Global Cannabis Opportunity Still Available, Says New Firm
After the downfall of a bold but flawed vision in which Canadian leaders believed they could expand across the global cannabis market, a new company is heading into the forefront of international opportunities.
Akanda is a recently launched cannabis company based in Canada, but dedicated to the international market broadly. The entity was created this past June as a way for cannabis operator Halo Collective (NEO:HALO,OTCQX:HCANF) to separate its non-North American assets.
The company is being spearheaded by a cannabis executive with extensive European leadership experience, who said the mistakes of the past will inform his perspective for a non-US or Canadian cannabis opportunity.
“Akanda … will be positioned to be the low cost supplier of high quality and ethically sourced medical cannabis products to the fast-growing African, UK, European, and other international markets,” Kiran Sidhu, CEO and co-founder of Halo, said when defining the goals for the new company.
The initial assets Akanda will oversee include Bophelo Bioscience & Wellness and Canmart.
Tej Virk, who most recently served as president and managing director of the European division of Khiron Life Sciences (TSXV:KHRN,OTCQX:KHRNF), will become the CEO of Akanda. Virk also oversaw the European operations of a major Canadian licensed producer as managing director of Europe with Canopy Growth (NASDAQ:CGC,TSX:WEED).
Before joining the cannabis industry, Virk was overseeing the finances of the biggest players in the space as a banker with the Bank of Montreal (TSX:BMO,NYSE:BMO), participating in financing deals and other business strategies alongside the likes of Tilray (NASDAQ:TLRY,TSX:TLRY) and Canopy Growth.
In an interview with the Investing News Network (INN), Virk spoke about the missed chances he’s seen firsthand across the Canadian cannabis landscape and how he hopes to approach this international opportunity differently.
Virk admitted cannabis investors have been burned before by Canadian operators promising new market entries left and right. “There’s a certain ‘cry wolf’ attitude when it comes to this international opportunity,” he said.
Following the legalization of cannabis for adult use in Canada, leading publicly traded operators began commenting on and investing in the idea of lending their expertise in the cannabis business to other nations as they followed in the footsteps of Canada.
Many tried to share their knowledge by expanding, either through direct subsidiaries or partnership agreements.
However, this did not work as hoped due to just how gradual the legalization process around the world has proven to be, married with a financial downturn for the biggest names in the Canadian cannabis space.
Virk saw this downturn firsthand. “For a country like Canada to legalize cannabis, that’s almost like a big flashing red light: ‘Well, if the Canadians are legalizing, then of course the rest of the world is going to legalize.’”
The executive explained that this notion sparked a race to open offices across jurisdictions and pursue investment deals with early stages license holders all over the world.
But there were miscalculations resulting from how differently other countries set up their cannabis programs compared to Canada.
Virk said there is a fundamental mismatch between the pharmaceutical-like model European medical cannabis has embraced and the mindset from the leaders of Canadian cannabis companies at the time. “We’ve now seen that retrenchment and now new players coming in that definitely have more pharma expertise,” Virk told INN.
Virk explained that a challenging aspect of the international opportunity lies in the process of scaling operations at the appropriate pace. “I don’t want to overbuild, I want to grow with the market,” he said. “I want to set myself up for the optionality of regulatory change.”
Virk said markets like Germany, Australia and Africa have begun to present these far-reaching opportunities where cannabis companies envisioned themselves holding subsidiaries that recreated their operations from Canada.
“I think the excitement got a little bit ahead of itself in those markets,” Virk said.
Virk said he still sees too many extremes in the approach used to evaluate cannabis companies in the public market. He is going to be looking for growth, and said investors should still think of the sector as growth-oriented.
“‘I want this growth company to conserve cash.’ No, you want this growth company to deploy that cash. You want them to be deploying it in ways they’re going to generate returns,” Virk said. “And I think that’s key. I think it’s about thinking about future returns and is there a pathway to future returns?”
In 2019, INN laid out the potential for Lesotho and the overall cannabis opportunity within Africa. At the time, both Canopy Growth and Aphria had signed tenders to enter the market by way of acquisitions and partnerships in Africa, representing the impetus for the big-name producers to pursue operations across the world.
In its Q2 of this financial statement to shareholders, Halo reported that its operations in the UK and Lesotho both posted net losses for the six months ended June 30 of this year. Lesotho represented the bigger loss with a reported line of C$1.1 million, while the UK territory brought a net loss of C$168,058.
In the financial report announcement, Sidhu said the company’s operating expenses were “significantly elevated” since it footed the bill for the operations of Akanda and Halo Tek, a tech-related spinoff.
The relationship between the two companies won’t be entirely separate from one another since, as it stands, Halo will own 68.3 percent of Akanda.
The separation of Akanda from Halo will save the publicly traded company “overhead spend by approximately C$9.6 million annually,” according to Sidhu.
Investment experts have told INN that the typical cannabis investor is evaluating the US market more heavily than other opportunities across the board.
The business world of cannabis doesn’t revolve around one singular market, but at this time the US opportunity can certainly appear to be the center of the universe for companies and investors alike.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.