exporting to neighboring markets (e.g. Italy, France, Germany). Beyond their
geographical advantage, Switzerland also is recognized for its quality and sophisticated
pharmaceutical sector.
At the end of 2018, LGC Capital entered a partnership with Viridi, a Swiss cultivator,
processor and distributor of high-CBD products. Wayland acquired Haxon AG, a Swiss
hemp producer of 1% THC products. Creso Pharma Limited entered into an agreement
with Hempmate Zurich AG for further expansion into the European CBD market.
France
Medical cannabis has been legal in France since 2013 and Marinol has been the only
product prescribed. In 2018, the ANSM launched an investigation to explore scientific
data for therapeutic uses of the plants, type of eligible conditions and consider
regulatory frameworks in other legal medical markets. An initial recommendation found
that legal medical cannabis should be authorized and final recommendations are
expected to be released by September 2019. Aurora has already announced plans to
expand into France by investing in infrastructure prior to the market opening.
France is the leading hemp cultivator and processor in Europe, and the global leader in
hemp seed production. In 2016, there was a total of 33,000 hectares growing hemp.
Stalks and seeds can be processed, yet buds cannot be legally processed, unless for
medical purposes. Synthetics are permitted for use. The country permits the cultivation
of 20 strains, approved by the EU. There is one company, Hemp-it, that has received a
license to grow different varieties.
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Despite its leading position in hemp production, the French government has cracked
down on the sale of hemp-derived products and CBD sold in stores, cafes and seed
shops, as a response to public health and safety. Over the past few months, the Ministry
of Social Affairs and Health and National Agency for the Safety of Medicines and Health
products (ANSM) have been conducting a review on the uses and authorizations
required for CBD. There are a number of CBD and hemp-derived skincare and cosmetic
companies that sell lotions, cremes, pain balms, beard oils, etc. France’s extensive
history in the cosmetics industry positions the country well for CBD skincare.
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Latin American Landscape
Chile
Medical cannabis has been legal in Chile since 2017 following a pilot program conducting
scientific research that began in 2014. A consortium of non-for-profit organizations,
most notably the Daya Foundation, ran this program. They treated over 1,000 patients
in the first year of operations. Following the regulatory change in 2017, imported
medical cannabis products were available from pharmacies.
Product authorization and cultivation licenses are required to grow and distribute
medical cannabis products in country. The Agricultural and Livestock Service of Chile
governs these licenses. Chile also permits home-grow, which is popular in the country
and the region.
Dayacann (part of Daya Foundation) was the first company to receive a license to
cultivate medical cannabis in Chile. Khiron Life Sciences entered an MOU with Dayacann
in January 2019 to further expand into the Chilean market of around 1.8 million
patients. In 2018, Tilray entered a partnership with Alef Biotechnology (now Tilray Latin
America) for distribution in Chile and Brazil, and recently received a license to cultivate
and process medical cannabis products. Two Tilray products, T100 and TC100 were
approved for prescription in 2016. Canopy Growth’s Spectrum Cannabis Chile is also
operating in Santiago focused on medical research and patient outreach.
Hemp production has been part of Chile’s history, dating back to the 1500s, and has
remained legal. There have been provisions in Chilean law to differentiate between
cannabis and hemp. Despite its legality, there are not many hemp farms in the country.
Chile hosts Expoweed, a hemp trade show, that is Latin America’s biggest hemp event.
With the land and history, the country has positioned itself for growth as demand for
hemp-based products increase.
Colombia
Colombia is becoming a Latin American hub for cannabis cultivation due to favorable
climate and cost of production. The country permits exports of extracts only, with the
exception of small quantities of dried flower that are exported for scientific reasons.
Only permitting extracts for export is strategic to have traceability from seed to harvest
and production. This is in order to curb organized crime and money laundering related to
the country’s history of drug trafficking. There have been trade agreements established
between the EU and Canada in order to facilitate exportation of extracts.
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The governments passed legislation for medical use in 2015, which was formally
implemented in 2016, and a framework for medical cannabis cultivation was established
in 2017. The country issues four types of licenses: 1. Cannabis Seeds (for scientific
purposes) 2. Cultivation (psychoactive cannabis) 3. Manufacturing (cannabis derivatives)
4. Cultivation (non-psychoactive cannabis). Another license is required to export. Clever
Leaves became the first Colombian company in February 2019 to export medical
cannabis to Canada.
Many Canadian LPs have opened operations in Colombia, including Canopy, Aurora,
Plena Global, Khiron Life Sciences, Blueberries Medical Corp, Pharmacielo and Wayland.
Some of these companies are focused on cultivating strains for CBD. Pure Harvest
Cannabis Producers recently entered a JV for land in Colombia to produce CBD from
hemp and cannabis. Pharmacielo also secured a proprietary license to cultivate 10
strains, some CBD and some THC dominant. The company registered their seeds, which
is now required following an amnesty period for seed genetics that ended December 31,
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2018. Organto received a license to produce high-CBD strains and Foulimed intends to
cultivate 70 tones of hemp and cannabis for medical purposes. Colombia enjoys an
advantageous climate for cultivating cannabis at a low cost for production, which has
attracted interest from many foreign companies.
Mexico
Medical cannabis has been regulated in Mexico since 2017. This regulatory change
followed a favorable Supreme Court ruling for a young girl who treated her Lennox-
Gastaut syndrome with CBD oil in 2015. It is permitted to have medical cannabis
products with up to 1% THC content and these products are regulated by the Health
Ministry. Aurora (through their subsidiary Farmacias Magistrales) recently received a
license to import medical cannabis products containing over 1% THC. Pharamacielo
recently announced a JV with Mexican pharmaceutical company MINO Labs S.A. de C.V.
to distribute medical cannabis domestically.
