Outside Investment, New Technology Support Growing Cannabis Industry
Denver Colorado – January 30, 2019 – Revolutionary innovations and advancements within the cannabis industry are drawing significant investment from big corporations.
- Technology currently in development will make it easier to consume active ingredients in cannabis.
- Advances have attracted investment for the technology’s use in tobacco as well as cannabis.
- These improvements could move consumers to healthier forms of consumption than smoking.
Lexaria Bioscience Corp. (CSE:LXX) (OTC:LXRP) (LXRP Profile) has benefited from recent investment by Altria to support its innovative research and design work. Canopy Growth Corporation (NYSE:CGC) (TSX:WEED) has received substantial investment from a beverage company, which will support the development of cannabis drinks. Within the sector, Aurora Cannabis Inc. (NYSE:ACB) (TSX:ACB) is in the process of acquiring an organic grower. Outside investment is bolstering Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON), a cannabis company with global reach. And another innovator, GW Pharmaceuticals Plc (NASDAQ:GWPH), has run successful trials on a new drug to tackle a form of childhood epilepsy.
To view an infographic of this editorial, click here.
Finding Funds for Cannabis
The quest for finance is important in any industry, but for cannabis businesses, which are going through a period of impressive growth thanks to legal and social changes, this need for money is particularly time sensitive. Those who find substantial funding now may be in the best position to expand in the growing market.
Only a select few companies in the cannabis industry have successfully attracted capital from — and built relationships with — Fortune 500-type corporations. Though cannabis is growing, the sector is still relatively small compared with those big names, and the perceived reputational issues can be a deterrent. Even among cannabis companies that have drawn big money, few have established a partnership allowing them to retain control, much less receive money in return for license rights and minority ownership in a subsidiary. Instead, most of these companies aim to be bought out by bigger businesses.
But there have been exceptions.
A Better Deal for a Cannabis Company
Lexaria Bioscience Corp. (CSE: LXX) (OTCQX: LXRP) is an example of one company that has built a big funding deal on its own terms.
Biotech company Lexaria is perhaps most known for its DehydraTECH technology, a revolutionary system for processing molecular compounds to make them more suitable for human consumption. Applicable to molecule such as THC and cannabidiol, the active ingredients in cannabis, the technology makes these compounds taste better, increases the body’s ability to absorb them, and speeds up their impact on the body. Together, these changes can increase the efficacy of both medical and recreational drugs.
To provide the funding for further work on this technology, Lexaria has struck a deal with industry giant Altria, which will cover the use of DehydraTECH to deliver nicotine.
The milestone deal is between Lexaria Nicotine LLC, a wholly-owned subsidiary of Lexaria, and a subsidiary of Altria, Altria Ventures Inc. Under the terms of the agreement, Altria will initially provide $1 million of finance towards a Lexaria research and development program, with the option for funding of up to $12 million.
Unlike so many other deals in the biotech sector, the partnership won’t see Altria gain any ownership over Lexaria itself. Instead, the company will receive minority ownership of the Lexaria Nicotine subsidiary, with the option to increase its stake in that company through multiple phased private financings. Lexaria retains its independence while benefiting from the money that big tobacco can provide. Critically, Lexaria’s shares have not been diluted by this fresh source of finance.
In addition to a minority stake in Lexaria Nicotine, Altria has received a license to use DehydraTECH technology in oral nicotine delivery products, on an exclusive basis in the United States and a nonexclusive basis elsewhere in the world. This will provide Lexaria with a new revenue stream, as it is slated to receive royalties for any DehydraTECH products Altria launches. The impact on Lexaria’s financial statements of a Fortune 500-derived royalty stream could be significant.
Tobacco companies are eagerly searching for alternatives to traditional cigarettes, to reduce their damaging impact on health and the reputational damage this brings. These factors give Altria a strong motive to develop products using DehydraTECH, providing profits for Lexaria and demonstrating the potential of DehydraTECH to other interested parties.
Starting with a $1 million stake might seem small compared with other big headline deals. But by gaining Altria’s buy in without selling any part of its main company, Lexaria has struck a profitable balance between raising finance and retaining its independence. It’s a unique transaction that other cannabis companies haven’t been able to achieve.
