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Canopy Growth Corp.’s $340-million acquisition of German medical cannabis firm C3 Cannabinoid Compound Company was not a consolation buy, says CEO Bruce Linton.

Last month, Germany’s Federal Institute for Drugs and Medical Devices overlooked Canopy in awarding the first in-country cultivation licenses to Aphria Inc., Aurora Cannabis Inc. and Wayland Corp.

"We had different views on what price should be, all-in price and things like that,” Mr. Linton told Cannabis Professional. “But it's the first [tender], and we didn't really want to chase it down, because we knew we had this as something we were going to do anyhow.”

The acquisition of C3, which Canopy announced Thursday, was in the works for more than eight months, Mr. Linton said, and forms the core of Canopy’s European medical marijuana strategy.

C3, a subsidiary of plant-focused pharma company Bionorica SE, has been producing and selling the cannabinoid drug Dronabinol for nearly two decades. Dronabinol is a THC formulation, known more widely by the trade names Marinol and Syndros. It has been around since the 1980s and is prescribed for nausea and pain related to cancer treatments.

C3’s products are registered pharmaceutical drugs in Germany, Austria, Switzerland, and Denmark, and the company did $41.5-million in sales last year. In Germany alone it served 19,500 patients in 2018, an 85 per cent increase, year-over-year.

“We kept seeing them in the market, and they’re really good,” said Mr. Linton. "They already have sales channels in several countries, and certifications so you can actually get it prescribed… When you’re in-market, you know where doctors are coming at it from, and what regulators are building up from.”

The deal gives Canopy two processing facilities in Germany: one focused on extracting cannabinoids from marijuana plants; the other focused on manufacturing THC and CBD synthetically. Without in-country cultivation, Canopy will feed the extraction facilities with product grown in Canada or in its facility in Denmark.

The acquisition also gives Canopy a suite of pre-approved drugs in Europe, a number of patents, and access to clinical trials C3 and Bionorica are undertaking. Bionorica and Canopy have signed a separate “cooperation agreement” that will see Canopy commercialize any cannabinoid-based intellectual property developed by Bionorica.

“It is difficult for us to assess the value of the IP acquired as part of this transaction. Hence, without much visibility on the IP acquired, the valuation paid by Canopy appears high at first glance,” wrote Martin Landry, an analyst with GMP Securities, in a note to clients on Thursday.

“As an offset, C3’s facilities appear to have been recently constructed … [and] the company’s experience in producing pharmaceutical-grade cannabinoids (THC and CBD) could bolster Canopy’s efforts in becoming a major player in the future pharmaceutical cannabis market,” Mr. Landry added.

Certain cannabinoid-based medicines, such as Dronabinol, have been available within the mainstream European pharmaceutical system for decades. By contrast, the recent wave of medical cannabis legalization has involved non-finished cannabis products, which are sold in pharmacies after being “compounded” by pharmacists to meet the needs of individual patients.

This non-pharmaceutical system is developing rapidly across Europe, from Poland to the United Kingdom, and providing a lucrative opportunity for Canadian cannabis firms. Companies like Canopy, however, are already aiming to get their drugs approved through the pharmaceutical approvals process, as GW Pharmaceuticals did last year with its CBD-based epilepsy drug Epidiolex.

"The big picture is everybody is going to be excited in three to five years about companies that have IP that turns into real outcomes that can actually be proven and repeated,” said Mr. Linton.

This was echoed by Owen Bennett, an analyst with Jefferies Group LLC, in a note to clients about the Canopy deal.

“We believe the global medical cannabis market will evolve to become more pharma-like as we go forward, with specific drugs targeted at specific conditions and with measured doses of certain cannabinoids," he wrote.

“This appears exactly how C3 operates today. In addition to their existing clinical trials and research, this exposure should see support for Canopy’s long term international medical share outlook, particularly in Europe.”

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