Mexico is the second largest hemp producer in Latin America. The law changed in 2017
to permit the cultivation and processing of industrial hemp. In November 2018, the
government released a list of 38 OTC products – 21 food supplements, 9 cosmetics, 6
edibles or beverages, 2 raw material – that have been approved for sale in the country.
Seven companies received authorization for these products, which includes 2 American,
4 Mexican and 1 Spanish company. These products must contain no more than 1% THC.
Products can be purchased through retail stores and e-commerce sites. The regulatory
agency authorizing these products is the Mexican Federal Commission for Protection
Against Sanitary Risks.
Mexico has announced plans to legalize cannabis for adult-use purposes in 2019, which
would significantly change the shape of the market opportunities. The country would
become the third in the world to implement a nationwide policy to legalize cannabis for
all purposes. In the proposed legislation there would include six types of cultivation
licenses – 1. Personal, 2. Scientific, 3. Therapeutic, 4. Recreational, 5. Pharmaceutical
and 6. Industrial – five manufacturing licenses – 1. Personal, 2. Therapeutic, 3.
Pharmaceutical, 4. Recreational and 5. Industrial – and three distribution licenses – 1.
Therapeutic, 2. Pharmaceutical and 3. Industrial. These considerations are still pending.
While this will bring many changes to the regulatory framework, home-grow has been
legal for personal use since 2015.
Former President Vicente Fox has become a public figure in the cannabis industry by
accepting a position at Khiron Life Sciences, one of the leading Latin American
producers. The company launched a nutraceutical line, Kuida Life Mexico S.A., at the end
of 2018. They receive approval to import CBD-based supplement products for sleep,
digestion and muscle recovery. Khiron also entered a JV with American edibles company
Dixie Brands for distribution in the Latin American market.
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Uruguay
Uruguay was the first country in the world to legalize cannabis for all purposes
nationwide in 2017. However, medical cannabis has been regulated in the country since
2013 and an industrial hemp program has been implemented since 2010. The Institution
of Regulation and Control of Cannabis provides regulatory oversight for the medical
market.
There are two licensed producers in Uruguay, and thus, the market has not opened to
many foreign entities. This has led to a shortage of supply for the domestic market.
Addressing supply issues, the country announced plans to rework the framework to
permit more imports and opened applications for up to five more licenses.
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The current licensed companies have already entered agreements with publicly traded
cannabis companies. In 2018, Aurora acquired Uruguayan fully licensed ICC Labs Inc.
(ICC) that operates a GMP-certified lab facility, indoor and outdoor grow operations and
distributes CBD-based products under the brand BIDIOL. In January 2019, Khiron
acquired NettaGrowth International Inc., which gives the company access to one of the
two currently held medical cannabis licenses in Uruguay.
The amount of land cultivating hemp increased since 2016 but it not at the commercial
scale yet. There are intentions to grow hemp in order to extract CBD for pharmaceutical
and nutraceutical uses. Although cultivation of CBD with less than 1% THC is permitted,
it is relatively difficult to access CBD products in Uruguay at the moment. In 2018, Auxly
Cannabis Group acquired Uruguayan hemp cultivator and extractor Inverell S.A. with
plans to develop and distribute CBD products.
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Additional Applications / Implications (Nadeau & Osborne)
Epilepsy & Psychiatric Conditions (Nadeau)
For companies willing to invest in research and manufacturing, the development of FDAapproved
cannabinoid-based drugs provides another path to market. GW’s Epidiolex
(highly potent, pure CBD) was approved by the FDA in 2018, and several other
companies are dedicating resources to conducting the pre-clinical and clinical research
necessary to follow in GW’s footsteps. These companies are developing cannabinoids
that differ by route of administration (oral capsule, oromucosal spray, sublingual pill,
aerosol, topical cream, etc), formulation (level of purification, bioavailability,
concentration), and dosing strategy (single agent or in combination). Below we
summarize the clinical trial data from GW’s Epidiolex in epilepsy and psychiatric
indications, and Zynerba’s transdermal CBD gel ZYN002 in Fragile X syndrome.
GW conducted a broad Phase III program for Epidiolex in epilepsy, consisting of two
Phase III trials in Dravet, two Phase III trials in Lennox-Gastaut syndrome (LGS), a Phase
III trial in tuberous sclerosis complex, and a Phase II/III trial in infantile spasms. The first
three Phase III trials (one in Dravet and two in LGS) supported an NDA submission,
leading to FDA approval in June 2018.
The Phase III efficacy portion of the first Dravet trial randomized 120 patients to either
Epidiolex (20 mg/kg/day, n=61), or placebo (n=59). Epidiolex was added to background
anti-epileptic drugs (AEDs). On average, patients were taking ~3 AEDS after previously
having failed 4 or more. The average age of trial participants was 10 years and 30% of
patients were less than 6 years of age. Patients entered the study with a median
baseline convulsive seizure frequency of 13/month. The primary endpoint was the %
change in monthly frequency of convulsive seizures during the 14-week treatment
period compared with the 4-week baseline between Epidiolex and placebo.
On the trial's primary endpoint, Epidiolex achieved a highly statistically significant
median reduction in monthly convulsive seizures of 39% compared with a reduction in
placebo patients of 13% (p=0.01). The difference between Epidiolex and placebo
emerged during the first month of treatment and was maintained through the entirety
of the treatment period. Nine pre-specified sensitivity analyses of the primary endpoint
confirmed the robustness of the primary endpoint result. These analyses dealt with
statistical elements such as the data’s normality, assumptions about discontinuations,
and the time period over which the data were analyzed. A number of secondary
endpoints were also assessed (responder analysis, seizure types, global impression of
change).
