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Cannabinoids and Health: Lecture 5: Business Models - Are Marijuana Companies Rolling in Cash?

The cannabis industry can be divided into medical/recreational cannabis, pharmaceutical products, and hemp/CBD. Colorado data shows a booming adult-use market, with prices decreasing industry-wide. Companies like GW Pharma and Tilray are pursuing the pharmaceutical model through FDA approval, but drugs like Epidiolex come with high price tags. The hemp/CBD industry is expected to rapidly grow following changes to federal law. While early companies profited greatly, margins are now smaller, necessitating high sales volumes, and the future of cannabis profits remains unclear between various business models like tobacco, beer, or pharmaceuticals.

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59 views

Cannabinoids and Health: Lecture 5: Business Models - Are Marijuana Companies Rolling in Cash?

The cannabis industry can be divided into medical/recreational cannabis, pharmaceutical products, and hemp/CBD. Colorado data shows a booming adult-use market, with prices decreasing industry-wide. Companies like GW Pharma and Tilray are pursuing the pharmaceutical model through FDA approval, but drugs like Epidiolex come with high price tags. The hemp/CBD industry is expected to rapidly grow following changes to federal law. While early companies profited greatly, margins are now smaller, necessitating high sales volumes, and the future of cannabis profits remains unclear between various business models like tobacco, beer, or pharmaceuticals.

Uploaded by

tronco
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cannabinoids and Health

Module 2
Lecture 5: Business Models – Are Marijuana
Companies Rolling in Cash?
Cannabis Business
• Three main categories

• Medical and Recreational


Cannabis

• Big Pharma and plant derived


pharmaceutical products

• Hemp and CBD


Colorado Data
• 11 million units of edibles sold, 1 million units of topical
products sold, and 28,000 pounds of concentrate – or 4.5
million units in 2017

• The number of new marijuana business licenses and number of


renewals also shows a booming adult use side of the state’s
marijuana business

• Adult-use licenses made up 77 percent of new licenses in 2017

• Adult-use business licenses increased by 167 from January to


December of 2017, while the number of medical establishment
licenses fell by 38

• The number of plants grown in Colorado grew by121,000 more


plants cultivated per month in 2017 than in 2016
While outlets increase, price has
been decreasing
Trend across nation
• Business experts describe this
as race to bottom
• Wholesale price dropped from
$2,000 a pound in 2015 to
$1,300 a pound in 2017,
according to The Economist
• Price will bottom out at some
point
• State tax systems based on
price will also take a hit
• Question: Will big business
begin to take over in order to
squeak out profits with bigger
scale?
Not true yet – still very competitive even in
more mature market like CO
Wholesale/retail markup
• But 30% sales tax in
CO (15% excise,
15% sales)
• Similar taxes in CA
• 37% tax in WA
• 17% tax in OR
• 25% tax in NV
Comparing cannabis to other industries

Wine ~ 71B

Does not include


E-cigs
Big Pharma?
• GW Pharma is the major player although there are
others that are working in a similar space (e.g., Tilray)

• These companies work within the FDA rubric and have


achieved or are pursuing FDA approval to market drugs
like other big pharma companies

• Stock prices have skyrocketed recently

• Cost of Epidiolex (CBD) will be about $32,000 per year for


children with severe epilepsy – to be paid by insurance
and/or Medicaid
Big Pharma ish?

• GW valuation ~ $3.28
Billion

• Tilray valuation ~ $8.94


Billion
Facilities
• GW Pharma - 40 acres of
indoor grow space in glass
buildings in the UK – can see it
from space

• Others like Tilray, Aurora not


far behind
Pharma Business As Usual
• Cost of Epidiolex (CBD) will be about $32,000 per year for a child
with severe epilepsy – to be paid by insurance and/or Medicaid
(i.e., to be paid by all of us)

• Company is very careful about who can (or cannot) do research


with epidiolex because of fear that adverse effects in a different
patient group might cause problems with the FDA

• Sativex not approved in the U.S. and may not be for a long time
because difficult and expensive to go through FDA

• Companies like Tilray (not 100% committed to the pharma route)


may have a competitive advantage working in both spaces (and
market cap may reflect that)
Hemp and CBD Industry
• Recent farm bill
legalized production of
hemp and CBD

• FDA currently
attempting to design
regulatory framework
(more on this in future
modules)
Hemp and CBD Industry
• Rapid growth in hemp and CBD sales is expected
• In Colorado, CBD is regulated like a food additive
and can be found on store shelves
Conclusions
• Prices will continue to drop as more states and countries legalize
• The fastest way to get rich in the cannabis space is to profit off of
other people’s belief that they can get rich off of cannabis
• Early adopters made more money when margin was greater
• Now, margins are smaller so sales volume must be greater - some
small business may struggle
• Easy to grow – hard to imagine a lot of money being made on
flower – money will be in custom products
• Tobacco is unlikely model
• Beer industry may be most likely model but only time will tell
• Complementary/alternative medicine likely to show the strongest
growth
• Research needed to understand whether
complementary/alternative medicine versions of CBD effective as
GW Pharma
Discussion
• Do you see a “Big Tobacco” scenario where cannabis is controlled by a few
big companies?

• Or maybe a beer scenario where there are a few companies making cheap
beer and lots of space for microbreweries making premium beer?

• Big profits or small profits?

• Profits in growing it? Extracting it? Or making custom products (e.g.,


edibles, drinks)?

• Growth and profit in pharmaceutical (i.e., FDA approved) route? Or


growth and profit as more of a alternative/complementary medicine
(consistent with history of cannabis)?

• How do you think CBD on the shelf compares to CBD from GW Pharma?

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