Applying the Technology
Though this recently announced deal is about tobacco, Lexaria’s attention is very much on the cannabis market.
There are three main routes for the active ingredients in cannabis to enter the body — by inhalation, by being placed under the tongue, and by being eaten. Each has its own drawbacks. Inhalation has the highest level of bioavailability, or how much of the chemical is absorbed, but is harmful to the consumer’s lungs. Consumption by under-the-tongue methods has a moderate level of bioavailability but an unpleasant taste. Eating cannabis products has a low level of bioavailability, giving consumers a low bang for their bucks, plus flavor challenges usually met through the addition of large amounts of sugar.
DehydraTECH transforms the situation by seriously reducing the downsides of eating cannabis.
The technology involves combining active ingredients with fatty acids such as those found in sunflower oil, which provide a protective bond, with a patented dehydration process. The molecules within the fatty acids are believed to keep active ingredients away from bitter taste receptors, significantly reducing their unpleasant flavor, thus vastly reducing the need to disguise them with sugar. Low-calorie edibles that taste great are possible!
Fatty acids also help active ingredients in cannabis as they pass through the digestive system. They protect cannabinoids from damage while passing through the stomach, increase the extent to which they’re absorbed by the intestines and can even bypass the liver’s first attempts to filter them out. This leads to much higher absorption, significantly increasing their bioavailability.
This process makes cannabis edibles, which are already healthier than smoking the drug, far more appealing and better value for money. This has led to deals such as Lexaria’s licensing of DehydraTECH to Nuka for use in its cannabis-infused chocolates.
To make the most of this potential, Lexaria has created subsidiaries specializing in the use of DehydraTECH for cannabis. Lexaria CanPharm Corporation focuses on the cannabis market, providing DehydraTECH and other enhancements to the global cannabis industry. The company is in discussions to license its technology in Canada, the United States, and Europe.
Lexaria Hemp Corporation. operates within the related hemp industry, which works with a specific form of cannabis that is low in psychoactive THC but potentially rich in other active ingredients. Lexaria Hemp is in discussions with a number of companies about how its products is used to deliver cannabidiol (CBD) derived from hemp.
With a groundbreaking technology, a carefully developed corporate structure and now a new Fortune 500 source of funding, Lexaria appears to be in a strong position within the cannabis industry.
A Crop of Cannabis Companies
The dramatic growth of legal cannabis in recent years has created a range of important companies focused on the sector.
Like Lexaria, Canopy Growth Corporation (NYSE:CGC) (TSX:WEED) has had success in attracting finance from bigger players outside the cannabis sector. The company has received $4 billion in investment from an American beverage company, which has bought a significant stake in the core company. This will help to finance the development of cannabis-infused drinks and is seen as part of a wider trend, as tobacco and cannabis companies look to vary their product lines while health concerns constrict their sales.
The expansion of the cannabis market has seen a string of investments and purchases within the sector. Aurora Cannabis Inc. (NYSE:ACB) (TSX:ACB), one of the big players in Canada, recently signed a letter of intent to acquire Whistler Medical Marijuana Corporation in a deal valued at $175 million. This will give Aurora control of a well-established organic cannabis brand, increasing its market appeal.
Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON) has, like Lexaria, drawn investment from Altria, in the amount of CA$2.4 billion. In this case, the funds have come in exchange for shares in the core company, giving Altria a great deal of influence at Cronos. Cronos already does business in North America, Latin America, Europe, Australia and Israel, so this will provide Altria with a way into global cannabis markets, as the spread of legalization expands cannabis markets around the world.
Other companies, such as GW Pharmaceuticals Plc (NASDAQ:GWPH) (OTC:GWPRF), are strongly oriented towards the use of cannabis for medical purposes. As well as selling strains of medical cannabis, GW has been carrying out research to develop medicines based on it. The company recently saw positive results from the second round of trials of an oral solution created to tackle Dravet syndrome, a severe and hard-to-manage form of epilepsy.
With more money coming in from big-value companies and new technology in development, the cannabis industry looks set for a bright year.
For more information on Lexaria, please visit Lexaria Bioscience Corp. (CSE:LXX) (OTCQX:LXRP).
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