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Full data were presented at AES 2016. This presentation disclosed that during the
maintenance period the reduction in seizure frequency was 41% for Epidiolex vs. 16%
for placebo, p=0.0052. The median reduction in total seizures was 29% for Epidiolex vs.
9% for placebo during the treatment period, and 37% for Epidiolex vs. 10% for placebo
during the maintenance period. There was a clear separation between Epidiolex and
placebo in a continuous response analysis of convulsive seizures across all reductions in
convulsive seizure frequency. In particular 43% of Epidiolex patients vs. 27% of patients
taking placebo had at least a 50% reduction in convulsive seizures. 62% of Epidiolex
patients vs. 35% of placebo patients were rated slightly improved, much improved, or
very much improved on the Caregiver Global Impression of Change (CGIC). It was noted
that three Epidiolex and no placebo patients achieved convulsive and total seizure
freedom during the treatment period. While the poster did not discuss the impact of
concomitant clobazam on efficacy, it did note that "the effect of concomitant AEDs on
efficacy will be explored in future pooled analyses."
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Figure 121 Efficacy Results From Epidiolex’s First Phase III Trial In Dravet Syndrome
Source: GW Pharma, AES 2016
The most common adverse events were reported to be somnolence (36% in patients on
Epidiolex vs. 10% in placebo patients), diarrhea (31% vs. 10%), decreased appetite (28%
vs. 5%), fatigue (20% vs. 3%), pyrexia (15% vs. 9%), and vomiting (15% vs. 5%).
Importantly, there was no difference in the number of patients who experienced status
epilepticus between Epidiolex (n=4) and placebo (n=3). Increases in ALT or AST (>3x
ULN) occurred in 12 CBD and 1 placebo patient, all of whom were on concomitant
valproic acid. All elevations resolved. SAEs were seen in 10 Epidiolex patients vs. three
on placebo. Eight patients on Epidiolex discontinued treatment compared with one
patient on placebo, due to adverse events similar to those above, including three due to
ALT/AST elevations.
Figure 122 Safety Data From Epidiolex’s First Phase III Trial In Dravet Syndrome
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Source: Cowen and Company
In 2015, GW initiated two Phase III trials in Lennox-Gastaut Syndrome. The first trial
enrolled 171 patients, and the second enrolled 225. In the first LGS study, the patients
were randomized 1:1 to 20mg/kg or placebo while in the second, they were randomized
1:1:1 to 20mg/kg Epidiolex, 10mg/kg Epidiolex, or placebo. The LGS trials assessed drop
seizures (atonic, tonic, and tonic-clonic seizures that involve the entire body, trunk or
head that led or could have led to a fall, injury, slumping in a chair or hitting the patient’s
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 123 1st LGS Phase 3 Trial Design
Source: GW Pharma
head on a surface). The primary efficacy endpoint of the trials was a comparison
between Epidiolex and placebo in the percentage change in the monthly frequency of
drop seizures during the 14 week treatment period (including 2 weeks of dose
escalation) compared to the 4 week baseline period. Following the completion of the
blinded portion of the trial, all patients were eligible to receive Epidiolex in an open label
extension study.
Figure 124 2nd LGS Phase 3 Trial Dose Ranging Design
Source: GW Pharma
The first Phase III trial, patients were on an average of three AEDs, and had previously
tried and failed an average of 6 other AEDs. Even on their baseline medications, the
patients were experiencing a median baseline drop seizure frequency of 74 per month.
The average age of patients in the trial was 15 years, although 34% were 18 years or
older. On the primary endpoint, Epidiolex produced a median reduction in monthly drop
seizures of 44% compared to a reduction of 22% in patients taking placebo (p=0.0135).
Epidiolex reduced all seizures by 41% vs. a 14% reduction for placebo (p=0.0005), while
the reduction in all seizures during the maintenance period was 45% for Epidiolex vs.
15% for placebo (p=0.0004). Similar to the Dravet trial, there was a clear separation
between Epidiolex and placebo on percent reduction in drop seizure frequency across all
magnitudes of reduction. In particular, 44% of Epidiolex patients had at least a 50%
reduction in drop seizures, compared to 24% of patients taking placebo (p=0.0043). 58%
of Epidiolex patients compared to 34% of placebo patients were rated as "slightly
improved", "much improved" or "very much improved" on the Subject/Caregiver Global
Impression of Change.
Epidiolex appeared to be well tolerated in the trial. 86% of patients on Epdiolex had an
adverse event, compared to 69% of placebo patients. The most common adverse events
were diarrhea (19% of patients on Epidiolex vs. 8% of placebo patients), somnolence
(15% vs. 9%), pyrexia (13% vs. 8%), decreased appetite (13% vs. 2%) and vomiting (11%
vs. 17%). Again, there was no difference in the number of patients who experienced
status epilepticus between Epidiolex (n=1) and placebo (n=1). There was one death in
the Epidiolex group from acute respiratory distress syndrome, but it was not considered
treatment related. Increases in ALT or AST (>3xULN) occurred in 20 CBD and 1 placebo
patient, all of whom were on concomitant valproic acid. All elevations resolved.
