The global cannabis industry is currently in the midst of a greenhouse arms race.
Every cannabis cultivator is competing to see who can achieve the greatest grow capacity, as the industry races to meet the rising global demand for medicinal and recreational marijuana.
Additionally, the CBD-based wellness market has exploded in popularity over the last several years, fuelling an ever-greater need for the plant as an ingredient in numerous products, such as cosmetic goods, pet care supplements and health foods. In fact, according to a study by the Brightfield Group, the value of the hemp-based CBD market alone could be worth over $22 billion by 2022.
However, there is a growing body of research that suggests the future of the cannabis industry might not be in cultivation after all.
Soon the CBD in your medicine won't have been grown in greenhouse. Instead, it'll have been cooked up in a scientific lab using an exciting new technology known as biosynthesis.
What is Biosynthesis?
Biosynthesis is a technology that allows scientists to generate molecules using living cells like algae, bacteria or yeast as production factories. The science behind it has already existed for some time, and in the 1970s it was used to produce the first insulin treatment for diabetes.
The same cannabinoids found in the cannabis plants—such as CBD and THC—can all be generated using this method, with higher purity, lower costs, and a greatly reduced carbon footprint.
This newly emerging technology has the potential to be extremely disruptive to the cannabis industry, which up until now has been primarily focused on boosting growing capacity by expanding the scale of greenhouse cultivation facilities.
"Biosynthesis may be the technology that brings the cannabis space into a future that enjoys the benefits of low-cost, high- purity, consistent sources of cannabinoids at industrial scale, all characteristics that are crucial to global Pharma and CPG companies."
– Rahul Sarugaser
According to an analyst from Paradigm Capital, Rahul Sarugaser, the cannabis plant itself is "a relatively inefficient biological factory". This is because up to 95 percent of its volume typically ends up as biomass waste, while the THC and CBD content only accounts for two to five percent of the plant.
Sarugaser argues that moving to a biosynthesis-based cannabinoid production model—involving a bioreactor similar to the ones used in the production of alcohol—will reduce resource requirements and push product quality to a level that traditional growers will be incapable of matching.
"Current methods for manufacturing cannabinoids, which rely on planting, growing and harvesting large quantities of cannabis plants and then extracting and purifying their active compounds, are inefficient, expensive —accounting for cannabis production's high cost of goods— and often yield a complex chemical mixture of variable and inconsistent composition," Sarugaser said.
"In the near future, cannabis companies developing products solely from the cultivation of cannabis plants will find themselves unable to compete with the manifold advantages associated with industrial-scale cannabinoid biosynthesis,"
"As these companies compete with each other to reduce their cost of goods while maintaining purity and consistency of supply, we believe the winners will be those that invest in biosynthesis, if not simply to hedge against its innately disruptive potential."
Unfortunately, using biosynthesis to produce cannabinoids has yet to become a commercially-viable cultivation option, however Sarugaser believes that it may only be approximately 18 to 24 months away as numerous companies are already working on bringing the technology to market.
Who are the Big Players?
Although there are dozens of medical cannabis biotech firms that are currently working on refining the process for biosynthetically producing cannabinoid compounds, two in particular are showing strong potential.
One of these is Gingko Bioworks—a private company operating out of Massachusetts known for turning bacteria into consumer goods—which claims that it will be able to develop a proprietary set of yeast cells for manufacturing cannabinoids within two years.
Last September the company signed a deal worth $122 million with the licensed cannabis producer, Cronos Group (NASDAQ:CRON), to enter into a strategic partnership focusing on fermentation-based cannabinoid production at a commercial scale.
"We've been hitting milestones and continue to be extremely impressed, and with what Ginkgo has been able to do, how quickly they're able to do it, and generally just the breadth and depth of their platform."
– CEO and President of the Cronos Group, Mike Gorenstein
The deal will see Gingko make use of Cronos's Canadian lab facilities to develop several different cannabinoid compounds, including lesser-known components such as THCV, which is only present in the plant at very low levels.
The CEO of Ginkgo Bioworks, Jason Kelly, was excited to partner with the Cronos Group, saying that they have the "green rooms, automated tracks to move plants around, A to B testing on various light configurations—everything".
"There's so much new discovery work on the pharmaceutical side that's possible using our approach. That's definitely an area that we're excited about."
"Beyond THC and CBD, there's a whole class of rare cannabinoids in [the plant], but accessing them at a remotely reasonable cost hasn't been feasible. Cronos had a view that what matters is ingredients and cost—and the technology to prove it."
