Biosynthetically-derived Cannabinoids

Biosynthesis to transform consumer packaged goods and pharmaceuticals.

David Kideckel, PhD

In our inaugural thematic report published in early 2019, we focused on the advantages and disadvantages of cannabinoid production methods—plant extraction, chemical synthesis, and biosynthesis. Back then, biosynthetically-derived cannabinoids were at a nascent stage of development. Two years later, the technology has evolved and largescale production is approaching. We believe that biosynthetic cannabinoids will gain mainstream acclaim in 2021 and onwards across various sectors, including big pharma, consumer packaged goods (CPG), and contract manufacturers.

Why Biosynthetic Cannabinoids Matter
We believe that cannabinoids will become a critical input to several products across the pharmaceutical and CPG industries given their potential therapeutic benefits and utility for health, wellness, and consumer products. We believe that biosynthesis will disrupt the dynamics of cannabinoid production as the most efficient and cost-conscious method for the large-scale and lower-cost production of rare cannabinoids. In the early years, we expect that CPG products will drive most of the demand for biosynthetic cannabinoids due to a less rigid regulatory outlook. In the long term, we believe that cannabinoid-derived pharmaceuticals will account for most of the market, as clinical trials progress and new pharmaceuticals are approved by regulatory authorities.

Approaching Large-scale Commercialization
Biosynthetic cannabinoid companies are making progress and approaching the large-scale production and commercialization of cannabinoids. While 2019 and 2020 were development years, we believe that large-scale commercialization will start in 2021. We believe potential commercial partnerships between biosynthetic companies and large pharmaceutical and CPG companies will serve as a key catalyst for a re-rating of the sector.

Implied Valuation for First Movers Indicates Large Upside Potential
We believe that biosynthetic cannabinoid companies that are able to create robust partnerships with pharmaceutical and CPG companies will gain a meaningful share of the market and will have material upside. We expect the enterprise value (EV) of a company that gains a 5% share of the biosynthetic cannabinoids market to be above US$1 billion, much higher than the valuation of companies in the sector.

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