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In September 2016, GW announced that Epidiolex's second Phase III pivotal trial
(GWPCARE3) in the treatment of Lennox-Gastaut syndrome was also successful. On
average, patients were on 3 AEDs at baseline, having previously tried and failed a mean
of 7 other AEDs (median=10). The median baseline drop seizure frequency was 85 per
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 125 GWPCARE3: Reduction In Drop Seizures
month and the average age of patients in the trial was 16 yrs, although 30% were 18 yrs
or older. On the primary endpoint, 20 mg/kg Epidiolex produced a median reduction in
monthly drop seizures of 42% compared to a reduction of 17% in patients taking
placebo, p=0.0047. There was also a suggestion of a dose response in the data, with the
lower 10 mg/kg/day dose of Epidiolex producing a median reduction in monthly drop
seizures of 37%, p=0.0016. In both dose groups the difference between Epidiolex and
placebo emerged during the first month of treatment and was sustained during the
entire treatment period. GW disclosed that the trial's secondary endpoints, and a series
of sensitivity analyses, confirmed the robustness of the results. Similar to Epidiolex's
other Phase III studies, although patients on clobazam (51%) had some additional
benefit, GW indicated that Epidiolex also showed efficacy in patients not on clobazam.
Figure 126 GWPCARE3: Responder Analysis
Source: GW Pharma, AAN 2017 Source: GW Pharma, AAN 2017
Additional data were presented at AAN 2017. Included in this presentation were several
of the trial's secondary endpoints and a series of sensitivity analyses. All of these
confirmed the robustness of the results. For example, the proportion of patients with a
>50% reduction in seizure frequency was 40% for 20 mg/kg Epidiolex (p<0.001), 36% for
10 mg/kg Epidiolex (p<0.01), and 15% for placebo. The proportion of patients with a
>75% reduction in seizure frequency was 25% for 20 mg/kg Epidiolex (p<0.01), 11% for
10 mg/kg (p<0.05) Epidiolex, and 3% for placebo. The proportion of patients who
achieved seizure freedom was 7% for 20 mg/kg Epidiolex, 4% for 10 mg/kg Epidiolex,
and 1% for placebo.
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Figure 127 GWPCARE3: Safety
Source: GW Pharma, AAN 2017
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Epidiolex appeared to be well tolerated in the trial. 94% of patients on 20 mg/kg
Epdiolex and 84% of patients on 10 mg/kg Epidiolex had an adverse event, compared to
72% of placebo patients. 88% of 20 mg/kg patients and 89% of 10 mg/kg patients
deemed their adverse events to be mild or moderate. The most common AEs on 20
mg/kg were somnolence, decreased appetite, diarrhea, upper respiratory infection,
pyrexia, vomiting and nasopharyngitis. For 10mg/kg the most common AEs were
somnolence, decreased appetite, upper respiratory infection, diarrhea, and status
epilepticus. None of the cases of status epilepticus on 10 mg/kg were deemed
treatment-related. Thirteen patients on 20 mg/kg Epidiolex had an SAE, of which five
were considered treatment related; and 13 patients on 10 mg/kg Epidiolex had an SAE,
of which 2 were considered treatment related, compared to 8 patients on placebo.
Elevations in ALT/AST levels were observed in 11 patients in the 20mg/kg group and 2
patients in the 10mg/kg group; 10 of the 13 patients were also on valproic acid. Five
Epidiolex patients withdrew due to the elevations, but none of the patients met the
criteria for drug-induced liver injury. GW noted that overall 10 mg/kg seemed to be
somewhat better tolerated; 6 patients on 20 mg/kg Epidiolex and 1 patient on 10
mg/kg Epidiolex discontinued treatment due to adverse events, compared with 1
patient on placebo. There were no deaths in the trial. The results of the trial were
published in NEJM in May 2018.
Following the release of Phase III datasets from 1 Dravet and 2 LGS trials, a key area of
controversy among investors (though not physicians) had been the drug-drug
interaction between Epidiolex and clobazam, and in particular whether Epidiolex was
effective in patients who were not also taking clobazam. This was put to rest at AES
2017 when GW presented a pooled analysis of the two Phase III LGS trials evaluating
Epidiolex’s efficacy with and without concomitant clobazam. Even without clobazam,
Epidiolex produced solid placebo-adjusted response rates. Response was characterized
in terms of “25% responders”, “50% responders”, and “75% responders”, meaning the
proportion of patients who had a 25%, 50%, or 75% decrease in seizure frequency. For
patients randomized to Epidiolex’s 20mg/kg dose, the placebo-adjusted 50% response
rate was 22% for patients on Epidiolex without clobazam, compared to 33% for patients
on Epidiolex and clobazam. We believe that investors had been hoping for a 12-15%
placebo-adjusted 50% response rate for patients on Epidiolex without clobazam in order
to be satisfied that Epidiolex was active without clobazam, and therefore the results
cleared this bar. For patients randomized to 10 mg/kg Epidiolex, the placebo-adjusted
50% response rate was 25% for patients on Epidiolex without clobazam, compared to
27% for patients on Epidiolex with clobazam. The results for other thresholds of seizure
frequency reduction were also generally solid. For 25% responders, the placeboadjusted
response rate was 9% for patients on 20 mg/kg Epidiolex without clobazam,
compared to 24% for patients on 20mg/kg Epidiolex with clobazam. At the 75%
responder threshold, the placebo adjusted response rate was 8% for patients on
20mg/kg Epidiolex without clobazam, compared to 30% for patients on 20mg/kg
Epidiolex with clobazam. In addition to the pooled Phase III data, there were also
abstracts from the compassionate use experience of Massachusetts General Hospital
and the University of Alabama Birmingham. The analyses from these two institutions
also concluded that Epidiolex does not need to be combined with clobazam to be
effective.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 128 Pooled LGS % Seizure Reduction: 10mg/kg Epidiolex vs.
Placebo
Source: GW Pharma, AES 2017 Source: GW Pharma, AES 2017
Figure 129 Pooled LGS % Seizure Reduction: 20mg/kg Epidiolex vs.
