Two and a half years ago, cannabis was so hot Stemcell United (ASX:SCU) went from 1 cent to 19 cents in one day. The catalyst was the appointment of a cannabis expert to look for opportunities.

“Now people want revenues and a genuine business,” said Richard Hopkins CEO of Zelda Therapeutics (ASX: ZLD) – which will be known as Zelira Therapeutics once the merger with American based Ilera Therapeutics is complete. “Companies that will excel will not be about hope, but a genuine return to investors”.

“There’s no mystery — show [investors] how you’re going to make money.”

Hopkins acknowledged at a broker lunch on Thursday it has been a rough time for the cannabis sector but thought the sector was about to turn a corner, with his company leading the turnaround.

America is the biggest opportunity

In the United States, cannabis is legal in 35 states and there are 4 million patients, compared with a paltry 25,000 in Australia. So Hopkins argued “if you don’t think the US, you’re not thinking globally enough”.

But despite the apparent tolerance of cannabis in the US, it is still not legal at the federal level, meaning it cannot be shifted across state boarders, let alone outside the US.

Nevertheless, if you distribute cannabis products without touching local cannabis plants (for instance, growing them elsewhere) you can get around this. Hence, Hopkins argued, the marriage made ‘perfect sense’.

“At Zelda we built a fantastic network where we can distribute our products around the world with the exemption of the US.

“Ilera were the opposite, present in America but it’s difficult to get out of the US.

“If we brought these together, we could have a global company, able to access the largest markets around the world.

“We have a ‘no dickheads’ policy, Illera saw the world as we did, and we began conversations.

“We saw one plus one had better potential than carrying on independently — I cannot speak highly enough of the calibre of the Ilera team.”

Different but similar to biotechs

Globally, regulators legalised cannabis for medical use even without clinical studies due to demand. While legislation is yet to be tabled at the federal level in the US, Hopkins argued the day was coming.

But this would not mean necessarily mean a free-for-all. Legalisation may lead to the FDA having oversight of cannabis in the same way as other medicine.

Companies may have to prove their medical claims in a formal clinical trial to sell products like other biotechs. While there are academic and doctors’ reports suggesting 90 per cent of chronic pain sufferers found cannabis more effective than standard pain medications — these would not be enough.

But these allow the company to design formal clinical trials for FDA-approval purposes based on patient experiences.

“You draw on experience, cut out the crap and realise how much is real. Why do people use cannabis? There are 3 reasons: Sleep, pain and anxiety, that’s 100 per cent of the market, so we designed the trials accordingly,” Hopkins said.

Zelda has three currently underway:

The latter is due to report in Q1 2020 while the former two are due to report before 2019’s end.

Revenue is the catalyst

Another four clinical trials will launch in 2020 but Hopkins acknowledged one step would be game-changing. Revenue generation.

“You must be able to turn your outcomes into revenues because that is how you get a re-rate,” he said. “That is the 600 pound gorilla in the room.”

The US market was not only important because it had 4 million patients, but because typical patients paid a premium out of pocket, and could afford to.

The biggest player in the US, NASDAQ-listed GW Pharmaceuticals, which targets epilepsy and spasticity, made US$26 million in revenue and has a market cap 124 times higher — US$3.3 billion. GW grew the first cannabis plant derivative to be approved anywhere.

Similarly Tilray, which specialises in cultivation and distribution of cannabis made US$44 million in revenue but had a market cap of US$2.4 billion. The Canadian-based company was the first pot stock to export cannabis to the US.

While Hopkins used these to point to the potential market, he argued his company was different. “We source the best cannabis we can, we formulate, put into the market, wrap it around the patient experience and we learn how it’s working for them,” he said.

“That’s a disruptive model — no one is thinking in the way we are.”

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