XPhyto Therapeutics Corp (CSE:XPHY) is a science-based cannabis company focused on formulation, clinical validation, and emerging European markets. XPhyto’s 100% owned German subsidiary, Bunker Pflanzenextrakte GmbH, has been granted a unique German cannabis cultivation and extraction licence for scientific purposes by the German Federal Institute for Drugs and Medical Devices (BfArM). XPhyto is pursuing additional opportunities in Germany including cultivation, processing, manufacturing, import, and distribution.
In Canada, two exclusive 5-year engagements with the Faculty of Pharmacy at a major Canadian university provide certified extraction, isolation, and formulation facilities, drug research and development expertise, as well as commercial analytical testing capability.
The Vancouver-based company is celebrating a milestone this week, on August 6, as its shares spring to life on the Canadian Securities Exchange. With new business opportunities on the horizon and a first-mover advantage in emerging European cannabis markets, XPhyto’s CEO Hugh Rogers shares his unique insights with Proactive on taking a scientific approach to cannabis, bridging the gap between medical marijuana and clinical validation and why the company focused on Germany rather than Canada to grow its business.
Give us a quick introduction to XPhyto Therapeutics. What does the company bring to the table that perhaps wasn’t being addressed in the cannabis sector?
As the industry matured, we saw opportunities in North America around licensing of cultivation facilities, processing and dispensaries in a retail model. What was missing was a more scientific approach focused on the medical model. Clinical validation, for example, wasn’t being addressed in a real way. In addition to formulation and clinical validation, we saw emerging markets in Europe as the biggest opportunity, particularly in Germany.
Right now, the value attributed to a licensed producer in Canada has been eroded and we expect that will continue. We anticipate seeing the commoditization of flower for extraction as well as oils and isolates. Eventually there will be a spot price for CBD or THC, and that’s not a market we want to be in. It’s going to be dominated by big players, largely from the equatorial regions of the world and I think in the long run it will be difficult for Canadian producers to compete without significant government protection.
Can you introduce us to the XPhyto team and the company’s focus?
On the medical side in Canada, we have partnered with the University of Alberta. One of our directors and largest shareholders is Dr Raimar Löbenberg, a PhD pharmacist from Germany and the founder of the Drug Development and Innovation Centre at U of A. Dr Löbenberg and his lab bring an incredible amount of expertise surrounding formulation and delivery. The infrastructure at the lab is a huge advantage as well, because if we were to build a lab of that calibre it would cost tens of millions of dollars. We’ve been able to collaborate to use its infrastructure for a fraction of the cost.
In Germany, we have a strong business team, led by Robert Barth and Wolfgang Probst, and we will continue to add expertise to our scientific team. Our initial focus in Germany will be on growing and extracting flower, followed by import and distribution. We have an amazing 10,000 sq ft facility that is a former military command centre. It will serve as the centre of our cultivation and extraction for scientific purposes. We are engaged with a very prominent grower and hydroponics expert from Canada to assist in growing flower at that facility. We plan to add extraction and isolation, and possibly remediation technology to make it a state-of-the-art showcase for the German government. We’ll also be looking to cultivate commercially down the road as we anticipate there will be a future tender application process in Germany for further commercial cultivation within the country.
I’m sure you get asked this a lot, but why Germany?
Germany is the largest legal medical marijuana market in the world with the most potential number of patients in a single jurisdiction. It’s an emerging market but they’re extremely open to the clinical use of cannabis. And, in some cases, medical cannabis is paid for by government medical insurance.
On the commercial cultivation side, there’s 13 licenses right now, all owned by Canadian companies: five by Aurora, five by Aphria and three by Demecan. There’s one scientific license that we’re aware of and that belongs to us. The commercial cultivation licenses are very small, only 200 kg per year, and the product must be sold back as flower to the government. It’s all for patient use. Our license is a scientific license, which means we can extract and formulate to use for scientific purposes.
The commercial cultivation market is somewhere we want to be in 12 to 24 months but right now the opportunities in Germany for growing are fairly limited. Supply is a major issue right now and the deficit is currently made up through imports. That is a business opportunity that we are rapidly advancing.
You’re somewhat of a first mover in Germany. How do you hope to leverage that advantage in order to scale up the business?
In terms of supply of flower, we’re building relationships with a number of Canadian producers as well as in South America and Israel, where established growers are looking for an opportunity to sell into Europe. We do not intend to grow outside of Germany. We are actively engaged with potential suppliers who want distribution in Europe.
I think the fact that we have both a unique cultivation and extraction licence and a strong relationship with the German regulators means a lot.
Do you have insights you can share about the cannabis sector in Canada and Germany?
In Germany, it’s medical use only. Medical cannabis is only available at pharmacies on a prescription basis. It’s highly regulated across import and distribution versus Canada, which has a more extensive grey market history and evolving legal landscape.
We don’t operate in the Canadian market in terms of growing or selling products here. We have experience on the regulatory side in terms of our R&D license with U of A, and I think that’s been fairly straightforward, albeit slow, which is understandable given that Health Canada is under tremendous pressure and their resources are clearly strained.
I would say that the German health authority is taking a more cautionary approach to regulation, but it’s certainly a sensible approach. We have a very good relationship with the German regulators. Germany is highly regulated, highly organized, and their domestic cannabis production is going to roll out over a longer period of time. It makes sense to me.
What does your revenue model look like?
There are a few different revenue models. The short-term model is the import and distribution of medical or THC-containing products and at the same time, CBD-containing consumer products like drinks, cosmetics, or pet supplements. In the longer term, we’re focused on cultivation in Germany and medical formulations and clinical validation, whether proprietary or otherwise. We’re looking at several different delivery methods and potential acquisitions to drive revenue in the longer term.
Going public is a big step for any company. Why is now the right time for XPhyto to list on the CSE?
We’re on the cusp of many business opportunities and advancements. With our license in hand and numerous opportunities we hope to announce over the next 30-60 days, I think we’re in a great position to start executing on our business model.
Without given too much away, what’s in store for shareholders over the near term?
On the cultivation and extraction side, the buildout of our facility is a milestone we’re hoping to accomplish in the next 6-12 months. In parallel to that, acquiring a narcotics importer/wholesaler is high on our list of priorities, or alternatively, securing those licenses ourselves, and building out our European distribution. Back in Canada, we’re focused on commissioning of our extraction facility in our ISO-certified cleanroom in the University of Alberta, and then getting to work on some of our proprietary formulas, followed by clinical validation.
Do you have any advice to share with investors about the European potential?
We’re pursuing the next wave of cannabis opportunities. Investors should be looking at more sophisticated medical opportunities in North America vis a vis formulations and clinically validated formulas, and obviously emerging markets, primarily Europe. As an investment, I would look at first movers in Europe, companies with demonstrated relationships with the government regulators in the major market, such as Germany. I would certainly put XPhyto at the top of that list.
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