquisition of GW Pharma, Hopkins said companies which are building a portfolio of pharmaceutical assets “will ultimately rule the day”.

Richard Hopkins

“And that’s purely because we are going back to the old economic value proposition in terms of biotech and pharmaceutical products as opposed to a white label, generic market which, by its nature, offers fewer returns over the longer run to investors,” he said.

AusCann’s Woolf said access to working capital remained one of the key challenges. He acknowledged its acquisition of CannPal – a diversification into the animal health sector – was partly driven by a need for revenue.

“In addition to their FDA registration strategy, CannPal brings us earlier revenue streams through nutraceuticals products that can be rolled out in certain overseas jurisdictions with relative ease,” he explained. “We are of the view that access to capital is the challenge and consolidation in our sector is a way forward.

“We are up against behemoths like Tilray merging with Aphria and I think it’s important to see consolidation and diversification within the Australian community.”

Meanwhile, Leafcann chief executive Elisabetta Faenza revealed the company veered away from cultivation after concluding such significant investment would be better spent elsewhere.

“When you think about where you want to deploy your money, we knew that a A$30m to $40m investment in production might not be the right place,” she said.

Elisabetta Faenza

Instead, after finding a partner in Canadian operation The Green Organic Dutchman, Leafcann invested in product development and distribution, Faenza said.

She told the discussion that Leafcann will soon launch seven non-cannabis terpene products. But rather than diversification, Faenza insisted the products had always been part of the business plan.

“We originally started as a botanical extracts company so the range we are bringing out was designed in 2o15 and has been perfected over the past year,” she said. “So we are fulfilling the original promise we made to ourselves.”

Hopkins predicted that diversification will extend beyond products to delivery platforms.

As the number of products available for doctors to prescribe increases, and competition intensifies, a focus on delivery mechanisms is “inevitable”, he said.

The panel discussed the merits of specialising in certain areas of the value chain, rather than operating an across-the-board vertically integrated model.

Cocks described Cronos as “very firmly a downstream player” – at the patient end of the chain – and suggested others are taking an upstream position.

Those that are pursuing a vertically integrated model could face challenges, he said.

“That model has been challenged, in Canada specifically, and we are learning some lessons as an industry here,” he said. “But I do think we are seeing the industry shake-out. We are seeing players take on a part of the value chain and not only put their stamp on it but are growing that part of the chain.”

Crock told the discussion that having an “IP protected position” will ultimately be key. But he warned that any premature push to make money could backfire.

“The long game is to get registered products and that is where you answer the question of having affordable medicine available for patients,” he said. “The important thing is doing it properly.

“One of my European colleagues in a past life said there is an Austrian proverb that says reputation arrives by foot and leaves on horseback.

“It comes back to the lowest common denominator in the industry. We have got to make sure we don’t foot fault in the rush for people to try and make money. The revenue will come and we’ll do it properly and Australia will have a great position to take to the world in achieving that.

“It’s been slow and painful to get there and it remains slow and painful every day for us – probably we should take CBD for that – but we are getting there.”

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