Placebo
GW has also studied CBD in psychiatric indications. Results from an exploratory study of
CBD (GWP42003) in schizophrenia were released in September 2015. The trial was a
Phase IIa 6 week, placebo-controlled exploratory trial in 88 patients with schizophrenia
refractory to first line anti-psychotic medications. To be enrolled, patients must have
been treated for a minimum of four weeks on a first line anti-psychotic medication and
still have a PANSS total score in excess of 60. CBD was administered as adjunct therapy
on a background of antipsychotic medication. The trial did not have a primary endpoint,
but rather a number of exploratory endpoints.
CBD consistently demonstrated superiority to placebo, suggesting that CBD may have
substantial anti-psychotic effects. CBD produced statistically significant benefits
compared to placebo on the PANSS positive sub-scale (p=0.018), the Clinical Global
Impression of Severity (p=0.04) and Clinical Global Impression of Improvement (p=0.02).
The proportion of responders (improvement in PANSS Total score > 20%) was higher on
CBD than placebo (p=0.07), with an Odds Ratio of 2.65. Moreover, CBD trended superior
to placebo (p=0.07) on sub-domains of the PANSS that were particularly relevant to
cognition in people with schizophrenia. The Scale for Assessment of Negative Symptoms
showed a trend in favor of CBD, and reached statistical significance in patients taking
CBD together with a leading first line anti-psychotic medication. The rest of the
exploratory endpoints, many of which were other scales measuring functionality and
cognition in schizophrenia patients, also trended in favor of CBD.
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Even in the context of schizophrenia, CBD produced a clean safety profile, with no
serious adverse events and a balanced incidence of adverse events compared to
placebo. The most common adverse events were diarrhea (9.3% CBD vs. 4.4% placebo),
nausea (7% CBD vs. 0% placebo), headache (7% CBD vs. 8.9% placebo) and somnolence
(0% CBD vs. 6.7% placebo). There were two withdrawals from the study due to
treatment-related adverse events, one each for CBD and placebo.
CBD's activity in schizophrenia is supported by pre-clinical data in animal models, as well
as by a recent study published in The Journal of Clinical Investigations (2012) which
suggested CBD may be useful as either monotherapy or in combination with first line
anti-psychotic agents. Nonetheless, while the p-values suggest that CBD has activity, its
potency is difficult to judge without knowing the effect sizes. Therefore, additional data
from this and subsequent studies will be necessary to fully understand the potential of
CBD in schizophrenia. GW Pharma has indicated that it intends to pursue CBD's future
development in pediatric orphan neuropsychiatric indications.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 130 ZYN002 Produced Reductions In ADAMS At 12 Weeks…
Source: Zynerba
GW’s platform allows it to produce chemotypes with precise concentrations of various
cannabinoids, and the company is testing numerous other cannabinoids. GW’s CBDV
drug is in a 10 patient investigator sponsored trial in autism spectrum disorders, and a
Phase II 100 patient placebo controlled trial in this indication began in December 2018.
GW is also investigating CBDV for use in epilepsy, though the first clinical trial was not
successful.
Zynerba studied its transdermal CBD gel ZYN002 in Fragile X syndrome in a 12 week
Phase II open-label study in children and adolescents. In the trial, patients were initiated
on a dose of 50mg daily with the option to titrate up to 250mg daily. The primary
endpoint was the Anxiety, Depression, and Mood Scale (ADAMS) Total Score. Twenty
patients were enrolled, 18 of whom completed the 12 week treatment. At 12 weeks,
two patients were on 100mg and 16 were on 250mg. On the primary endpoint, subjects
saw an average improvement of 14.1 points (or 45.8%) from baseline (p<0.0001) with
the greatest improvements seen in social avoidance (52.9%), general anxiety (54.0%),
and manic/hyperactive behavior (p=0.0003). Twelve patients continued in a long-term
extension study out to 12 months of follow up. These patients showed statistically
significant improvements in mean % change from baseline in ADAMS Total Score, as
well. The extension trial also contributed to a more robust safety dataset. The most
common treatment-emergent adverse events were gastroenteritis (14%) and upper
respiratory tract infection (12%); no serious AEs were reported. A randomized, doubleblind,
placebo-controlled trial to extend these findings to a larger population is ongoing
in Australia, New Zealand, and the U.S.
Figure 131 …And Efficacy Persisted Out To 12 Months In An Extension
Study
Source: Zynerba
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Industrial Hemp And Sustainable Bioproducts (Osborne)
Figure 132 - Industrial Hemp Use Cases
Part of Plant Fiber Hurd Entire Stalk Hemp Nut Hemp Oil Seed Cake
Product Category
Common Uses
Source: Cowen and Company
Figure 133 - Industrial Hemp Imports In 2017 ($1,000)
True Hemp,
raw/proc. not
spun
$780
Hemp Seed
Oilcake and Solids
$11,494
Textiles
Building Materials,
Industrial Products, Paper
Energy Products
Foods
Foods, Personal Care
Products, Technical Oils
Hemp plants have been used for industrial applications for thousands of years. Hemp
stalk fiber was traditionally used as a textile for use in rope; clothing; and sails due to its
tensile strength. Hemp seeds are used in foods and compressed to make oils that were
used as a lighting fuel. The original diesel engine was designed to run on a variety of
biodiesel fuels, including vegetable oils and seed oils, which included hempseed oil. In
1937, hemp production was banned due to its similarity to marijuana despite low THC
presence, but to aid the war effort the federal government requested that farmers plant
industrial hemp to make up for a shortfall in imports from the Asian Pacific. Farmers
planted 36,000 acres of hemp in 1942 and set a target of 50,000 acres in order to
produce the 34,000 feet of hemp that was needed in each Naval battleship and for
other textile uses. The cheap availability of petroleum based synthetic products and
federal regulations against hemp production caused hemp production to decline rapidly
again after the war in the U.S. and throughout most of Europe. As hemp now looks to
make a comeback in light of recent legislation, we see the use cases for industrial hemp
to include many of the traditional textile and food uses that were previously common, in
addition to the growing CBD market.
