The legalization of cannabis in Canada was heralded by growers, dispensaries and users throughout the country, some of whom had been calling for an end to the prohibition of cannabis for years.
What many had not anticipated was the need for a rigorous system for testing a product that, up to the 2018 passing of the Cannabis Act, and companion legislation amending the Criminal Code, had not been subject to standardized rules and testing protocols that are now in place under Bill C-45.
The Cannabis Act mandates that testing must take place before a cannabis product is sold or exported, and outlines what those regulations are (Part 5 section 90-92). Rules around test kits are set out in Part 13 of the act.
Outside Canada there is no universal method for testing cannabis and related products. But as regulated cannabis markets continue to emerge in North America (10 US states have now legalized recreational marijuana) and elsewhere, there is a growing need for a system of rapid and effective cannabis testing.
An example is CBD made from hemp. The 2018 Farm Bill legalized hemp-derived CBD, and therefore put it under the jurisdiction of the US Food and Drug Administration (FDA). The FDA must approve and inspect these products before deeming them safe for consumption. In that way cannabis is just like any other pharmaceutical. Last June the FDA approved the first cannabis-based drug, Epidiolex, an oral solution for patients with epilepsy.
Most apparent is the requirement for an extremely reliable method of testing that determines the level of the psychoactive ingredient THC, to ensure the safety and comfort of the user. This is especially the case given the popularity and growth of medicinal cannabis. Some medicinal require a certain level of THC, while others are more interested in cannabidiol (CBD), the part of a marijuana plant’s extract that does not produce the “high”, but is rather used to treat anxiety, movement disorders, pain, etc. Of great interest to the dispenser and the CBD user is the ratio of THC to CBD.
While nearly 7% of Americans are reportedly using CBD, regulators in some US jurisdictions have been cracking down on the compound. For example, New York City health officials ordered bakeries and restaurants to stop adding it to beverages and food. Maine and Ohio have also curbed CBD sales. Having a reliable testing system is critical for developing a free and regulated market in CBD products.
Identification of pesticides/ chemicals and other contaminants is another key testing application. The Dutch government reported in 2017 that over 90% of cannabis plants had pesticides. One of the most dangerous is myclobutanil, commonly used for growing vegetables. When myclobutanil is burned through smoking, it releases hydrogen cyanide, a serious health hazard. Testing can also identify heavy metals like cadmium, mercury and lead which can cause health problems even if consumed in tiny amounts.
The legalization of cannabis in Canada - only the second country after Uruguay to do so - was an important development for Canadians, but it also presents a huge business opportunity here and elsewhere. The global cannabis market is expected to hit $146 billion by the end of 2025. Cannabis testing will be a key, and extremely lucrative, sub-market.
FluroTech
One company aiming to grab a piece of this lucrative trade is FluroTech (TSX-V:TEST, OTCQB:FLURF). The Calgary-based company has a proprietary technology called CompleTest™ to test cannabis products accurately and quickly. How accurate? Regulators require results in parts per million but CompleTest™ delivers data in parts per billion.
CompleTest™ uses spectroscopy and fluorescence to measure the content of a given attribute including CBD, THC, pesticides and heavy metals. The device which has recently been commercialized, was invented by FluroTech’s CTO, Dr. Elmar Prenner, and developed in collaboration with the University of Alberta and the University of Calgary.
A sample is liquified through a reagent solution, then run through the device.
Unlike getting a sample tested in a lab, CompleTest™ can return a result within minutes, versus days or weeks. This is a big advantage to cannabis growers because it eliminates wait times. It also allows growers to test plants at any time during the growing cycle, not only the final stage when the product must be tested to meet government regulations before being sold. Frequent, regular testing enables growers to identify pests or contaminants early on, and to optimize their crops, making them more profitable.
The portability of CompleTest™ also makes it ideal for law enforcement agencies looking for a means of roadside testing. While the Canadian government has approved one roadside drug testing unit that screens saliva, it is up to individual police forces to decide what kind of testing equipment they want to use.
Besides applications for growers and law enforcement, FluroTech is also envisioning CompleTest™ being used by companies that need to administer drug tests (results are immediate), and “biomarking” whereby an attribute is placed into every plant grown by a licensed producer, that can be tracked throughout the plant’s life. Biomarking would allow customs agents and police to determine whether a plant was produced legally or on the black market.
As more and more countries relax their stance on THC/CBD usage global opportunities open up for Flurotech to market their technology on a far greater scale. In essence Flurotech has created a cannabis product without borders. They are not selling cannabis, but rather a proprietary, essential product that protectively wraps itself around the entire cannabis space.
Conclusion
Most investors have gravitated towards licensed cannabis producers but they are only the tip of the iceberg when it comes to the multi-billion-dollar cannabis industry that has been taking shape in Canada and the US and continues to evolve. We like cannabis testing as an investment horizon because it is a market niche ripe for development. There are few companies doing this and those that can do it right will have no shortage of clients, from police forces to growers, retailers and users.
We like FluroTech because it’s offering a tangible “thing” for sale with huge potential, it has a diversity of potentially global revenue streams (testing for THC/CBD, pesticides and heavy metals, roadtest screening, biomarkers) and it’s the right time to get into this first-mover start-up.
Flurotech is an ideal 'picks and shovels' investment play within a very large space where unprecedented growth is expected to take place.
For all of these reasons I have cannabis testing and TEST on my radar screen.
Richard (Rick) Mills
aheadoftheherd.com
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified. Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as
to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
FluroTech (TSX-V:TEST), is an advertiser on Richard’s site aheadoftheherd.com. Richard does not own shares of TEST