Freshleaf said its prediction that 2021 will see an industry consolidation is “coming to life” with the recent merger and acquisition activities
The Australian medicinal cannabis market is continuing its strong growth trajectory and is expected to exceed growth expectations in 2021, by more than doubling to $200 million from around $100 million in 2020.
Patient numbers are estimated to rise to about 75,000 active patients by the end of December 2021, up from 30,000 end-2020 and 45,000 at the close of the first quarter of 2021.
Special Access Scheme Category B (SAS-B) approvals for 2020 doubled to 100,000, with February 2021 achieving a record-breaking 8,000 approvals.
Year-to-date sales in 2021 have already surpassed full-year revenues in 2019.
In FreshLeaf Analytics' first half 2021 report on the 'Australian Medicinal Cannabis Market: Patient, Product and Pricing Analysis', the research house also sees a large increase in authorised prescribers “after a long period of stagnation” which it sees as a key driver of market growth.
While SAS-B remains the primary channel for accessing medicinal cannabis, Freshleaf estimates that almost one-in-five active patients are now prescribed medicinal cannabis by an authorised prescriber.
The forecasts exclude Schedule 3 low-dose CBD products as they are unlikely to be available in 2021.
2021 pivotal
FreshLeaf Analytics noted that as predicted, 2021 will be a pivotal time for the legal cannabis industry in Australia with industry consolidation, changes in regulatory, product and pricing landscape.
It said: “These shifts are beginning to take shape: multiple regulatory changes are underway impacting patient access and product quality, there has been a flurry of M&A activity.”
Further, some industry players have altered their focus in the value chain as the market begins to move away from vertical integration.
Product analysis
FreshLeaf noted that the number of products has more or less doubled each year since 2018, with 190 products now available for prescription in Australia, bringing choice but also challenges.
Medicinal cannabis products remain highly commoditised and there is little ability for physicians to differentiate between them beyond formulation and price.
It highlighted that product growth in the last six months came mainly from oil, with the number of oil products available rising to 123 from 89.
There has been modest growth in flower products, while the number of wafer products tripled.
The industry has recently experienced significant supply issues with flower.
There are currently 32 flower products on the market, including granulated flower supplied by nine manufacturers, but only four are cultivated locally.
Australia is still heavily dependent on Canada and Europe for both cultivation and manufacture of flower products.
Local cultivators and manufacturers have responded quickly to shortages, with some releasing home-grown flower products for the first time while others have altered production plans to meet demand.
Only one new delivery format
The first half has been a quiet period for innovation in delivery formats compared to 2019/2020, which saw a range of different delivery formats from sprays to patches, wafers and capsules.
Only one new format has been introduced since FreshLeaf’s last report: chews.
Low-dose CBD products
In the last six months, total product numbers rose by 40 but almost three-quarters of products that exited the market were low-dose CBD products containing either 10 or 25 mg/ mL of CBD.
FreshLeaf speculated companies that manufacture low-dose CBD products that may not be suitable for Schedule 3, are shifting their focus elsewhere – either introducing suitable Schedule 3 formulations or moving away from the low-dose CBD category entirely.
It also noted almost 70% of products that entered the market over the past six months were Schedule 8 products (containing >2% THC).
Substantial drop in retail floor price
Freshleaf noted that the price war seen over the past three years is “heating up” with continued downward pressure seen due to intense competition and record numbers of products introduced to market.
It highlighted “an astonishing” drop in the retail floor price to around $0.03/mg with an average price of $0.16/mg.
Price drops were seen across almost all product formulations, with a notable drop for High THC products and CBD Isolate S4 products.
Balanced products were the only group that did not see a drop in floor price, holding steady at $0.11/mg.
Of the 190 products on the market, 35 or 18%, had a retail floor price of below $0.10/mg.
The minimum wholesale price – the price that a pharmacy pays to the manufacturer – also dropped to $0.025/mg, with an average price of $0.14/mg following steep declines over the past three years.
Shift to legal cannabis
It noted that a 2019 survey revealed only 3.9% of those who used cannabis for medical purposes obtained it by prescription and that a total of 600,000 Australians are believed to be medical cannabis users.
This effectively means there are around 555,000 Australians who are obtaining medical cannabis illegally.