Figure 134 - Industrial Hemp Imports In 2017 (Metric Tons)
Pressed Products
Apparel Fibre Board Ethanol Bread Supplements Animal Feed
Netting Mulch Biofuels Granola Soap Proteins
Canvas Printing Cereal Cosmetics Flour
Cardboard
Solvents, lubricants, fuels
True Hemp Yarn
$2,739
True Hemp Woven
Fabrics
$1,819
Hemp Seed
Oilcake and Solids
1,475
True Hemp,
raw/proc. not
spun
621
True Hemp Yarn
31
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Hemp Oil and
Fractions
$7,603
Hemp Seeds
$42,897
Hemp Oil and
Fractions
749
Hemp Seeds
7,606
Source: Cowen and Company, Compiled by CRS using data from the U.S. ITC
Sustainability Of CBD And Hemp Production
As the CBD industry grows in size, we believe that producers will look to minimize the
environmental impact of production. In addition, we could see producers try to monetize
the entire waste stream of the hemp production process by converting parts of the
plant that aren’t used to produce CBD or other products into biomass energy. We
believe the most common use cases for hemp biomass will be in the form of pelleting for
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 135 - Biodiesel Production By Input (Millions Of Pounds)
1,600
1,400
1,200
1,000
800
600
400
200
Source: Cowen and Company, EIA
-
use as heating fuel, and also see potential to act as a cellulosic biofuel. The process of
pelleting industrial hemp biomass would be a similar to that of pelleting wood waste,
which gets converted into densified biomass products such as roundwood, pulpwood,
sawmill residuals, and wood product manufacturing residues, which typically cost ~$30
per ton. Wood biomass fuel has an annual capacity of 12.6 million tons per year and
produces ~675 GWh per year in energy. Access to local refineries is key to utilizing hemp
biomass as a cellulosic biofuel. Through local access to refineries, the fuel can be refined
while transportation costs, which can make the products uncompetitive, are minimized.
Given the commoditized market for biodiesel however, where soybean oil has ~50% of
the market input by weight and corn oil has ~15% of the market input by weight, we do
not expect hemp to materialize as a meaningful player due to the competitive
advantage of high production crops competing for low cost production.
Canola oil Corn oil Cottonseed oil Palm oil Soybean oil Other Vegetable
Poultry Tallow White grease Other Animal Fats Yellow grease Other Recycled
Algae Other Alcohol Catalysts
Biochemical CBD Production Methods
CBD is most commonly produced by either CO2 or ethanol extraction from hemp plants.
In CO2 extraction, plants are filtered through a series of chambers with temperature
and pressures applied to the plants that isolate the cannabinoids. The C02 method is
able to isolate CBD at a 90% efficiency and is typically used when producing small
quantities. Ethanol extraction introduces the hemp plant to solvent ethanol and enables
higher volumes production. In addition to hemp-based production of CBD, we believe
the opportunity exists for players within the biochemical space to produce CBD by
utilizing a fermentation approach from other feedstocks. Amyris recently announced a
$255 million cannabinoid development, licensing and commercialization agreement.
Amyris plans to utilize the C5 molecule found in sugarcane in a fermentation process to
produce CBD. The company believes that the fermentation process ensures a level of
purity that is not possible through traditional plant-based production, where CBD levels
can vary from plant to plant. In order to build out the industrial scale necessary for mass
food market, CBD products will need to be produced at standardized levels. Given
Amyris plans to produce CBD at its Brotas plant in Brazil, which is fueled by biomass coproduct
of the nearby sugarcane fields, we believe this will be an attractive option for
companies looking to integrate CBD into their products sustainably assuming the
company is able to produce cost competitively with hemp plants.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 136 Cannabis Comp Table
Company Name - Non-Coverage
Currency:
Ticker
Local
Curr
Source: Thomson Reuters and Cowen and Company
Appendix
Price
52 Week Enterprise Value /
Market Enterprise
FY1
2/22/2019 Low High
LTM Rev FY1 Rev FY2 Rev FY3 Rev
Value Value
EBITDA
1933 Industries Inc TGIF.CD CAD 0.56 0.30 0.80 133 131 8.8 4.3 3.1 NA 31.2 11.8 NA
Aphria Inc APHA.N USD 10.18 3.75 13.45 2,535 3,219 56.2 NA NA NA NA NA NA
Aurora Cannabis Inc ACB USD 6.96 3.90 12.53 6,948 9,318 78.2 NA NA NA NA NA NA
Charlotte's Web Holdings Inc CWEB.CD CAD 18.15 9.05 22.75 1,678 1,199 NA 17.1 7.6 4.4 51.1 21.5 12.0
Cronos Group Inc CRON.O USD 21.92 5.12 25.10 3,892 5,113 NM NM 37.7 29.2 NM 122.0 96.1
Curaleaf Holdings Inc CURA.CD CAD 10.25 1.43 26.01 3,412 3,412 NA 38.3 9.3 4.7 NM 27.8 12.9
CV Sciences Inc CVSI.PK USD 4.90 0.37 9.20 463 453 11.0 NA NA NA NA NA NA
Elixinol Global Ltd EXL.AX AUD 3.47 1.34 3.69 161 148 NA 1.4 1.2 1.0 14.6 7.6 6.3
Emblem Corp EMC.V CAD 1.78 0.83 2.12 234 202 35.4 24.4 2.7 1.4 NM 18.2 5.6
Emerald Health Therapeutics Inc EMH.V CAD 3.89 2.04 6.35 554 504 NM NA NA NA NA NA NA
Green Organic Dutchman Holdings Ltd TGOD.TO CAD 3.69 2.06 9.64 989 789 NA 53.6 4.0 1.4 NM NM 6.3
Green Thumb Industries Inc GTII.CD CAD 19.69 8.21 32.50 1,257 859 NA 13.0 4.0 1.9 NM 19.2 5.6
Khiron Life Sciences Corp KHRN.V CAD 4.05 0.87 4.35 308 294 NA NM 24.6 3.9 NM NM 15.3
Level Brands Inc LEVB.N USD 5.05 2.60 8.41 51 43 4.7 NA NA NA NA NA NA
Neptune Wellness Solutions Inc NEPT.O USD 3.67 2.27 5.14 295 374 14.5 14.1 6.1 2.7 84.2 30.6 11.1
OrganiGram Holdings Inc OGI.V CAD 7.74 3.26 8.55 1,013 1,016 NA 8.2 4.3 3.2 19.5 11.6 8.8
Company Name - Coverage
