Economic Impact of Biosynthesis on the Cannabis Industry

NetworkNewsWire Editorial Coverage: According to a recent Haywood Securities research report, the value of the cannabidiol (CBD) market is expected to hit $2.1 billion by 2020. CBD is just one compound out of more than 90 found within the cannabis plant, though. While many companies with an interest in medicinal marijuana pursue various avenues to extract cannabinoids, InMed Pharmaceuticals, Inc. (CSE: IN) (OTCQB: IMLFF) (IMLFF Profile) has developed a proprietary process capable of extracting all 90+ cannabinoids in a laboratory setting, eliminating most of the costly requirements that typically come with cannabinoid extraction. To understand the value of this process, it helps to take a look at the methods utilized by other industry players such as GW Pharmaceuticals (NASDAQ: GWPH) and Zynerba Pharmaceuticals, Inc. (NASDAQ: ZYNE), as well as the challenges of high-volume cannabis cultivators like Aurora Cannabis, Inc. (TSX: ACB) (OTCQX: ACBFF) and Canopy Growth Corp. (TSX: WEED) (OTC: TWMJF).

Fueled by mounting increases in consumer demand and expanding legalization, the race is on to find a cost effective method of extracting medicinal-grade cannabinoids. To glean pharmaceutically-viable cannabinoid compounds, cannabis must first be physically grown in quantity. Then, the cannabinoids are extracted and processed in an attempt to meet the exacting purity levels required by regulatory standards. Sourcing cannabinoids naturally requires planting, growing, harvesting, extracting and purifying huge quantities of plants. Breath of Life Pharma, recently featured in a Rolling Stone article, had to dedicate one million square feet of cannabis cultivation space in order to produce enough raw flower for its extraction business. Producing compounds from plant extracts is time consuming and expensive, and, despite cultivating thousands of tons of cannabis, most companies in this arena can only produce a couple of the 90+ cannabinoids present in the plant. Many cannabinoids are found only in trace amounts and will never be accessible or economically feasible with current extraction methods.

Dedicated real-estate, facility maintenance and operating costs are all requisite for cultivation, making cannabinoid production a cumbersome and costly business. There are also ongoing concerns with growers resorting to the use of fertilizers, pesticides and herbicides to produce healthier crops and improve yields. Such actions can introduce toxic substances into edible and pharmaceutical-grade cannabinoid extracts.

With capital intensive infrastructure investment, weather and facility risks, on-going operating costs and contamination possibilities, cannabis companies may soon rely on natural and chemical synthesis processes to extract valuable cannabinoid compounds for use in medicinals and potential new pharmaceutical drug development.

Meaningful economic impact on profits should easily accrue to cannabis companies capable of shedding all the costs and challenges associated with current cultivation to extraction methods. InMed Pharmaceuticals (CSE: IN) (OTCQB: IMLFF)  is scientifically bypassing the horticultural approach to cannabinoid production by developing a robust, high-yield biosynthesis process. The company’s proprietary cannabinoid manufacturing process combines the inherent safety and known efficacy of natural drug structures with the convenience, control and quality of a laboratory-based manufacturing process. InMed’s innovative process targets significant cost savings as well as enhanced production, purification and quality control compared to existing grow-harvest-extract-purify methods employed by other companies. With similar scientific approaches used in multiple pharmaceutical applications, InMed’s biosynthesis system will allow the extraction of all of the 90+ naturally occurring cannabinoids. InMed’s proprietary biopharmaceutical approach to the production of pharmaceutical grade, bio-identical cannabinoids is a transformative technology in the rapidly emerging cannabinoid pharmaceutical, nutraceutical and medicinal sectors.

Using its exclusive process in a controlled laboratory setting, InMed’s scientists can create cannabinoid compounds that are identical to those found in nature without the difficult, expensive and time-consuming challenges of planting, growing and harvesting cannabis then laboriously extracting the individual cannabinoids for medical use. It also completely eliminates any need for fertilizers or pesticides. To protect this valuable asset, InMed recently filed a provisional patent for biosynthesis of cannabinoids. Once converted into an International Patent Cooperation Treaty (PCT) application, InMed will aggressively pursue key international jurisdictions.

“This novel approach to the biosynthesis of cannabinoids is a game-changer for drug development. The importance of producing cannabinoids that are identical to the naturally occurring compounds cannot be overstated. Many drug development efforts with synthetic derivatives have failed,” Dr. Vikramaditya Yadav, assistant professor of Chemical and Biological Engineering at the University of British Columbia, a co-inventor of the biosynthesis technology, stated in a news release announcing the filing (http://nnw.fm/WJ8zY).

