Zenabis Global Inc.
It makes Farmako the first European company to secure a deal to sell cannabis isolates in the Canadian market. In return it will sell medicinal cannabis produced by Zenabis in Germany, which is Europe’s largest market for marijuana.
If the two firms are able to obtain EU export and Canadian import licenses, Farmako will supply the biosynthesized CBD isolate from its facility in Frankfurt. If that is not possible, Farmako will build a bioreactor at one of Zenabis’ existing licensed facilities in Canada and get to work there.
Zenabis will then try to sell CBD products direct to retailers through its existing distribution channels and wholesale it in bulk to fellow licensed producers. It will also have first right of refusal on any other CBD isolate that Farmako decides to sell in Canada.
Zenabis will contribute towards production costs and profits will be split. “We are purchasing the CBD isolates from Farmako at an incredibly low cost, which will allow us to tap into the rapidly growing Canadian CBD market by supplying products that will be priced much more competitively than current market offerings,” said Zenabis chief executive Andrew Grieve.
Flipping the Script
Germany is already the leading European market for medicinal cannabis, but the industry is only just getting started there. It is the world’s fourth-largest economy, and the government covers prescriptions for many Germans, so the potential is huge.
It has only just started a domestic cultivation scheme that sees three Canadian companies producing the first legal marijuana crops in Germany. Until now it has been totally reliant on imports and Canada is a key beneficiary of that.
This represents a flipping of the script, with a German company supplying the Canadian market. Farmako has operations in the UK and Denmark too, and it focuses on the distribution of pharmaceutical cannabis, with plans to become a vertically integrated market leader in every European country.
Yet it will not all be one-way traffic, as Zenabis will also supply Farmako with Canadian-grown medicinal cannabis to distribute in Germany. First, it needs to achieve EU GMP status, and then the plan is to ship 5,000kg of cannabis to Farmako each year. Both arrangements are supposed to be in Q4 2019.
Undercutting the Competition
Farmako flies in the face of traditional CBD extraction methods by using a genetically modified tequila bacterium. It claims this allows it to produce pure CBD – or other cannabinoids if necessary – at mass scale and low costs, and Zenabis argues that this will allow it to significantly undercut the competition in Canada.
Zenabis, formed out of Sun Pharm Investments’ reverse takeover of Bevo Agro Inc., says it is on course to produce 479,000kg of cannabis per year once build-out of its various facilities is complete. It has greenhouses in British Columbia, New Brunswick, and Nova Scotia.
The stock has seriously underperformed the market in 2019, decreasing from $6.10 on Jan. 3 to $1.85 at the start of this week. However, it has rallied somewhat on the back of the Farmako news and it opened at $2.01 today.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.