Let me explain: Many millions of people with degenerative age-related diseases in Germany are precipitating soaring health care costs – a financial burden that Germany’s over-stretched health care system cannot sustain. And it also means there are disproportionately fewer young taxpayers to shoulder the cost of caring for the ever-growing numbers of ailing senior citizens.
So it is of little wonder that Germany – in quintessentially pragmatic style – is embracing the global medical cannabis revolution. This includes (or will include in some cases) the explosive popularity of CBD-infused foods, drinks, topicals, sublinguals and a diversity of other therapeutic wellness products. After all, medical cannabis is proving to be an inexpensive, non-toxic and non-addictive panacea for a diversity of conditions, especially the types of chronic pain and inflammatory diseases that afflict the elderly the most.
With the biggest economy in Europe, Germany is therefore projected to have one of the highest growth rates in the world for the medical cannabis market, accelerating to a valuation of $7.8 billion by 2028, according to the UK-based cannabis research firm Prohibition Partners.
This is why early-market entrants in Germany’s blossoming medical cannabis industry promise to be well-rewarded for their prescience. Indeed, the scarcity of those much-coveted opportunities has been well-documented by the financial media.
Among 78 applicants from all over the world that vied for the privilege to cultivate cannabis in Germany, the majority of the licences were awarded – based on merit – to Aurora Cannabis and Aphria Inc., which are, the second and third largest cannabis companies in the world.
Among the many highly skilled cannabis cultivators (LPs) that did not make the grade was Canopy Growth – the global cannabis industry leader in terms of output. Plenty of other big-name Canadian industrial-scale growers of pharmaceutical-grade cannabis also got shut out.
Yet what has gone largely unreported is that a small Canadian cannabis R&D company, XPhyto Therapeutics Corp. (CSE: XPHY) (FRANKFURT: 4XT) also earned the distinction of being awarded a cultivation licence – albeit one that is for exclusively R&D purposes at a highly-secure underground German laboratory. This includes the right to extract cannabis oils and to innovate proprietary formulations for commercial applications.
XPhyto’s timing could not be better as XPhyto was just called to trade on August 06, 2019 on the CSE last week under the symbol “XPHY.” And it began trading in Frankfurt Stock Exchange on August 13th under the symbol “4XT”.
This ultra-secure facility is where much of XPhyto’s in-house research will take place. It is also an ideal location to meet the legal and regulatory requirements for the company’s plans to submit applications for cannabis import, storage, distribution, and manufacturing licences in Q3 2019.
Exactly what will be going on in the laboratory is still largely shrouded in mystery. In fact, the company is remaining tight-lipped about any of this. However, its latest news release may shed some light on XPhyto’s commercial ambitions in Germany.
What does this all mean to investors? After all, XPhyto appears to be in stealth mode based on the low trading volume and lack of any aggressive promotion at this time. So the company is obviously not yet ready to connect the dots for investors.
It’s easy, however, to speculate that XPhyto may want to focus some of its R&D efforts on the nascent cannabinoid drinks market in Germany and the rest of Europe, especially considering all the hype surrounding cannabinoid-infused beverages, with an emphasis on beer. In fact, the CEO of the North American brewery giant Molson Coors, Mark Hunter, recently said CBD-infused beers could soon make up nearly a third of all cannabis sales.
Germany would no doubt represent a massive market for such an evolution in cannabinoid-based alcoholic beverages. After all, Germans each drink on average approximately 100 liters of beer per annum – making them the largest consumers (with the exception of the Czech Republic), within the industrialized world.
Now Germany is in the infancy of an industry build around such products, including a diversity of other non-alcoholic beverages, thereby offering one of the world’s biggest commercial opportunities for intrepid players like XPhyto.
All told, the company has the competitive advantage of participating as an early-market entrant in all areas of the medical cannabis business in Germany, including research, cultivation, extraction, import, distribution, and manufacturing.
So how might XPhyto capitalize the most on this emerging market trend?
It would almost certainly mean the prospect of a high-profile collaboration with a leading German beer manufacturer. Besides the disruptive novelty value of innovating “functional” health-oriented beer to boost stagnant industry-wide beer sales, this also makes a lot of sense for consumers.
Let me explain: Alcohol is inflammatory, yet the anti-inflammatory effects of CBD could go a long way towards mitigating or even preventing hangovers and alcohol’s pro-ageing effects. Plus, the calming effects of CBD should be compatible or even synergistic with the relaxing properties of alcohol.