Canopy Growth Corp WEED.TO CAD 58.51 23.88 76.68 20,071 16,142 NA NM 74.2 34.9 NM NM 105.0
KushCo Holdings Inc KSHB.PK CAD 6.38 3.76 7.20 560 16,142 NA NM NM NM NM NM NM
Tilray Inc TLRY.OQ USD 79.07 20.10 300.00 7,367 16,142 NM NA NA NA NA NA NA
Turning Point Brands Inc TPB USD 41.00 19.11 47.00 802 16,142 NM NM NM NM NM NM NM
FY2
EBITDA
FY3
EBITDA
Overall Min 50.6 42.6 4.7 1.4 1.2 1.0 14.6 7.6 5.6
Overall Mean 2636.1 4582.0 29.8 19.4 14.9 8.0 40.1 30.0 25.9
Overall Median 895 937 14.5 14.1 5.2 3.2 31.2 19.2 11.1
Overall Max 20,071 16,142 78.2 53.6 74.2 34.9 84.2 122.0 105.0
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COLLABORATIVE INSIGHTS February 25, 2019
VALUATION METHODOLOGY AND RISKS
Valuation Methodology
Cannabis: Our valuation methodology is primarily based on Relative EV-to-Sales (EV-to-Sales
divided by Sales-Growth), followed by EV-to-Sales.
Investment Risks
Cannabis: Cannabis is an emerging industry and is subject to regulatory headwinds. While
over 50% of the population is in favor of legalization, only a few states have thus far
legalized cannabis for recreational use and the product remains illegal at the federal level.
Looking forward, much work and change still needs to occur in order for this industry to
realize its full potential.
Risks Pertaining to U.S. Cannabis-Related Companies: If you are considering investing in a
U.S. company that is connected to the cannabis industry, be aware that cannabis-related
companies may be at risk of federal and/or state criminal prosecution. The Department of
Treasury has issued guidance that The Controlled Substances Act (“CSA”) makes it illegal
under U.S. federal law to manufacture, distribute, or dispense cannabis and cannabis-related
products. Many states impose and enforce similar prohibitions. Notwithstanding the federal
ban, however, many U.S. states and the District of Columbia have legalized certain cannabisrelated
activities.
Risks Pertaining to Canadian Cannabis-Related Companies: In Canada, cannabis is an
emerging industry and is subject to regulatory headwinds. While medical cannabis is legal
in Canada, legislation has also been introduced to legalize adult-use sales on October 17,
2018. An initial regulatory framework has been laid out for the adult-use market, looking
ahead, the category will be subject a number of potential headwinds, including taxes and
restrictions on from factors and packaging.
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COLLABORATIVE INSIGHTS February 25, 2019
ADDENDUM
Stocks Mentioned In Important Disclosures
Ticker
WEED
GWPH
TLRY
TPB
Company Name
Canopy Growth Corporation
GW Pharmaceuticals Plc
Tilray
Turning Point Brands
Important Disclosures and Information Relating to Cowen Washington Research Group
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Important Disclosures Relating to Cowen Research
Cowen and Company, LLC and or its affiliates make a market in the stock of GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation securities.
Cowen and Company, LLC served as the placement agent in connection with Tilray's Series A preferred stock financing in February and March 2018.
Cowen and Company, LLC managed or co-managed a public offering of GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation in the past 12 months.
Cowen and Company, LLC received compensation for investment banking services from GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation in the
past 12 months.
GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation is or has been in the past 12 months a client of Cowen and Company, LLC; Cowen and Company,
LLC has provided or is providing investment banking services during the past 12 months.
Cowen and Company, LLC and/or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next 3 months from Tilray and Turning Point
Brands.
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COLLABORATIVE INSIGHTS February 25, 2019
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Disclosures.action
The recommendation contained in this report was produced at February 25, 2019, 22:19 ET. and disseminated at February 25, 2019, 22:19 ET.
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Cowen and Company, LLC. New York 646 562 1010 Boston 617 946 3700 San Francisco 415 646 7200 Chicago 312 577 2240 Cleveland 440 331 3531 Atlanta 866 544 7009
Stamford 646 616 3000 Washington, D.C. 202 868 5300 London (affiliate) 44 207 071 7500
COWEN AND COMPANY EQUITY RESEARCH RATING DEFINITIONS
Outperform (1): The stock is expected to achieve a total positive return of at least 15% over the next 12 months
Market Perform (2): The stock is expected to have a total return that falls between the parameters of an Outperform and Underperform over the next 12 months
Underperform (3): Stock is expected to achieve a total negative return of at least 10% over the next 12 months
Assumption: The expected total return calculation includes anticipated dividend yield
Cowen and Company Equity Research Rating Distribution
Distribution of Ratings/Investment Banking Services (IB) as of 12/31/18
Rating Count Ratings Distribution Count IB Services/Past 12 Months
Buy (a) 473 64.01% 116 24.52%
Hold (b) 259 35.05% 20 7.72%
Sell (c) 7 0.95% 0 0.00%
(a) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLC's equity research rating definitions. (b) Corresponds to "Market Perform" as defined in Cowen
and Company, LLC's equity research ratings definitions. (c) Corresponds to "Underperform" as defined in Cowen and Company, LLC's equity research ratings definitions. Cowen and
Company Equity Research Rating Distribution Table does not include any company for which the equity research rating is currently suspended or any debt security followed by Cowen
Credit Research and Trading.
