Do Investors Care About Medical Cannabis Research?

The ongoing volatility seen in the cannabis investment market has left one of the most promising areas in the entire space in a bind.

Executives and investment experts across the market told the Investing News Network (INN) in recent conversations that the current style of cannabis investing can’t support the goals of publicly traded medical cannabis researchers and drug makers.

While the potential of the cannabis plant is unquestionable, it remains to be seen whether current investors will get to see the benefits of this opportunity.

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Cannabis investors want quick gains, not long lifecycles

While the cannabis space is still relatively young, a “lifecycle” has already been established, according to cannabis researchers at business advisory group EY Canada.

Experts agree that cannabis investors are for the most part still looking for quick returns. And at the moment, those returns may come from the substantial growth attached to the US.

“(Cannabis investors) are mostly focused around catalysts and reforms that can help them gain the initial upside of the industry in a manner that they know is inevitable, but the timing of which they can’t get right,” said Nawan Butt, a portfolio manager with Purpose Investments.

Butt, who oversees the Purpose Marijuana Opportunities Fund (NEO:MJJ), said market participants generally hone in on the short term in their expectations. And this approach does not exactly match what cannabinoid drug makers require.

“You look at investors who are putting money into cannabis, it’s still very volatile, very early stage, there’s high levels of risk involved in this capital,” Stephen Murphy, co-founder and CEO of leading cannabis research company Prohibition Partners, explained to INN.

“Investors want short-term high yields, they’re not in it for 20 or 30 years.”

Indeed, investors in the industry have seen a wide array of ups and downs, including executive oustings, calculated short seller attacks, illegal growing tactics from a licensed producer and continued overpromising, among many more rollercoaster performances in the stock market.

With all of that in mind, Murphy told INN he’s not surprised there hasn’t been a major burst in the investment opportunity attached to novel drug-development programs for cannabis.

Butt agreed, adding that it’s fair to express doubts surrounding the medical aspect of cannabis, as cannabinoid drugs are not yet a home-run investment. “I’d say the novel cannabinoid space is actually way earlier in its development versus any adult-use or medical-use cannabis,” he explained.

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The investment expert said he does not see a world in which Canadian licensed producers or US-based multi-state operators (MSOs) pursue drug-development models based on cannabinoids.

Why? The reality shows these companies don’t have the capacity at the moment to pursue the research needed to unlock the hidden potential of cannabis as a high-end medicine source.

“We still have to understand that the US is an US$80 billion opportunity, and only about a quarter of that opportunity (has been) penetrated so far,” Butt said.

Companies express frustration at investor dialogue

Given the mismatch between investor expectations and business goals, it can be difficult for companies investigating the cannabis plant for medical research to appease shareholder demands.

Some companies in the space told INN it’s been difficult to convey to investors that their focus has little to do with the booming adult-use market.

Dr. Guy Chamberland, CEO and chief regulatory officer at Tetra Bio-Pharma (TSX:TBP,OTCQB:TBPMF), said a significant component of his investor base came into the company hoping to hit it big with a cannabis producer looking to offer recreational products.

“Our achievements that would normally be interpreted as being ‘very major’ in the drug world are not understood by our shareholders because they came in thinking we were going to be a fast buck and we are not,” Chamberland commented.

Chris Bunka, CEO of Lexaria Bioscience (NASDAQ:LEXX), shared the grievance of having to ease the expectations of investors looking for the speedy returns cannabis operators have seen in the past.

“Canadian investors … for the most part wanted to own Lexaria stock because they wanted a quick bang. Now, that’s not what we’re doing,” Bunka said.

Bunka told INN the company delisted from the Canadian Securities Exchange in favor of a US listing through the NASDAQ because of the more noticeable trading volume trends through US-based investors.

“We are trying to remind people, ‘Hey look, we are doing dozens, dozens of research and development studies this year and next year, all of them (are) designed in aggregate to combine into regulatory filings that actually move the needle, both on getting closer to commerciality and in increasing valuations as we go,” the Lexaria executive said.

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Do companies need an investor base adjustment?

What’s left for these companies to do then? The image a publicly traded company projects is closely related to the type of investors it can reach, and Murphy believes that some companies may need to step away from their cannabis demarcations and try to reach a new audience altogether.

The success story of GW Pharmaceuticals, which was recently purchased by major biopharmaceutical company Jazz Pharmaceuticals (NASDAQ:JAZZ), may inform where the current batch of companies working on developing cannabinoid-based medical products will go in terms of their approach.

“GW Pharmaceuticals doesn’t claim to be a cannabis company full stop,” the expert told INN. “Cannabis for them is just seen as pretty much a by-product of what they do.”

But Murphy told INN he’s unsure of how biopharma investors will react to pitches from cannabis drug companies. The reason is that traditionally these investors operate based on longstanding historical data; they may also struggle with the current regulatory landscape for cannabis around the globe.

Murphy explained that despite the challenges with this investor class, companies in the space will have to find partnerships or other ways of warming up to investors familiar with the drug-making process.

“If you want to do (drug) product development, US$30 million or US$100 million isn’t going to get you very far … you have to go to an investor class who understands the industry and has access to that type of capital,” the expert said. “With the traditional cannabis investors, nobody’s raising that type of money, MSOs are struggling to raise that type of money.”

Investor takeaway

What’s on the minds of cannabis investors? Moving forward, companies across the board will be fighting tooth and nail to try to find the answer to this question.

Companies in the cannabis drug-development segment that want to move forward may ultimately have to find a way to bridge the gap with investors in the life science arena.

Don’t forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Lexaria Bioscience is a client of the Investing News Network. This article is not paid-for content.

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