Based on a median spend on illicit cannabis of $50 per week, the total market revenue today could be as high as $1.5 billion per year.
Changes in Australian regulatory landscape
Following the Australian Government response to a Senate enquiry into barriers to patient access to medicinal cannabis in Australia, Freshleaf expects to see:
Changes to the SAS-B authorisation pathway; Potential reforms to the Authorised Prescriber Scheme; Additional ongoing funding of $1.7 million for the ODC; Changes to the medicinal cannabis license and permit system; and Possible changes to the Medicare Benefits Scheme for primary care in 2021.Challenges to low-dose CBD market
Freshleaf noted that the down scheduling of low-dose CBD has been a frustrating milestone for the medicinal cannabis industry and patients alike.
“The onerous path to market has resulted in frustration for patients who are unable to access products over-the-counter in pharmacies, and for medicinal cannabis companies who are navigating an expensive and time-consuming process to get products on shelves,” it said.
S3 products must be approved by Therapeutic Goods Administration (TGA) and included on the ARTG before they can be supplied and this has created a sizable challenge for organisations pursuing S3 registration as applications must be supported by data demonstrating the quality, safety and efficacy of the medicine.
FreshLeaf estimates that the pharmacist-only CBD market in Australia will grow to $250 million in product sales at market maturity, capturing around 2 million consumers.
Currently, almost 1-in-4 medicinal cannabis patients take a CBD product at a daily dose below 150mg, spending an average of $8.02 per day.
FreshLeaf expects that this patient cohort will migrate to the pharmacy channel once low-dose CBD products become available over the counter.
This means the first product or products to hit the S3 market will take the lion’s share of this group – around 10,000 patients spending almost around $29 million a year.
FreshLeaf expects that once Schedule 3 products become available, more manufacturers will exit this category as not all companies will be able to register their product, or they may be too late to market with few patients left accessing low-dose CBD through the unapproved pathway.
Speed to market will be a critical competitive advantage for those looking to tap into this new and lucrative market.
Gateway to medicinal cannabis in Asia
Freshleaf noted that while the regulatory environment evolves, questions have been raised about the pace at which the industry is moving forward, with concerns that if regulatory frameworks continue to change slowly, Australia may miss its opportunity to become the gateway to the medicinal cannabis industry in Asia.
It added: “Australia has much to gain from taking a pharmaceutical approach to medicinal cannabis although it brings with it the challenge of balancing pharmaceutical rigour with speed so that the industry matures in strides.”
Key focus on manufacturing standards
Freshleaf believes manufacturing standards will be a key focus for the medicinal cannabis industry in 2021.
A review of manufacturing standards on imported products is underway with the Department of Health, as part of a wider set of potential reforms to medicinal cannabis manufacturing, labelling and packaging requirements.
Whatever the outcome of the review, imposing GMP standards on imported products will likely affect the number of products in the market and potentially also the pricing of products, it noted.
In addition, medicinal cannabis companies are coming to grips with the manufacturing data requirements for registering a Schedule 3 medicine - a requirement for GMP manufacturing in a facility that is certified by the Therapeutic Goods Administration.
Growing investment in R&D
Recent merger and acquisition activities and increases in the valuation of ASX-listed medicinal cannabis companies who are pursuing a registered pharmaceutical product pathway has drawn attention to the market value of owning products that are protected by IP and are registered, or on the path to being registered.
With the growing interest in cannabinoid therapies, 2020 appeared to be a record year for research into medicinal cannabis across a range of indications covering most aspects of the research pipeline – from preclinical research and veterinary medicine, to systematic reviews and analyses.
FreshLeaf anticipates that growing investment in R&D will continue throughout 2021, driven by substantiation of the commercial advantages of pursuing a product registration strategy, as well as clinical research requirements for registering a Schedule 3 product.
Industry consolidation
Freshleaf said its prediction that 2021 will see an industry consolidation is “coming to life” with the recent merger and acquisition activities.
Developments have been seen at the business and operational level, including refined business models, improved manufacturing capacity, new production facilities, introduction of new technologies and the arrival of new players, which bodes well for 2021.
“We expect these trends to continue throughout 2022 as the market further matures and consolidates around the major players,” Freshleaf added.
