NetworkNewsWire
Editorial Coverage: Merger and acquisition (M&A)
activity in the cannabis industry is heating up, and market
analysts point to several important factors contributing to
increased activity. Profit is always a central issue, and as the
founders of companies established years ago seek attractive exit
strategies, new players are considering ways to enter the field in
a profitable way. The rapid evolution of technology and its
increasing application also serve as catalysts for M&A,
as larger companies pursue opportunities that are positioned for
current or near-term commercial availability. Such expertise and
assets developed by smaller brands could potentially turn them into
attractive targets for M&A activity. Lexaria
Bioscience Corp. (OTCQB: LXRP) (LXRP
Profile) is one such
potential target due to its proprietary technology for
improved taste, rapidity and delivery of bioactive compounds,
including cannabinoids. Other industry reps that have made valuable
contributions to cannabis product development include
Canopy Growth Corp. (OTC:
TWMJF) (TSE: WEED),
Aurora Cannabis, Inc. (OTCQX: ACBFF) (TSX:
ACB), Radient Technologies, Inc. (CVE:
RTI) and Hemp, Inc. (OTC:
HEMP).
As Canada prepares to legalize the
recreational use of marijuana next summer, the push for M&A
becomes even greater. Since the beginning of the fourth quarter of
2016, an average of approximately 3.2 deals have been closing per
week well into 2017 (http://nnw.fm/vC8CU). In comparison, the average for
the same period one year ago was approximately 1.4 deals. Analysts
note an increase in interest from Canadian companies that wish to
cross the border to become a part of the U.S. cannabis
industry.
Generally, M&A activities focus on companies and facilities
that already have well-developed positions in the field. In 2017,
one of the oldest marijuana dispensaries in Denver sold to a
Colorado enterprise (http://nnw.fm/ur6vC). The fate of the two-best selling
marijuana retailers in Washington was similar. The initial price
tag set for the two businesses was $50 million (http://nnw.fm/UTn2Y). Developments on the Canadian
market have also been pretty dynamic in 2017. The trend will
potentially be upheld in the year to come and strategic interest
will fall on innovators in the field of cannabis extraction and CBD
oil delivery.
For Lexaria Bioscience Corp. (OTCQB:
LXRP), the company has several notches in its belt
that could stimulate its potential as an attractive acquisition
target. Lexaria is a revenue-generating biosciences company focused
on improving the delivery of bioactive compounds through gourmet
foods. The primary differentiator between Lexaria’s products
and others on the market is the company’s patented delivery
technology for non-psychoactive cannabinoids.
In addition to being cost effective, the company’s DehydraTECH™
proprietary technology has been proven in both the laboratory and
market to enhance the performance of beneficial compounds in
ingestible products in what regards smell, taste, action duration
and bio-availability and absorption. This allows for lower overall
dosing and higher efficacy, a plus for cannabis suppliers and
consumers alike.
The technology works with all ingested forms of cannabinoids,
making Lexaria an enabler rather than a competitor, and allowing
the company to develop partnerships with various biotech companies
for cannabinoid research and development.
In October, Lexaria grew its portfolio of 19 international
patent applications when it received patent allowance for
DehydraTECH™ as a delivery platform for
all cannabinoids, including
(tetrahydrocannabinol) THC, fat soluble
vitamins, non-steroidal anti-inflammatory pain medications
(“NSAIDs”) and even nicotine. Upon formal patent
issuance, the company will receive protection for its technology
until at least 2035, and Lexaria will be in the prime position to
accelerate its technology out-licensing activities in several key
markets.
“This wide-ranging patent allowance from the USPTO exceeds our
expectations. This vastly expanded intellectual property protection
will enable us to aggressively pursue new business opportunities in
2018 such as what could be the world’s first nicotine edibles for
the smokeless tobacco industry, or enhanced products for
NSAID-derived pain management, as well as in the rapidly growing
cannabis market,” Lexaria CEO Chris Bunka stated in the press
release (http://nnw.fm/2iPIn).
Because Lexaria’s patented lipid-delivery technology can be
successfully applied to cannabinoids, vitamins, NSAIDs and also
tobacco, the company is positioned for opportunity in several
lucrative markets.
Global demand for tobacco and nicotine products continues to
grow, placing the global tobacco market at approximately $770
billion. However, demand for alternative tobacco and nicotine
products aimed at reducing the risks of smoking is also growing at
a rapid pace. Lexaria’s technology offers a safer, healthier
alternative to traditional nicotine delivery systems by allowing
the infusion of nicotine molecules with different edible food
ingredients or in capsule formats (http://nnw.fm/Xqw5T). Edible or capsule forms of
nicotine have largely been unsuccessful so far in terms of
manufacturing, but Lexaria’s technology can overcome any such
challenges and lead to the creation of nicotine-infused products
without any dangerous side effects.
