If you believe some of the rhetoric surrounding Canada’s cannabis space, today’s pharmaceutical companies should feel threatened by the rise of medical marijuana and its ability to treat any number of ailments.
Don’t believe the hype, says Eden Rahim of Next Edge Capital, who argues that investors would be better off treating companies like Canopy Growth and Aurora Cannabis as glorified commodity producers rather than biotech specialists.
Recreational pot may be just a few months away here in Canada but many in the industry are pointing to medical cannabis as the truly international story. Along with a growing number of US states, countries like Germany, Italy and Denmark have in recent years made the move to legalize medical pot.
Apparently, that trend has been going to the heads of people in Canada’s pot space, such as Canopy’s Bruce Linton, who has confidently stated that not only should the alcohol and tobacco companies be worried that recreational bud will swipe a big chunk of their business but that Big Pharma should be “shaking in its boots” over medical marijuana’s ascendency.
Count Rahim among the unconvinced.
“I don’t think that pharma or biotech are really shaking in their boots,” said Rahim, who has over 20 years of experience in the pharma and biotech space, to BNN Bloomberg recently. “They take an entirely different approach. Most of the cannabis players are really commodity farmer-type companies. They basically grow a crop, harvest the crop and process it by extracting an oil or dry seeds.”
Rahim doesn’t discount the possibility that a growing list of medical conditions could one day be treated by cannabis or cannabis derivatives — only that pharma companies won’t be relying on cannabis companies to supply them with pot.
“The pharmaceutical companies are basically going to screen the 100 or so cannabinoids that are in marijuana and they’re going to select the ones that are active against receptors and they’re going to create synthetic drugs out of it,” he says. “They’re two very diverse things, so I don’t think they represent a threat at all.”
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Rahim also has words for the gestures made by some of the larger pot companies towards operating their own research and development into pot’s therapeutic capabilities. In reality, those efforts are minuscule compared to the R&D investments of pharma companies, including British biopharm company GW Pharmaceuticals (NASDAQ:GWPH), who recently had its marijuana-derived epilepsy drug Epidiolex approved by the US FDA.
“GW Pharma has been spending on developing cannabis-based drugs for 20 years. They have a two-decade head start,” says Rahim. “So I think if pharma wants to get into that space, they’ll do licensing deals with GW Pharma but they won’t do it with the Johnny-come-latelies.”
Rahim says that, in reality, the sky-high valuations in the cannabis space aren’t the result of their medical marijuana businesses but are related to their potential in the rec market space