There is plenty of interest in the Oceania cannabis industry – and for good reason. Industry leaders congregated online for the Prohibition Partners LIVE conference to discuss a variety of topics related to business within Australia and surrounding countries. Read this article for a summary of the key insights.
The 22nd and 23rd of June, 2020 saw the return of Prohibition Partners LIVE, an annual conference where delegates in the cannabis industry come together. The Green Fund attended this conference to listen and learn from other industry leaders and engage in conversations about cannabis.
Some topics of discussion from various experts included legalisation, business strategies, international expansion and the future of the industry. Below are some key insights from a few seminars regarding the cannabis industry within Oceania. Stay tuned for more insights into the Oceania region, coming next week.
Gateway to Asia
With Europe and North America competing to dominate the cannabis market, the Asia Pacific region is looming as a sleeping giant in this space. The Asian region currently has a GDP of 32 trillion and a population of 4.5 billion, making Asia the largest and fastest-growing economy in the world.
With key Asian countries experiencing changes in policy and public opinion towards cannabis, a panel of industry experts discussed how Australian companies can establish connections and take advantage of this rapidly growing market. The guest speakers during this discussion were Brian Sheng (CEO of Asia Horizon), Ean Alexander (CEO of Altum International) and Glenn Davies (CEO of CannAcubed).
While this market appears lucrative, with forecasts backed up by impressive statistics, all panellists agreed that the Asian cannabis industry is still in its infancy. Most Asian countries appear to be approaching the cannabis industry slowly and cautiously as they investigate how legalisation plays out in other areas of the world.
Although hemp has traditionally been used in countries such as China for thousands of years, decades of prohibition has driven a fear of cannabis throughout the region. This has resulted in a very different culture in regards to cannabis when compared to other regions of the world. For some cultures, the cannabis industry challenges societal norms, so cannabis education and advocacy by international entities are a major focus for developing this market in the future.
Research and development, consumer products and patient access were highlighted as other key areas of focus. Despite a need for further cannabis education, the medical benefits of cannabis receive good coverage throughout the region. While THC has been stigmatised due to its psychoactivity, CBD is seen as the way of the future, thanks to its wide-ranging health benefits and history of use in the region (mainly extracted through hemp).
The main market for consumer products revolves around cosmetics. Beauty and personal care are extremely lucrative industries within Asia, with roughly 50% of global skincare products and sales coming from the APAC region. As there is no clear guidance from the FDA in regards to the use of CBD in ingestibles, products such as topicals, ointments and gels appear to be the only area of clarity. From a consumer perspective, topicals may also be more palatable due to their lack of psychoactivity and low risk of adverse effects.
One of the biggest challenges in the development of the Asian cannabis industry is a lack of available funding or capital. While there is an interest in the region due to the statistics and the numbers being achieved in the North American and European markets, getting real traction with business and investors is going to be an uphill battle centred around improving education.
We're seeing a massive advancement (in Asia) from the basis of (cannabis as) a traditional medicine. We're not doing anything which is synthetic or controversial – we're giving people access to a plant which has been used for thousands of years to help humans.Ean Alexander, CEO of Altum International
Other big challenges included legislation and regulations as well as the impact of COVID-19 on the manufacturing side of the industry. Despite this, there remains a lot of optimism surrounding the development of the Asian cannabis industry, with many key players keeping their eyes open for opportunities to present themselves.
Connecting with Key Markets
Australia has ambitions of being a heavyweight in the cannabis sector. With an increase in medical cannabis prescriptions fuelling competition between local operators, this discussion focused on the strategies and key factors in the successful international expansion of a cannabis business. The guest speakers during this discussion were Stephen Murphy (Co-Founder of Prohibition Partners) and Fleta Solomon (Managing Director of Little Green Pharma).
Australia is already well-positioned in the global cannabis market for a number of reasons. The first being a supportive government that have made it legal to produce and export cannabis for medicinal purposes. Australia is also well-known for its history of agricultural practices and produce, which have given us an advantage over a lot of countries vying for a stake in the global cannabis market.
While the regulatory framework for medicinal cannabis in Australia took a significant amount of time to set up, it can be viewed as beneficial for Australian cannabis business. This framework is viewed as having a more sustainable trajectory and puts greater emphasis on patient access and education for medical practitioners. On top of this, it also allows Australian businesses to be confident in having high-grade cultivation and manufacturing processes when looking to expand into international markets.