On the cusp of revolutionizing cannabinoid extraction, InMed is assembling the world’s leading experts to assist with advancing its biosynthesis technology toward commercialization. In September, InMed retained Ben Paterson, P.E. as a consultant to help define the pathway for the scale-up, purification, and manufacturing strategies for InMed’s cannabinoid biosynthesis program (http://nnw.fm/pY34f). Paterson has nearly 40 years’ experience developing pharmaceutical manufacturing and purification processes. He devoted 24 of his 37 years as a senior engineering advisor at Eli Lilly in the company’s biosynthesis division. His expertise in this arena includes the design, construction, operation, optimization, and troubleshooting of both large and small molecule drug facilities, including the E. coli biosynthesis of numerous products.

No other extraction method reduces the cost or time required to create pharmaceutically-viable cannabinoid compounds like InMed’s. Other companies depend on the expertise of outside cultivators.

GW Pharmaceuticals’ (NASDAQ: GWPH) strategy is to engage a UK-based greenhouse grower to cultivate cannabis for its Epidiolex treatment. In 2016, GW Pharmaceuticals entered into a partnership with British Sugar that saw the cultivator switch from growing tomato plants to cannabis. The long-term contract involves growing marijuana plants in an 18-hectare greenhouse complex in Wissington, Norfolk, UK, to support GW’s development of a childhood epilepsy drug. It is expected that the crop will yield enough cannabis to treat 40,000 children per year globally. However, the production process still requires a great deal of expense, including electricity, lighting, heating, real estate costs and other resources that could potentially cost tens of millions of dollars, or more – racking up considerable costs compared to InMed’s ability to extract cannabinoids in a laboratory setting.

Zynerba Pharmaceuticals (NASDAQ: ZYNE) is crafting synthetic cannabinoid development techniques. Unlike InMed’s platform, these will not mimic naturally occurring cannabinoids, but will be derived from chemicals. Zynerba has been working on cannabinoid-based treatments for several major health conditions. In addition to epilepsy, fibromyalgia and Fragile X syndrome, the company has developed a synthetic transdermal cannabinoid product in the form of a gel that enables compounds to pass through the skin and into the blood stream. A skin patch is also available. Zynerba claims that its product candidates are produced in accordance with regulatory requirements, are consistent in potency and have no impurities. However, the company recently reported disappointing top-line results from its phase II study of ZYN002, a synthetic CBD-formulated permeation-enhanced gel for transdermal delivery.

For nearly 17 years, traditional cannabis producers in Canada have struggled with capital infrastructure investment, environmental risks and the open-ended costs of production, believing that somehow they’ll become more profitable by reaching economies of scale. Overseen by government-mandated quality controls, it’s a capital intensive business no matter the size of production.

With the incumbent operating costs of an 800,000 square foot building, Aurora Cannabis (TSX: ACB) (OTCQX: ACBFF) is one of the largest producers of medical cannabis in Canada. However, even large licensed producers are susceptible to the vagaries of marijuana cultivation and cannabinoid extraction.  In January, the company announced a government-initiated Type II voluntary recall of its products, with some of its marketed offerings containing “residual levels of myclobutanil and/or bifenazate that exceed any of the levels permitted in food production for these two pesticides.” Unfortunately for Aurora and all other producers, any trace of pesticides is compounded during cannabinoid extraction. The long-term ramifications of the recall are difficult to ascertain but certainly carry a financial and reputational impact. The company’s cannabis oil extracts represent about 26 percent of gross revenues. Biosynthesis produces 99%+ pure cannabinoids with no possibility of contamination, since no plant material, fertilizers or pesticides are ever used.

Canopy Growth Corp. (TSX: WEED) (OTC: TWMJF) has publicized its automated, data-driven processes, lean operation and climate control systems, but it is still dependent on large parcels of land and significant capital. Canopy is the parent company of licensed cannabis producers Tweed Inc., Tweed Farms Inc., Bedrocan Canada Inc. and newly-acquired Mettrum Health Corp, giving Canopy a combined growing platform featuring over 665,000 sq. ft. of production space. The company has also acquired part or full ownership of other cannabis producers and distributors. Although it may be a “data-driven” mega producer, Canopy is still subject to capital outlays, significant operating costs and continuous quality control concerns.

The cost of cannabis production for extracts is fast becoming a leading concern of cannabis growers and producers, especially those looking to establish a reputation for quality and consistency in addition to locking in long-term profitability in the burgeoning marijuana market. The enormous profit potential of cannabis production is offset by the vagaries of production and labor costs, varying quantity yields, environmental risk, impurities and limited cannabinoid compound extraction. InMed is at the vanguard of cannabinoid production with its ability to biosynthesize any cannabinoid in the laboratory. InMed’s proprietary cannabinoid manufacturing system provides a scientific method to cost-effectively produce larger volumes of guaranteed high-quality compounds. This unique ability places InMed in an enviable position as both the medicinal and recreational marijuana markets continue to surge.

For more information on InMed Pharmaceuticals, please visit: InMed Pharmaceuticals, Inc. (CSE: IN) (OTCQB: IMLFF)

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