Are investors missing out on a natural high? Legal fog hides budding cannabis sector

31 May 2017

Image: Stokkete/Shutterstock

The cannabis sector is heating up in North America, and while some investors are keen to jump on board, others are choosing to pass on the pipe.

Once thought of as a crop cultivated to fund the bank accounts of wealthy drug dealers, cannabis is finding a new lease of life – not in the bedrooms of teenagers, but on Wall Street and in Silicon Valley.

Future Human

The sea change in opinion has been spurred on by the gradual legalisation in the US and elsewhere in the world, with personal use now permitted in certain circumstances, or, in the case of Uruguay, it is fully decriminalised.

In the US alone, cannabis contributed close to $7bn to the economy in 2016, but estimates expect this to skyrocket to as much as $50bn in the coming decade.

Investors are also keen on where cannabis research can take us, with StarVest Partners founder Jeanne M Sullivan previously speaking at length about how the sector represents a gold mine for those with the resources.

“The science around the cannabis plant is just starting to be developed and, in time, Big Pharma, Big Tobacco and Big Alcohol will be the acquirers of the best-of-breed companies that are being developed today and over the next several years as the ‘stigma’ leaves the sector,” she said.

Main areas of interest

It is unsurprising then, that the life sciences industry is very eager to grab a foothold in the largely untapped area of cannabinoid research.

The two key elements of cannabis of most interest to the biopharma industry are tetrahydrocannabinol (THC) and cannabidiol (CBD), which have two very different properties.

By far the more famous one, THC is the main psychoactive ingredient in cannabis that has made it the popular choice of drug around the world. Those doing business in this field are more concerned with pumping funds into the drug-taking for both recreational and medical use, due to its pain relief benefits, among others.

However, CBD is where much of the investment is going as, while it does not appear to cause intoxication, it does have some other therapeutic properties.

And so, it is with this knowledge that a whole new generation of start-ups is emerging, seeking to tap into this underutilised area, ranging from data analytics to research into undiscovered cannabinoid health benefits.

One such start-up is a Canadian-based company called Hyasynth Bio, led by CEO and co-founder Kevin Chen, who was previously a part of the Cork synbio accelerator IndieBio EU (now RebelBio).

The company is far removed from the recreational use of cannabis to focus on CBDs, so much so that it doesn’t even work with the cannabis plant.

Rather, it does the genetic equivalent of alchemy (except, based on science fact) to create cannabinoids in yeast using DNA data available online.

Hyaynth lab

Test tubes from the lab at Hyasynth Bio. Image: Hyasynth Bio

Still difficult to get funding

A start-up that doesn’t even deal with cannabis but is trying to get the same value from it should have an easier time attracting funding, right? “It is still [difficult to get funding], and probably will be for a while,” said Chen.

“Things are generally trending upwards, but nothing major yet. More funds are starting up, but the big, popular funds haven’t made any big moves yet towards the cannabis-related start-ups.”

Back in the market of cannabis sales and dispensaries, a number of start-ups have blazed ahead, including Eaze, a data-driven medical marijuana company operating in California, which has raised close to $25m since it was founded in 2014.

Another good example is Syqe Medical, a company that has designed a medical marijuana inhaler to let a patient know whether they are taking the right dosage or not. It has raised $22m in the space of five years.

Recreation versus research

This raises an interesting question: can we consider the business of recreational and medical marijuana use, and the pure research cannabinoid business, as two that are different and even challenging one another?

Despite differences in strategies, the recreational use companies – and the wider conversation – have helped to bolster the research business, too.

“If there’s one thing that both sides of the debate agree on, it is the need for more research,” Chen adds.

“But, I haven’t seen any big motions to lighten the restrictions on for doing research, aside from anything that happens with the legalisation debate. Regardless of the outcome of the debate, I do hope that more researchers feel inspired to study the endocannabinoid system.”

Untapped opportunity

Chen said that he and his fellow researchers and start-ups have observed that while a ‘joint’ is still the favourite way to administer cannabis, the future of delivery lies elsewhere.

While other methods exist – such as the one provided by Syqe Medical – there are still limited options for administering a dosage outside of smoking or eating.

“Pills, oils, topicals and all kinds of stuff are available in legalised areas,” Chen said.

“There are a collection of about 100 cannabinoids – aside from THC and CBD – that are looking like really great opportunities for new pharmaceutical products, and the relationship between these different cannabinoids along with other chemical compounds found in the plant is another thing that is being uncovered more now.”

Colm Gorey was a senior journalist with Silicon Republic