The (legal) marijuana business: a future hidden in clouds of smoke, hype and red tape?

Barclays Investment bank held its annual jamboree for the great and the good in the consumer products industry last week.

On the roster were many familiar names: P&G, J&J, Kraft Heinz, Nestlé, Coca Cola and more. All the usual suspects.

However one name intrigued me, Canopy Growth. I hadn’t heard of it.

Founded in 2013, Canopy Growth markets medical and recreational marijuana in the Canadian market. Besides Canada it’s also focused on the US, where its betting there’ll be legislative reform in favour of marketing marijuana, and Germany.

Photo: Richard T Yovh, Unplash

It’s listed on both the Toronto and NYSE exchanges and has annual revenue C$607m and over 3,200 employees.

The company’s website boasts an array of marijuana brands including Tweed, 7 Acres, Blissco, Hiway; Dog Treats; flavoured waters; a sleep solution branded ‘Dream Gummies’ and if that wasn’t enough they also do vapes.

What surprised me was how little money the company makes. In fact it’s heavily in the red, and losses have increased despite a rise in revenue.

The issue starts with their gross margin which averages just 15%. Compare that to Philip Morris who make 68% or BAT who make 83%

Canopy Growth’s stock price once traded at over C$60 but in recent days it’s down at C$19. 

At the Barclay’s conference the CEO talked about the importance of consumer insights but perhaps the issue is a lack of focus, too many brands. There were apparently over 100 innovation projects on the go, but it seems many have been shelved as cash burn accelerated. 

Perhaps the market isn’t as big as they imagined? Penetration of legal marijuana in Canada is rising but it’s still below 10% of the population.

Investors who hang on will be betting legislators in America and Germany vote in their favour.

I’ll end with a few disclaimers: I’m not an investor in Canopy Growth, nor am I doing any work the company. Oh, and I don’t smoke either.

Jabs, Jobs and Tax; the prickly fight for vaccine exports

Brand awareness for Pfizer, Astra-Zeneca, Moderna and BioNTech has reached astronomical levels. Thanks to the crisis, we have all become arm-chair vaccine experts.

covid-19 vaccine

Contrary to perceptions, vaccines are less than 5% of the world-wide pharma industry. Pre-Covid, the most widespread vaccines were for tuberculosis, whooping cough and polio.

Manufacturing vaccines is complicated and can take between 12 to 36 months from raw material inception, active ingredient production, coupling with stabilisers and filling. Quality controls account for around 70% of time. It’s an industry with high R&D, intellectual capital and state of the art manufacturing. 

Once plants are built, they are not easily moved. It’s global and 4 of the top 5 exporters are in Europe. 

Belgium is the undisputed leader. In 2020 it exported over $11b of human vaccines, followed by Ireland. There is no doubt Belgium’s 2021 exports will soar dramatically thanks to Pfizer’s plant in Puurs.

There are over 270 Biotech companies in Belgium. It’s a cluster that supports over 38,000 jobs, not to mention tax revenue. There are generous tax breaks on researchers’ salaries and only 20% of patent income is recognised as taxable revenue. 

Across in Ireland, the world’s no 2 vaccine exporter, there are over 25,000 employed in medical technology and another 25,000 in servicing the sector. Like Belgium, Ireland has not been slow in offering generous incentives to investors. The headline corporation tax rate is 12.5%.

Last year Dublin came up with a ‘knowledge development box’ sweetener which can further reduce the rate of corporation tax to 6.25% for profits derived from certain IP assets.

No surprise then that the EU has given a more cautious response to President Biden’s proposal to temporarily waiver intellectual property rights for Covid-19 vaccines. 

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