The Bright Future Of Cannabis Isn’t In Dispensaries - It’s In The Biotech Lab

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The cannabis industry is one of the fastest growing spaces in the U.S., and it isn’t even legal in every state. Despite decades of prohibition, cannabis businesses are emerging as a lucrative opportunity for investors, and many have already invested heavily in multi-state operators (MSOs) like Tilray (TLRY), Curaleaf (CURLF), and Trulieve (TCNNF), as well as holdings companies like Verano Holdings (VRNOF). 

While investments in some of the largest cannabis companies may bear fruit in the short- to mid-term, it’s important for investors to understand this evolving space is far from mature. The cannabis industry has already seen some seismic shifts when it comes to winners and losers in this dynamic emerging space, but the biggest changes are yet to come --- and they won’t be coming from dispensaries.

Cannabis industry growth fueled by new markets

It’s helpful to understand where the modern cannabis industry came from and what drove its rapid growth. Today, the global cannabis industry is worth more than $13.2 billion and, according to Grandview Research, is poised to grow at a compound annual growth rate (CAGR) of 25.5% through 2030. That means the global cannabis industry is expected to be worth about $81.23 billion by 2030. 

In 2021, roughly 80% of the revenue realized by the global cannabis industry came from the medical sector, which is well-established in the U.S. and internationally compared to adult-use or “recreational” cannabis markets. A positive sign for investors is that the legalization movement continues to add new markets to both the medical and adult-use spaces --- in the U.S. last year, seven states voted to legalize cannabis in some form. 

Thus far, much of the value in these new markets have come from the biggest cannabis dispensaries, which sell cannabis products to patients and customers. In addition, the cultivation and manufacturing operations that create these products have been an immense source of value for the cannabis industry. This supply chain is likely to remain intact as cannabis legalization spreads and existing markets mature, but it’s just the beginning; it is another sector of the cannabis industry entirely that will offer the most value for investors who get in early.

A mature cannabis industry will be spurred by biotech companies

The development of new markets and establishment of the basic supply chain -- from cultivators and manufacturers to distributors to dispensaries to the end user -- will continue to fuel the growth of the cannabis industry for years to come. But the real value will be in the maturity of one fledgling sector in particular: cannabinoid pharmaceuticals.

Biotech companies are already hard at work trying to harness the therapeutic potential of cannabinoids, the compounds like THC and CBD that are found in cannabis plants. In some cases, there have already been successes, such as the FDA approval of GW Pharmaceuticals’ (GWPH) product Epidiolex, a CBD-based anti-convulsant medication. To get a sense of the market value around cannabinoid pharmaceuticals, Epidiolex prompted Jazz Pharmaceuticals (JAZZ) to acquire GW for $7.6 billion.

Prior to Epidiolex, the FDA has approved synthetic cannabinoids like Marinol (dronabinol), Syndros (dronabinol), and Cesamet (nabilone), which are used for treating nausea and vomiting and pain relief. In other words, regulatory agencies are coming around to the effectiveness of safe, well-researched cannabinoid therapies.

Advanced manufacturing of pharmaceutical-grade cannabinoid medications takes time, but will undoubtedly be the sector in which massive growth occurs worldwide in the next few years. Market analysis from Grandview Research projects cannabinoid pharmaceutical value will grow from $943.5 million in 2021 to $68 billion in 2028, a massive compound annual growth rate of 104.3% that would represent a huge portion of the global cannabis industry’s overall value. 

These growth projections presuppose further regulatory movement on pre-clinical and developmental cannabinoid medications, but the FDA’s previous approvals suggest we’re moving in the right direction. And companies are responding accordingly. For example, Pfizer (PFE) is reportedly working on CB1 antagonists, cannabinoid-based therapies that influence a key receptor in the endogenous cannabinoid system (ECS). 

And it’s not just the pharma giants that are working in the space, either --- there are numerous small biotech companies and startups dedicating all their resources to developing novel medications based on cannabinoids that could lead to totally new treatments.

In the pharmaceutical space, which has long been restricted when it comes to cannabis, there is now a lot of interest in the endocannabinoid system (ECS) and how it works. There also appears to be regulatory support for the medications which can pass muster in clinical trials. For investors, these developments should serve as a signal that the sector is ripe for investment today.

Cannabis biotechnology is the future of the industry

Cannabinoid-based therapies have shown promise when it comes to cancer treatment, seizures, pain management, and mental health. The combined value of developing novel treatments in these spaces is in the hundreds of billions, and cannabinoid therapies offer totally new approaches to these long-standing health issues. As researchers learn more about how the endogenous cannabinoid system works and how to produce stable, clinical-grade medications based on what we’ve learned from botanical cannabinoids, we’re well-positioned for a healthcare revolution born out of cannabis biotech.

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Weed Investor 1 year ago Member's comment

Interesting, thanks.