Above all else, the beer industry needs to invest in the cannabis industry if only due to the fact that cannabis is already stealing market share from “Big Alcohol” in North America – a harbinger of the times for Germany and the rest of Europe
This explains why Constellation Brands, which brews the best-selling beer Corona, has now spent nearly US $4 billion for a 38% stake in Canopy Growth last year. The liquor giant obviously figures it prudent to hedge its bets by buying up a large portion of its growing competition.
With this in mind, it would make sense for XPhyto to enter into some sort of joint venture or research collaboration with a big-league German brewer. Whether this happens any time soon remains to be seen. But it seems to be a logical, synergistic fit for XPhyto.
A Landmark German University R&D Collaboration
Additionally, XPhyto is also said to be pursuing research relationships with academic partners for THC-based therapeutic formulations. Presumably, XPhyto will also be in talks with other high-profile prospective German collaborators for the development of other CBD-based SKUs, including cosmetics and other topicals.
Already, XPhyto's wholly owned German subsidiary, Bunker Pflanzenextrakte GmbH, recently announced that it has entered into an exclusive cannabis research and development agreement with the department of biochemistry at the Technical University of Munich (TUM).
“This seems like something of a coup for XPhyto,” the company’s VP of European Corporate Development, Robert Barth, explains:
"XPhyto is honored to have the privilege of working with TUM. Their commitment to research excellence and their reputation for commercial development makes them a highly attractive partner. TUM's strong interest in cannabis research demonstrates a progressive attitude toward an emerging and highly relevant global industry."
TUM has a reputation as an entrepreneurial institution and is the only technical university in Germany to be recognized as one of the country's "Universities of Excellence" every year since the program began in 2006.
Becoming a Science-Driven Innovator in Canada
XPhyto has developed two strategic collaborations with the University of Alberta’s Faculty of Pharmacy and Pharmaceutical Sciences. Notably, this is home to Alberta Drug Development & Innovation Centre, which specializes in biopharmaceuticals, drug delivery quality control and regulatory sciences.
(XPhyto medical cannabis scientist Raimar Löbenberg, PhD at his University of Alberta laboratory.)
In essence, at a minimal cost of entry, this gives XPhyto access to facilities that have certified analytical testing capabilities, as well as the necessary apparatus to engage in ground-breaking R&D initiatives, including the development of proprietary extractions and formulations.
Notably, one of XPhyto’s key value propositions is its early-mover entry into the cannabis products testing marketplace. Truth be told, there is tremendous demand for certified testing facilities throughout Canada – a problem that has led to bottlenecks in supplies, as well as problems with quality control issues that have occasionally resulted in batches of diseased or moldy cannabis sometimes reaching the marketplace. Accordingly, as government regulations tighten, reputable third-party testing laboratories will be in increasingly high demand.
This is key for XPhyto. With an accredited laboratory at the University of Alberta, the company will be able be able to run a government-mandated service for the third-party testing of cannabis products. Clients are sure to include licensed producers (LPs), wholesalers, distributors and even law enforcement agencies. Such revenue streams would collectively represent meaningful cash flow to help finance XPhyto’s R&D ventures in Germany and Canada.
Investment Summary
On a technical note, the company has 47 million shares outstanding, with a significant number of those shares in escrow. When matched with an upbeat news flow, such a tight share structure can often act as a powerful springboard to significantly higher share prices.
This is especially relevant considering XPhyto’s early-mover advantage in Germany and the advent of a steady stream of news releases concerning its R&D initiatives, particularly ones that involve high-profile German partners, such as the world-renowned Technical University of Munich.
Other high-impact collaborations with big names in Germany’s academic and industrial sectors are presumably in the works, too. This is especially the case due to XPhyto’s privileged position of being one of only several foreign companies awarded the right to cultivate medical cannabis in Germany either for commercial purposes or for R&D initiatives – such as ones aimed at commercializing downstream, value-added cannabinoid-based products.
Similarly, XPhyto’s R&D collaborations with the University of Alberta’s Faculty of Pharmacy and Pharmaceutical Sciences should offer plenty of opportunities to innovate new proprietary cannabis-based IP here in Canada. Also, it represents a valuable prospective revenue stream as a licensed third-party safety testing laboratory for LPs and other corporate clients.
All in all, XPhyto has all the right ingredients to be a strong performer during the balance of 2019 and beyond. In a burgeoning multi-billion-dollar global cannabis business, impeccable timing means everything. And in this regard, XPhyto is clearly in the right places at the right time.
ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.
FULL DISCLOSURE: XPhyto Therapeutics Corp. is a client of Stockhouse Publishing.