In the wake of the COVID-19 pandemic, Australia’s (still nascent) cannabis sector has fallen slightly below the radar following the 2019 bear market.

In view of that (and approaching the end of the 2020 financial year) we thought we would get a sector update from Rhys Cohen, principal consulting at industry research company Freshleaf Analytics.

Among the key takeaways were that while user growth for medicinal cannabis is still increasing in the Australian market, it remains to be seen which strategies and business models will be left standing once the industry matures.


Price wars

When we last caught up with Cohen in December, Freshleaf estimated that active users in the Australian market numbered around 10,000, and he was optimistic of a push towards 30,000 in 2020.

Since then, “it’s been pretty tough competition because the number of active patients hasn’t grown as fast as we thought it would — largely because of COVID I think”, Cohen said.

“But it’s still been relatively resilient — we’re up to 15,000 active patients at the moment, and depending how things go we’re hoping for 20-25,000 by the end of this year.”

Cohen said monthly user growth rates are averaging around 8 per cent (where each month is 8 per cent higher than the previous month), which is “a pretty good compound rate as far as patient growth goes”.

However, he added that the industry was also experiencing a notable round of price competition, as more players and products came to market.

From less than 100 in December, the number of medicinal cannabis products available for prescription is now climbing towards 130.

“From September last year to March this year, we saw a 17.5 per cent reduction in prices across all products,” Cohen said. “And since March, a few new products have come to market which have extended those price wars”.

As an example, he highlighted that the cheapest CBD products coming to market would typically sell to pharmacies at wholesale prices of 10c per milligram.

However, “recently we noted that a company came out with a new range of products that retail for 6c a milligram, so that’s quite an extraordinary plummet in pricing”, Cohen said.


Looking abroad

Along with new product development, Australia’s strict regulatory environment also plays a key role in how the nascent cannabis sector develops.

And Freshleaf Analytics is closely monitoring the big news from April, when Australia’s drug regulator (the Therapeutic Goods Administration) announced it would weigh up whether to allow cannabidiol-only (CBD) products to be sold over the counter in pharmacies.

Cohen said key dates to watch for start with the interim decision in September, with the final decision due in December. Whatever shape the final decision takes, it will be implemented by Feb 1st next year.

While a positive ruling would free up domestic cannabis producers to rapidly expand their distribution network, Cohen said it would also provide a regulatory catalyst to pursue overseas opportunities.

“Any company that’s able to run the gauntlet and get a Schedule 3 pharmacist-only product on the shelves in Australia, that product would almost definitely — and automatically — meet food-grade standards in Europe and would easily be able to be sold as a novel food throughout Europe which is something no one has done yet,” Cohen said.

“And these products could also easily be made available in pharmacies throughout North America. So I think the opportunities for non-prescription CBD are much more immediate than prescription medicine right now.”

However, while Stockhead tracks more than 30 cannabis (or cannabis-adjacent) ASX stocks which compete with a number of private competitors in the space, Cohen said operational conditions were likely to remain challenging.

He contrasted the Australian market against more developed markets in Canada and the US, which led the global cannabis bear market last year after a hype-phase which resulted in many companies left saddled with debt without a viable business model.

However, “it’s a bit of a double edged sword — most local companies haven’t had the opportunity to incur huge debts in Australia, but that’s largely because the ODC (Office Drug Control) have been so slow issuing licences”, Cohen said.

“So we’ve avoided a lot of those issues, but it does mean raising money for Aussie companies is tough. Unless you’ve got a compelling business proposition it’s going to be a hard slog for those companies.”