Currently, Lexaria is the only
company in the world that holds a patent for the improved delivery
methodology. The patent is valid for the U.S. and Australia, and it
is currently pending for 40 other countries. As the company’s
market reach and application of technology grow, so does brand
recognition and its visibility among larger companies looking to
add to their portfolios. This puts
Lexaria in an advantageous position
when it comes to strategic industrial partnerships and possible
acquisition or merger.
Another sweet spot for Lexaria is Canada’s increasing favor
toward cannabis. Canadian regulators in November 2017 began
discussing the legalization of cannabinoid edibles and beverages
for the first time, and the Canadian government has committed to
the date of July 1, 2018, for the nationwide legalization of
recreational marijuana. As regulators open up the markets in 2018
and 2019, Canadian licensed cannabis producers are facing explosive
demand for their products, and could significantly benefit from
Lexaria's delivery platform.
A recent investment into Canopy Growth
(OTC: TWMJF) (TSE:
WEED) by Constellation Brands, the $40+ billion
company behind Corona, Modelo and Svedka is one example of how
M&A activity within cannabis is crossing borders into the likes
of tobacco and alcohol, as Canada prepares to
legalize marijuana for recreational use (http://nnw.fm/zkGu5).
Canopy Growth has long been open to industry partnerships and
business interactions aimed at stabilizing its market position. In
November 2017, the company announced a distribution agreement with
the Winnipeg-based Delta 9 Cannabis Inc. Delta 9 focuses its
activity on growing small batch medical cannabis strains for the
purpose of developing a diversified range of products. Also in
November, Canopy Growth entered another strategic partnership with
Green House Holding North America Inc. and GHSC Trading B.V. for
the purpose of bringing new products to the Canadian market.
Notably, Lexaria’s patented technology could ensure leading
market positions for businesses like Canopy Growth, potentially
serving as the fine line between success and failure in an
increasingly competitive environment.
Aurora Cannabis (OTCQX: ACBFF) (TSX:
ACB) is another prominent
player on the Canadian market that demonstrates increased M&A
and investment activity in the cannabis industry. Aurora on
November 24 announced the launch of a takeover bid for CanniMed,
which will enable the company to benefit from Aurora’s leadership
position in the Canadian cannabis market. Just a day earlier,
Aurora announced its acquisition of H2 Biopharma, a company
recognized for its 48,000-square-foot cannabis production facility
located in the vicinity of Montreal. Also on November 23, Aurora
Cannabis announced the acquisition of
Larssen Ltd. – a company known for the creation of high-quality
automated greenhouses.
Earlier this week Aurora
Cannabis said it will increase its
investment in Radient Technologies (CVE:
RTI) to a total of $12 million, echoing the need for
increased supply in the Canadian market.
"With multiple Aurora facilities coming online and ramping up
production in the coming quarters, as well as the anticipated
export of cannabis oils and preparations for the legalization of
adult consumer use in Canada, Radient's planned expansion positions
both companies exceptionally well to accelerate revenue growth,"
Aurora Cannabis CEO Terry Booth stated in the news release
(http://nnw.fm/JYs3k). "This investment reflects
our strategy to build a constellation of vertically integrated
partners and subsidiaries, and we look forward to jointly pursuing
further expansion of market share in this exiting space."
M&A activity isn’t just commonplace among industry giants
like Constellation Brand or Aurora Cannabis. Hemp, Inc.
(OTC: HEMP) recently announced its acquisition of
specialized equipment and technology for enhancing the company’s
extraction operation that will be assembled shortly. Currently,
Hemp Inc. has the largest
multi-purpose industrial hemp processing facility in the Western
Hemisphere with many investments in innovation as well as
acquisitions of specialized equipment over a long-time period. In
August 2017, the company got its NuAxon Tech CO2 supercritical
extractor – an essential step towards the completion of thorough
extraction infrastructure that will allow for more efficient CBD
oil product manufacturing.
M&A activity will focus on unique assets and
well-established facilities with the potential to guarantee
leadership positions on both the Canadian and the international
markets. As regulators continue to open up the cannabis industry,
they could fuel even higher rates of activity in 2018 and beyond.
For companies like Lexaria, this could mean an exponential amount
of potential for licensing agreements, key partnerships and
potential acquisition activity.
To find out more about Lexaria Bioscience
Corp. visit the company online at Lexaria
Bioscience Corp. (OTCQB: LXRP)
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