"It was exactly what we'd been looking for," Kelly said
Another big competitor getting in on the game is Hyasynth Biological, a licensed cannabis dealer based in Montreal, Canada. In 2018 the company managed to secure $10 million investment from Organigram Holdings (CVE:OGI), to bring "cellular agriculture" to the Canadian cannabis industry.
The money from Organigram's investment will be used to fund the development of cannabinoid compounds using the company's proprietary production method of yeast fermentation.
The patent-pending yeast cells and enzymes developed by Hyasynth make it possible to produce phytocannabinoids and phytocannabinoid analogues, which has already allowed the company to create CBG, CBD and other cannabinoid molecules.
" Applying our research to the engineering of cannabinoid-based products means we can help companies like Organigram create more, better and more accessible products, while also essentially eliminating product shortages."
– CEO of Hyasynth Bioworks, Kevin Chen
Hyasynth has already demonstrated the viability of their production method for producing cannabinoids at small-scale through a research exemption from Health Canada.
The company also recently received a Dealer's License from Health Canada, which has allowed them to expand their reach into production.
The funding provided by Organigram will be used to bankroll the production of a purpose-built manufacturing facility, while also allowing Hyasynth to fine-tune their processes at scale via a contract manufacturer.
The CEO of Organigram, Greg Engel, said that thanks to Hyasynth's technological offering there are now "few limits on how quickly we can respond to market demand".
"Hyasynth's technology offers us access to the future of cannabinoid production today."
"We know that cost-efficiency and scalability will be necessary to meet the needs of the Canadian and the global cannabis markets."
"Working with Hyasynth, we can throw out old assumptions about the scale, speed and precision with which we can produce both extract-based medical products and a comprehensive and diverse range of recreational use products like edibles and beverages," Engel said.
Another emergent technology that's drawing significant attention is synthetic CBD. Similarly to cannabinoids produced using biosynthesis, synthetic CBD can be created in a lab without the need for the marijuana plant itself.
Instead of using living cells as production factories, synthetic CBD—which is simply a purified analogue of naturally occurring CBD—is produced using organic chemistry to recreate the molecular structure of cannabinoid compounds.
This makes it easier to be mass produced, allows CBD to generated at a significantly reduced cost.
The race to gain the first-mover advantage on synthetic CBD is already on, and companies such as CannBioRex and Katexco Pharmaceuticals are hard at work refining the technology's potential to treat rheumatoid arthritis, multiple sclerosis, and other inflammatory diseases.
However, one company that's already making big strides is Botanix Pharmaceuticals (ASX:BOT), which is conducting clinical trials for synthetically-derived CBD treatments for acne, psoriasis and dermatitis.
"CBD is just a molecule, you can extract it from a plant but it won't be very pure. The reason we use a synthetic is because we can get it 100% pure all the time. Regulators don't like drugs that have bits of other chemicals in them, just as you wouldn't want any other drugs when you're taking a Panadol."
– Executive Director of Botanix Pharmaceuticals, Matt Callahan
Once the trial is complete, the company hopes to turn the compounds into some of the first registered cannabis drugs targeted at serious skin conditions.
According to the executive director of Botanix, Matt Callahan, in the future most CBD products will be made synthetically. He also predicts that CBD products will be commercially available in Australia as early as 2021, saying that the value of the local market could be in the "hundreds of millions".
"I think it's inevitable, it's a chemical with no real side effects that are dangerous to humans and lots of potential benefits. At worst, it's a functional food."
"[synthetic] CBD is very easy to make and it's more cost effective to make it rather than extract it from a plant," Callahan said.
Go for Gold
While there will always be a commercial need for the cannabis plant itself, it seems clear that companies who are able to successfully incorporate biosynthesis—or synthetic CBD—into their offering will enjoy a key advantage over their competitors.
The ability to generate low-cost high purity cannabinoids at an industrial scale will become increasingly necessary for companies looking to operate at the forefront of the market. This may be of particular importance going forward because the cannabinoid compounds produced are likely to be exempt from the regulatory hurdles governing the cannabis cultivation sector, as they did not originate in the plant itself.
And, at this point the value of the CBD market has become too large for any company to simply ignore. A recent report published by New Frontier Data shows that CBD is already the fast-growing industry in the cannabis sector, and has seen sales triple to $367 million from 2014 to 2017.
The market has been tipped to reach more than $1.3 billion in value by 2022, thanks to an acceleration in sales kicked off by the passing of the US Farm Bill in December last year.
Publicly traded big box retailers such as Walgreens and CVS are also already planning to stock CBD products, which has left cannabis companies racing to develop the proprietary compounds needed to stake a claim in the market.
Now all that remains to be seen is who will reach the finish line first.