Medicinal cannabis start-up Ora Pharm has launched a new service it says will make life easier for other players in the struggling sector.

The Waikato firm has launched new plant processing and export services for
other medicinal cannabis cultivators across the country.

Cofounder and chief executive Zoe Reece likens it to a winemaking operation that buys grapes from vineyards without their own facilities, then takes care of processing, bottling and distribution.

One of the barriers to growth in the budding medicinal cannabis industry has been the intense, multi-layered certification process. Reece says Ora Pharm will take care of all the red-tape and sign-offs for processing and export, allowing the cultivators to cut compliance costs and focus on growing leaf.

The second major development is that Ora Pharm has been selected as the only supplier from New Zealand for AI-powered business-to-business cannabis trading platform CanXChange, which recently expanded from Europe into Australia. In January this year, it claimed A$10m in sales interest in its first week. Any product from NZ can appear on the Aussie exchange – but only if it’s funneled through Ora Pharm. Reece says her firm will give multiple cultivators new opportunities to expand across the Tasman.

The local medical cannabis industry continues to face significant challenges.

Key among them is the fact that although Reece says cannabis is better than alternatives, it is not funded by Pharmac, and has no immediate prospect of being subsidised by the Crown drug buying agency.

It can make exceptions for individuals but as of February this year, it had only granted approval for three people. All had life-threatening conditions. Pharmac said it had declined applications to fund medicinal cannabis for mental health conditions including anxiety; pain, including chronic pain and arthritic pain; and insomnia. It said more trials were needed.

Absent of Pharmac funding, medicinal cannabis product, which can cost $200 to $300 per month, has to compete with $5 or fully subsidised painkillers and the black market.

Another key barrier is a prohibition on marketing. Restrictions mean Reece – like her peers – could not even discuss price with the Herald (various online forums host price trackers).

There is some opening up in the industry, which is still barely four years old. But progress is slow.

In October last year, the Ministry of Health’s Medsafe unit reclassified cannabidiol (CBD) products from a prescription-only to a restricted medicine – meaning low-strength medicinal cannabis products could be sold over-the-counter at pharmacies. (THC, which gives recreational users their high, is removed during processing). Medsafe did however warn it would take time to implement the change, which has yet to be implemented nine months on.

Similarly, in August last year, the previous Government agreed on a series of measures to reduce compliance costs and red tape – which the industry had been lobbying hard for – with an aspirational target of implementing the changes before the end of 2023. The election meant that goal was missed. Incoming Health Minister Shane Reti and Associate Health Minister David Seymour sought further advice. Medsafe group manager Chris James recently said earlier this month that the proposed changes would go to Cabinet “shortly”. Reti has played his cards close to his chest.

Time has already run out for the latest of three medicinal cannabis firms to list on the NZX. Cannasouth went into voluntary administration in March after a bid to raise $5m failed. In the year to December, it lost $8.8m on sales of just $956,000.

The other two listed players, Rua Bioscience ($8.99m market cap) and Greenfern Industries ($1.75m) both have market valuations that are a fraction of the highs they hit before the referendum on legalising recreational cannabis (which would have offered a lower-cost, easier-to-service market).

Rua lost $10.8m on $141,000 in revenue in the six months to December.

Greenfern lost $1.73m in the year to March on revenue that fell 40 per cent to $378,000.

$7.5m raise under way

The privately-held Ora Pharm sought to raise $11.5m from institutional and wholesale investors in 2021 but had to settle for just under $3m.

Earlier this year, it started a drive to raise $7.5m, which would be used to build greenhouses for commercial crops, which Reece says could drive revenue to $20m (currently, Ora Pharm has one greenhouse, used for R&D). No funds have been banked so far, but Reece says a party has promised $5m for the new construction if $2.5m can be raised in fresh working capital. That effort is in train.

“We’re proud to support the medicinal cannabis industry as it sets out to follow in the footsteps of our wine industry which, from first planting on a commercial scale in the 1970s, has now reached over $2 billion in export value,” said Agriculture Minister Damien O’Connor said in April 2022 as the first legal crops were harvested.

It has a fair way to go, but Reece hopes her firm’s new services, and the long-awaited regulatory changes, will help accelerate growth.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.