ASX Cannabis Companies with Canadian Partnerships

Canadian cannabis companies took stakes in the Australian market quickly, but their attention didn't last. What does their involvement look like today?

Canadian cannabis companies were initially quick to secure stakes in the Australian cannabis market, but their enthusiasm has fallen off. Now only a few Canadian players are still trying to make their mark in Australia.

What happened? We take a closer look.

What's the backstory for Canadian cannabis in Australia?

An early rush was on from Canadian businesses wanting to corner the Australian market, which today is thought to be the fourth largest medicinal cannabis market globally after leaders like the US, Canada and Germany.

Canada's relatively small population plus capital from the marijuana stock bubble saw entrepreneurial local producers set their sights on international markets like Australia where future growth surely lay. A new market in Australia exists, but aggressive expansion without a clear progression to profitability has seen global aspirations crumble as huge cost bases abroad are yet to match demand. The cannabis sector's maturity has been slower than many investors initially anticipated.

CEO and corporate advisor at Cannatrek, Brett Schwarz, previously told INN the dynamic between Australian players and Canadian companies has changed significantly.

"I'll call it a big brother kind of relationship," said Schwarz. "They came to Australia because they saw us ramping up, they saw that maybe we were an easier entry point into Europe."

"I think there has been a flip, I think that Canadians came here trying to find partners, but have realized … 'We actually have a lot of our own problems back home, let's close up shop.' A lot of them have actually sold their shareholdings in their Australian partners, because they realize that maybe they have just got to work in (their) own backyard first, before worrying about the big, wide world," Schwarz said.

Why did Canadian companies lose interest in Australia?

The Canadian market itself has been slower to peak, with concerns of oversupply and suppliers being plagued with questions on the quality of products. There has also been the emergence of new growing markets in low-cost developing nations like Colombia and Thailand - which Canada and Australia would find hard to beat on costs.

Stringent regulation also means the cost of locally producing medicinal cannabis in Australia was thought to price out many Canadian partners, although we are seeing changes in this space.

This has ultimately led some Canadian companies to reduce their presence in Australia. In 2019 Canopy Growth Corporation sold its shares in AusCann Group Holdings, and Aphria followed suit selling it's almost 16 per cent stake in Althea Group Holdings during the same year.

The most recent Canadian player to up sticks is Toronto headquartered Flowr Corp who made the decision to exit all non-core jurisdictions in April 2021 - including Spain, Uruguay and Australia. This also includes selling TCann Pty Ltd, the entity holding the medicinal cannabis licenses in Australia. The move signals the end for business in Australia and an estimated annual savings of $1 million.

Which Canadian companies have stuck it out in Australia?

Cronos Australia (ASX:CAU) the Melbourne based entity has been doing well with the sale of its Adaya medicinal cannabis range quarter-on-quarter increasing by more than 200 per cent. They sell medical cannabis products, a personal care product range and run a dedicated medicinal cannabis clinic. The company also has an agreement to sell Tasmanian based ECS Botanics (ASX:ECS) terpene blend range, and has seen recovery in its share price thanks to regulatory changes in Australia.

Valens Groworks (TSX:VLNS) is one of the global leaders in cannabinoid-based products with a focus on partnering with Canadian and international cannabis brands, including subsidiary Valens Australia. In February 2020 they announced their first international shipment of white labelled products to Australia. They have also committed to running Australia's largest secret manufacturing facility in Melbourne, to be run by Cannvalate. The company is hoping to carve out a local market as the majority of medicinal cannabis in Australia is currently imported from Canada or Europe.

MediPharm Labs Australia (TSXV:LABS,OTQQX:MEDIF) after being certified by the Therapeutic Good Administration in May 2020 and securing a Licence to Manufacture the business achieved revenue of $625,000 in its first month. In September 2020 MediPharm Labs secured 100 per cent ownership of the Australian subsidiary. In December 2020, ECS Botanics (ASX: ECS) entered into a three year agreement with Medipharm Labs Australia to supply cannabis materials like flower and crude resin which starts in November 2021.

Some Canadian partners like MediPharm Labs seem to be in it for the long haul.

"Since our founding, MediPharm Labs Australia has been a cornerstone of our strategy to develop a multi-jurisdictional, GMP-certified production capability chain to service worldwide medicinal, wellness and adult-use markets," said Pat McCutcheon, CEO, MediPharm Labs in a statement.

Things are looking up in the sector with a new announcement made in June 2021 that Creso Pharma (ASX:CPH) struck a deal with Canada's Red Light Holland to create the global cannabis and psychedelics company The HighBrid Lab.

Regulatory changes and shifting attitudes are seeing slow gains in the market. Not-for-profit private health insurer HIF recently became the first to support medicinal cannabis offering a $105 rebate back per script to eligible members, alongside a research partnership with Little Green Pharma (ASX:LGP).

Don't forget to follow @INN_Australia for real-time updates!

Securities Disclosure: I, Ronelle Richards, hold no direct investment interest in any company mentioned in this article.

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