The entrance of multinational pharmaceutical companies into Canada’s cannabis sector will mark one of the next major themes in the industry, analysts told Marijuana Business Daily.
Such eventual moves by Big Pharma will provide even more credibility to a sector that has already seen the entrance of alcohol and tobacco giants.
“The missing link is in the pharmaceutical part of the equation,” David Kideckel, director of Altacorp Capital’s life sciences division, said in an interview with MJBizDaily.
“That’s going to be an ongoing theme for 2019 – M&A and how these so-called legacy industries move in.”
Thus far, there have been no major direct investments from pharmaceutical companies into medical cannabis licensed producers.
But a recent Altacorp report said that drought could “come to a halt” once the U.S. legalizes cannabis at a federal level.
“As far as making really big deals, I don’t think you’re going to see anything substantial in terms of an equity stake until companies feel more comfortable with where U.S. federal policy is going,” Kideckel said.
Kideckel recently initiated coverage of Valens GroWorks, Auxly Cannabis Group and GW Pharmaceuticals.
“Those kinds of deals can be a prelude for pharma to get its feet wet in the cannabis industry,” Kideckel said. “Distribution agreements could unfold.”
Who are the likeliest targets for Big Pharma?
“Companies involved in the cannabis space with competitive differentiation surrounding their R&D capacity, clinical trials program or commercialization efforts would be a prime candidate for Big Pharma to engage in talks with,” Kideckel noted.
Alcohol and tobacco are steppingstones to “the really big brands that will ultimately arrive here,” said Khurram Malik, a partner with Toronto-based financial advisory firm Jacob Capital Management.
“The really big ones for me are consumer packaged goods,” Malik added. “When you get the Nestles and Coca-Colas of the world coming in, that’s when it will get interesting.”
Legacy companies are waiting to see who can successfully build brands in the THC and CBD industries before pulling the trigger on major M&As.
“As far as CBD goes, until cannabis companies have a large enough consumer recreational brand presence, they’re not going to sweep in,” Malik said.
“They don’t want to create a brand, they want to buy one and take it to the next level.”
He said nondiversified beverage or tobacco companies might be more inclined to get involved earlier to help develop products and brands to stem potential losses from cannabis, but diversified consumer packaged goods companies are in no such rush.
Those organizations don’t feel the same competitive tension to get involved in cannabis, he said.
“They’ll wait until someone gets big enough and make it worth their while.”
Matt Lamers can be reached at firstname.lastname@example.org