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HIGHLIGHTS
  1. Alberta-based InPlanta became Canada’s first licensed cannabis nursery last month
  2. Other players such as Flowr and Supreme are putting more focus on genetic research
  3. InPlanta hopes to go public via IPO in early 2021 with a valuation of up to $300-million

As the legal cannabis industry matures, new business models are forming around the notion of maturing the marijuana plant itself on the molecular level.

Last month, InPlanta Biotechnology became the first company in Canada to secure a cannabis nursery license from Health Canada. Co-founded in 2015 by two geneticists, and based on the University of Lethbridge campus in southern Alberta, InPlanta spent 16 months navigating the application process and is now hoping to maximize its early-mover advantage to build a business worth hundreds of millions of dollars in a niche where co-founder Darryl Hudson anticipates intense competition.

“The majority of the big licensed producers are building genetics or breeding companies, whether they have built their facilities yet or have them under construction, they are looking to this as the next stage of the game because they are starting to realize that no big agricultural company actually farms,” said Mr. Hudson, who holds a PhD in molecular biology and genetics from the University of Guelph. “That is really our competition, the big guys, but our business model is not to compete with them, it is to feed them their genetics in the first place.”

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Related: What you need to know about the nursery licence

Those ‘big guys’ are hardly standing still. The Supreme Cannabis Company launched a research and development-focused subsidiary called Cambium Plant Sciences just two weeks ago. In February, Flowr co-CEO Tom Flow told Cannabis Professional his company saw “a particular need… not only for general clone material and plant material in the industry, but also clean clone and plant material because of all the rampant pest problems and pathogen problems in the sector.”

Flowr, which first applied for a cannabis nursery license back in August of 2018, “sees a large gap within the industry that doesn’t seem to be serviced so there is a very good opportunity there,” Mr. Flow said at the time. The company is among those still navigating the licensing process.

There have been a handful of cases since recreational legalization took effect last year where marijuana cultivators have recalled products due to the mould issues Mr. Flow referenced. Some experts have suggested tighter regulations to address those issues, though Mr. Hudson says cannabis nurseries can address the mould issues while also advancing the effects of cannabis itself beyond what is currently possible.

“These breeders in the past have only been able to select largely based on THC because you can smoke that and feel that, and then they can select for many some of the terpenes because you can taste them and smell them," Mr Hudson said. "But now we can go in and start to breed for molecules - essentially these very minor cannabinoids that nobody has ever been able to feel the strong effects from because it has never been at those levels and that is in addition to breeding resistances to things like powdery mildew and mould,” he said, adding the R&D departments of larger producers simply lack necessary time to be successful at those endeavours.

“When we are breeding things, even if it is just a standard crop, we have to do at least three generations before it is even accepted as something new and stabilization can take another seven to nine generations, so we are very comfortable doing five- to seven-year projects in our program,” Mr. Hudson explained.

InPlanta currently makes money primarily through royalty deals ranging from 2- to 5-per-cent of total sales generated by producers selling their genetics, which co-founder Igor Kovalchuk says already equate to several million dollars annually. Longer-term, he explained the plan is to offer seeds and clones to home-grow consumers, “exclusive” genetics to craft growers once Health Canada starts issuing micro-cultivation licenses, and to secure more licensing deals using a kind of intellectual property called Plant Breeders Rights, which is effectively the agricultural version of a patent.

“Right now our valuation is between $40- and $50-million and we are negotiating a small investment just to fund ourselves until we can go public [via an initial public offering, IPO] within a year to 18 months at a valuation of between $200- and $300-million,” said Mr. Kovalchuk, who once taught Mr. Hudson undergraduate biology at the University of Lethbridge and continues to teach at the school. “Probably around January of 2021 is when we would plan on going public,” he said

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Until then, his former student and current business partner does not expect InPlanta to remain Canada’s only licensed cannabis nursery for much longer, though Mr. Hudson welcomes more competition.

“Fortunately we have a very large collection of genetics that we have acquired from all over the world that has given us a good baseline in order to be a good competitor in the space,” Mr. Hudson said. “We really do hope other people get licenses and that other people push the envelope to make newer and better genetics, because that is what is going to set this industry apart.”

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