This rigorous framework is known as TGO93 which is the standard for medicinal cannabis in Australia. Complying with TGO93 instils GMP (Good Manufacturing Practice) that is deemed essential for international expansion, as Australian GMP is mutually aligned with EuGMP. While legislation was slow, it has facilitated the creation of high-quality produce. "The medicinal cannabis products coming out of Australia are second-to-none" claims Fleta Solomon. "The key to connecting with other markets is understanding where your product will end up".
We're in a position now in Australia where our medicines are coming into market. We do have that quality, so there is a huge opportunity for any Australian business to capitalise on the international markets.Fleta Solomon, Managing Director of Little Green Pharma
One of the major issues highlighted by Fleta in regards to operating a cannabis business in Australia is that it is expensive. There are high labour and manufacturing costs, high electricity bills and rigorous testing that go into making sure their produce complies with TGO93. This doesn't just make cannabis products hard to produce, it also makes it hard to source materials from suppliers.
In saying this, prices of raw material, including extracts, are always plummeting, so it's important to keep an eye on other markets for opportunities. While sourcing locally is ideal, it isn't always the best solution. There is still a commercial side to these businesses which involve trying to lower the price of products to improve patient access and increase the ROI for investors.
Opening up to international markets to reduce the cost of prescriptions for patients is the ultimate goal of Little Green Pharma. It is also a necessity for Australian businesses as they will struggle to survive from solely a domestic consumer base. The key takeaway from this seminar is that international growth should be core to a cannabis company's business plan as the domestic market is not yet sustainable.
Cannabis & Capital Markets
The ASX currently has 30 publicly listed cannabis companies, with this number set to increase in the future. Similar to the previous seminar, the content of this discussion focused on the Australian market and how it has adapted over time, highlighting how these companies have managed their assets and their expansion to other markets. The guest speakers for this discussion were Sean Kennedy (Director of PAC Partners) and Peter Crock (CEO of Cann Group).
Prior to the Australian government deregulating medicinal cannabis in 2017, there wasn't a lot of interest in the sector from investors. Once the deregulation occurred there was a massive spike in interest and the industry went from a quiet one to very busy. Investors became interested in an industry that was shaping to be legitimate and well-regulated.
A lot of this interest came from hedge funds but there was also interest from pharmaceutical companies as well. These pharmaceutical companies appear to be very active in their interest but they operate behind-the-scenes, quietly accumulating more knowledge while patenting certain molecules, medicines and technologies. The largest owner of patents in the R&D space of the global cannabis industry is Sanofi followed by Johnson & Johnson and Merck & Co.
In Australia, medicinal cannabis is still treated as an unregistered product, which is another reason pharmaceutical companies are patiently waiting and observing. Investors are looking to understand which companies are capable of making products that meet the requirements of regulators, such as the TGA in Australia. This echoes the same sentiment as the preceding seminar – that strict regulations enable the creation of the high-quality produce that is accepted in international markets.
There is capital looking for a home but we need to show that we have a well-regulated industry.Peter Crock, CEO of Cann Group
At the moment, the main focus for a lot of cannabis companies within Australia is cultivation, as this is the part of the supply chain that requires the most capital. The Australian market is very reliant on imports due to a lack of cultivation that is required to provide products for the industry. Once this piece of the supply chain is in place, the industry will be better equipped to supply regional markets. According to Sean Kennedy, "If you don't control cultivation, you don't control your own destiny".
In Australia, the legislation was in place to allow companies to apply for licences prior to raising capital. Companies who went to the market and had a business plan that they could quickly execute once they raised capital were far more successful than those who attempted to raise capital without gaining a licence first. While the industry has gone through several iterations, this version of the industry is the most sophisticated and has a focus on cash flow.
In regards to a recreational market, both CEOs agreed that this was an unnecessary distraction. Both deemed that it was a long way off in Australia and that the focus was on making a difference in people's lives with medicinal cannabis. While there is a significant patient base in Australia, international expansion is crucial in driving down the cost of these medicines. Delivering products that show real revenue streams will be the next challenge for Australian businesses.
Get the Latest Marijuana News &
Content in your Inbox!
All your support helps The Green Fund keep writing content for all you
marijuana enthusiasts and potential pot stock investors