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Note: "Buy", "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratings terms
are used illustratively to comply with FINRA regulation.
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COLLABORATIVE INSIGHTS February 25, 2019
180
160
140
120
100
80
60
40
20
250
200
150
100
50
50
0
(1):$166.00
02/24/17
(1):$165.00
08/07/17
(1):$175.00
09/27/18
GW Pharmaceuticals Plc Rating History as of 02/25/2019
powered by: BlueMatrix
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
I:(1):$34.00
08/13/18
(1):$62.00
08/29/18
(1):$172.00
10/09/18
(1):$150.00
11/14/18
Closing Price
Target Price
Tilray Rating History as of 02/25/2019
powered by: BlueMatrix
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
I:(1):$13.00
06/06/16
(1):$17.00
11/11/16
(1):$18.00
03/13/17
(1):$19.00
05/12/17
Closing Price
Target Price
Turning Point Brands Rating History as of 02/25/2019
(1):$20.00
08/10/17
(1):$25.00
01/08/18
powered by: BlueMatrix
(1):$27.00
03/12/18
(1):$35.00
08/08/18
(1):$45.00
09/06/18
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40
30
20
10
0
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
Closing Price
Target Price
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COLLABORATIVE INSIGHTS February 25, 2019
100
80
60
40
20
0
I:(1):$13.00
01/10/17
(1):$15.00
02/14/17
(1):$10.00
06/14/17
(1):$10.50
09/05/17
Canopy Growth Corporation Rating History as of 02/25/2019
(1):$24.00
11/14/17
(1):$44.00
01/08/18
powered by: BlueMatrix
(1):$45.00
04/16/18
(1):$48.00
06/27/18
(1):$56.00
08/16/18
(1):$74.00
09/04/18
(1):$82.00
10/09/18
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
Legend for Price Chart:
Closing Price
Target Price
I = Initiation | 1 = Outperform | 2 = Market Perform | 3 = Underperform | UR = Price Target Under Review | T = Terminated Coverage | $xx = Price Target | NA = Not Available |
S=Suspended
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COLLABORATIVE INSIGHTS February 25, 2019
POINTS OF CONTACT
Author Profiles
Cowen Research
New York
646 562 1330
cowen.research@cowen.com
Andrew M. Charles, CFA
New York
646 562 1332
andrew.charles@cowen.com
Andrew Charles is an analyst focused on
restaurants. He has spent over seven years
on the sell side covering the sector.
Phil Nadeau, Ph.D.
New York
646 562 1336
phil.nadeau@cowen.com
Phil Nadeau is a senior analyst covering
biotech. He joined Cowen in 2000 and holds
an SB/M.Eng from MIT, and a Ph.D. from
Harvard.
Charles Rhyee
New York
Vivien Azer
New York
646 562 1351
vivien.azer@cowen.com
Vivien Azer is a senior analyst covering
beverages, tobacco and cannabis. She joined
Cowen in 2014.
Oliver Chen, CFA
New York
646 562 1424
oliver.chen@cowen.com
Oliver Chen is an II-ranked analyst covering
retailing/specialty, broadlines, department
stores, & luxury goods. He has an MBA from
Wharton.
Charles Neivert
New York
646 562 1370
charles.neivert@cowen.com
Charlie Neivert is a senior research
analyst covering agricultural & commodity
chemicals. He has a BA from University of
Pennsylvania.
Eric Assaraf
Washington, DC
John Blackledge
New York
646 562 1359
john.blackledge@cowen.com
John Blackledge is a senior analyst covering
the Internet sector. He joined Cowen in
2012 as the head of Internet research.
John Kernan, CFA
New York
646 562 1324
john.kernan@cowen.com
John Kernan is a research analyst focused
on apparel, footwear and textiles. He has
spent seven years on the sell side covering
the sector.
Jeffrey Osborne
Stamford
646 562 1391
jeffrey.osborne@cowen.com
Jeff Osborne is an analyst covering
sustainable energy tech. He has a BS from
Trinity University and an MBA from Wayne
State University.
Doug Schenkel
Boston
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646 562 1376
202 868 5304
617 946 3918
charles.rhyee@cowen.com
eric.assaraf@cowen.com
doug.schenkel@cowen.com
Charles Rhyee is a senior analyst covering
health care IT and distribution, which he has
followed since 1999. He joined Cowen in
2011.
Eric Assaraf is with Cowen Washington
Research Group covering health care. He
received degrees from the University of
Maryland.
Doug Schenkel is a senior analyst covering
tools and diagnostics. He joined Cowen in
2005 and holds an M.B.A. from the UCLA
Anderson School.
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COLLABORATIVE INSIGHTS February 25, 2019
Reaching Cowen
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646 616 3000
San Francisco
One Maritime Plaza, 9th Floor
San Francisco, CA 94111
415 646 7200
800 858 9316
Washington, D.C.
2900 K Street, NW
Suite 520
Washington, DC 20007
202 868 5300
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