The fast-paced marijuana industry continues to attract non-traditional players.
In the years to come, marijuana could very well be one of the fastest-growing industries on the planet. According to a slew of Wall Street projections, the global cannabis industry could see sales soar between fivefold and 18-fold over the next decade, which presumably leaves plenty of room for investors to see some green.
But it’s not just investors who have their eyes squarely on the rapidly growing pot industry. Businesses in traditional and time-tested industries are monitoring the growth in legalized cannabis, with some beginning to dip their toes into the water. Last week, one of the more embattled opioid producers that’s facing a host of lawsuits in the U.S. became the latest company to open its proverbial arms to the cannabis industry.
This embattled opioid drugmaker is now a cannabis player
On Friday, Sept. 13, Israeli-based licensed medical producer Cannadoc, a subsidiary of publicly traded company InterCure, announced that it had entered into a three-year strategic distribution agreement with Salomon, Levin, Elstein (S.L.E.), which is a wholly owned health-logistics subsidiary of embattled brand-name and generic-drug producer Teva Pharmaceutical Industries (NYSE:TEVA). The agreement also comes with the potential for a two-year extension.
Teva’s subsidiary will be playing two key roles for Israel’s Cannadoc. First, it’ll distribute compliant medical cannabis products to hospitals, health maintenance organizations (HMOs), pharma clients, and pharmacies within Israel. Secondly, though dependent on future regulatory action, S.L.E. will help support the sale and distribution of medical cannabis outside of Israel.
It’s certainly an interesting move for Teva Pharmaceutical, which is being sued by 44 U.S. states over its role in promoting opioid sales. In 2017, opioid-related overdoses led to the deaths of more than 47,000 Americans.
Comparatively, while it’s possible for consumers to overdose on marijuana, there haven’t been any deaths caused by a cannabis overdose. This correlation alone has some folks calling for broadened access to medical cannabis and its cannabinoids as a means to treat a variety of ailments.
For Teva, this marks a baby step forward into the cannabis space. Although Israel has approximately 46,000 medical marijuana patients, it’s unclear just how many of these patients S.L.E. will directly supply via hospitals, HMOs, and pharmacies. That makes this more of a news story than a needle mover for the time being. Yet it’s still, presumably, a step in the right direction for a company trying to improve its image in the public’s eye and with investors.
Teva’s not alone
Of course, generic-drug giant Teva isn’t alone in its quest to bolster sales growth by looking toward the marijuana industry.
In March 2018, Sandoz, the generic-drug subsidiary of pharmaceutical giant Novartis (NYSE:NVS) formed a strategic alliance with Tilray (NASDAQ:TLRY). The agreement provided a means for Novartis’ generic and biosimilar drug arm to become the exclusive distributor of non-smokable and non-combustible medical cannabis products throughout Canada for Tilray. Sandoz also became responsible for playing a role in helping to educate physicians and pharmacists about Tilray’s medical marijuana products and brands.
Then in December, this partnership was further expanded. Tilray and Novartis agreed to work together to support the sale of Tilray’s non-smokable and non-combustible products worldwide, with the two companies potentially co-branding certain product lines and developing new medical cannabis products.
Teva and Novartis are likely to see more of their peers enter the cannabis space in some manner in the years to come.
Here’s why medical cannabis is so attractive to pharmaceutical companies
You might be wondering why the medical pot arena is such an intriguing avenue for pharmaceutical companies like Teva and Novartis. After all, recreational weed sales have been pegged by Wall Street analysts to handily outpace medical marijuana revenue in fully legalized markets. But the answer isn’t as simple as you might think.
For starters, despite Canada setting the blueprint for recreational legalization among industrialized countries, it’s unclear if any other industrialized nations are even close to legalizing adult-use marijuana. Right now, there are only two markets in the world (Canada and Uruguay) where recreational pot is legal. Meanwhile, there are more than 40 countries worldwide where medical cannabis can be prescribed by a physician. Sure, not all of these markets allow for the import of medical marijuana, but most do, thereby providing a platform for medical cannabis-focused stocks to succeed on a global scale, rather than in just one or two markets.
Perhaps more important is the fact that medical marijuana patients generate considerably higher margins than recreational users. Medical users might be fewer and far between but they tend to use the product more frequently, buy it more often, and are more likely to purchase derivative cannabis products, such as edibles, beverages, vapes, concentrates, and topicals, than recreational users. Derivatives are far less likely to face oversupply, pricing, and margin pressures than traditional dried flower. In other words, pharmaceutical companies focused on medical cannabis are choosing quality over quantity.
We’ll have to wait and see if Novartis’ and Teva’s early moves into the marijuana space pay off. But in my opinion, it certainly can’t hurt the investment thesis for either company.