The US CBD Market and Beyond...Wrote this for a group of investor friends a couple of weeks back and thought I would share here. GLH and others are obviously going after the CBD market in the States and here are my thoughts on GWPH and the competition for this market:
What is GWPH: GW Pharmaceuticals is a UK based company that got involved in researching cannabinoids back in the 90’s. It has two products on the market right now. Sativex was the first product to launch with a mixture of 50% CBD and 50% THC aimed at helping patients with multiple sclerosis manage their symptoms. Epidiolex is the second product to launch and just received FDA approval. Epidiolex is a 100% CBD product that will be initially marketed for epilepsy to reduce seizures. To manufacture these formulations GWPH grows cannabis plants and then throws them into extraction machines that rip out all the cannabinoids and also isolates these chemical compounds so that they can reintroduce them into the final product in the exact amounts they desire. For example Epidiolex is touted at 99.99999% pure CBD oil which helped it get approval from the US government.
What is great about GWPH: #1 would be its patents and research pipeline and its ability to show that it can get FDA approvals for its drugs. No company has been researching cannabinoids more and none are further along in this process than good old GWPH.
What is not so great about GWPH: So far everything stated has been pretty much factual up until now and this is where opinion and judgement have to take over. I believe the following:
1. CBD is just CBD. No one is going to make better CBD. Cannabidiol is simply a chemical compound found in the cannabis plant. Now that it has been discovered you can make it in a variety of ways. The first way is by growing plants. Another way is to make it synthetically in a lab using bacteria, fungi and various animal proteins, etc. through biosynthesis (Pharma companies make a lot of drugs this way because it is cheaper to produce at mass scale once you know how to formulate it properly).
2. If CBD is just CBD and THC is just THC then how will it be differentiated in the marketplace? The way that GWPH is trying to differentiate itself is though Drug Identification Numbers (DINs) and patent protection. And going this route is expensive. GWPH has spent hundreds of millions of dollars to get Epidiolex through the FDA approval process. And they are going to get a DIN for that work. And doctors will be able to write a script for it just like any other normal drug and you will be able to pick it up at Shoppers Drug Mart as per usual. And the big “if” on all this is whether the government or your insurance provider will pick up the tab for the cost like they do for other drugs. Because the government or insurance provider is going to have to pick up the cost because the annual cost of Epidiolex is expected to come in at $30,000 per epilepsy patient per year. In contrast if you got your CBD oil from a Canadian Licenses Producer it would only cost about $10,000 per year. Bottom line: GWPH has to recover the cost of the FDA approval process and the only way to do this is to charge appropriately for it.
3. More importantly many leading cannabis researchers and doctors believe that the full spectrum of cannabinoids is important to the efficacy of drug. They believe that a little THC is important to help the CBD work. And they also believe that the terpenes (what give fruits and vegetables smells and flavours) are also critical for effectiveness. These researchers believe in what is called an “Entourage Effect” where the cannabinoids work like a symphony in your body to help bring it back into homeostasis. And really that’s all that cannabis is thought to do…it is thought to help the body function as it should by reducing inflammation and bringing core systems into proper balance. And to do this these researchers think that all of the plants chemicals are important for this process to work. I think you guys know about the Endo Cannabinoid system in all mammals bodies and CB1 and CB2 receptors. The only reason that the cannabis plant has any effect on humans is because we make THC and CBD in our bodies. When cannabinoids are manufactured in our bodies they are called Endo Cannabinoids. When we get the molecules from external sources like the cannabis plant they are called Phyto Cannabinoids. And there is now a belief catching on with cannabis researchers that as we age we produce fewer Endo Cannabinoids and that is why many of us may seek Phyto Cannabinoids to help bring our bodies back into homeostasis.
4. In #1 I stated that CBD is just CBD and no one can make better CBD. What I am referring to is the CBD molecule itself. But if the efficacy of the CBD molecule is strengthened by the interactions of other cannabinoids and terpenoids and medical researchers and doctors believe this and it becomes reality then Epidiolex is in big trouble. And the reason why Epidiolex would be in big trouble is because it is an isolated compound. The other cannabinoids (there are now reported to be about 80-100 cannabinoids in the cannabis plant) and the terpenes have been removed from Epidiolex to make it pure CBD in line with hard line US drug policy. And if the medical community backs whole plant full spectrum cannabis over isolated compounds GWPH is in big trouble.
5. I invested heavily in GWPH back in 2015 because I thought they would get FDA approval by 2016 which would have set them up well to compete. However, the US government kept screwing around and it has taken 2 more years for Epidiolex to get approval from the time they passed the first double blind placebo Phase 3 clinical trial for epilepsy on March 14, 2016. And since March 14, 2016 I think the world of cannabis has changed forever. And I believe that full spectrum plant based strains are going to win out over pharmaceutical drugs with one caveat. And that caveat is that existing or new drugs that can be strengthened by adding cannabinoids will find huge success. For example, if you can add a cannabinoid to Advil that makes the drug improved in some way then you have something that is definitely marketable. But isolated compounds of cannabis I think are going to fail to gain market traction because they won’t work as well as the whole plant, they are crushingly expensive to research and therefore cost too much to the end consumer.
6. Sativex has already been a huge market failure. I tried it a couple of years ago and quickly gave up on it because it did not have the same effect as the whole plant and it tasted horrible. Epidiolex is marketed towards children and it may find a market here for parents who are unwilling to give their children any THC. It may also find a following among uneducated or non progressive doctors who are unwilling to prescribe whole plant just yet. But guys, the research on the whole plant is huge now. Cannabinoids may be the most studied chemicals in the world right now. And that research is already pointing strongly to the need for the whole plant to be used and all the cannabinoids and terpenes to work together in the Entourage Effect. So betting on a company producing isolated compounds may not work out all that well in the long term.
7. If GWPH had invested in a Canadian LP back in 2014 and currently was as big in whole plant medical as Canopy is and also had this isolated compound strategy to achieve FDA approvals then I would be loving this company right now. But I believe that GWPH is run by smart doctors and horrible business people and they missed the boat by focussing exclusively on Epidiolex. And now Canadian LPs are researching things like insomnia and PTSD and they are using their proprietary strains to do it. And Canada has 300,000 cannabis patients and growing to study this stuff on. No other country in the world has what Canada has right now in terms of the ability to study this drug on its population base. So GWPH is facing formidable competition and the one thing it has in its back pocket is its patents, but those patents are on isolated compounds for the most part and who cares about isolated compounds when the whole plant so far does it better.
Bottom line: I am not investing in GWPH. I am investing in what I believe are more nimble companies who are doing whole plant medical, whole plant recreational and who are working with leading researchers to test their proprietary strains on specific diseases and illnesses.