The edible market for cannabis is going to be legalized in Canada sometime this year, and when it does, we’ll likely see many cannabis-infused beverages on store shelves. However, beverages may not need to be infused with cannabis as recent research suggests the effects could be obtained from yeast itself. In what could prove to revolutionize the process, it’s been found that Saccharomyces cerevisiae, which is found in yeast, can be turned into tetrahydrocannabinol (THC) or cannabidiol (CBD).
Several companies in Canada are working on developing the process, which could be in high demand. However, it could take some time before we see it becoming reality. One estimate suggests it could take up to two years before the technology is cost-effective and competitive enough to be a viable option for the market and to really garner much attention. There are also still skeptics of the process and its ability to be an adequate substitute. After all, whether the compounds will have the same quality as those that are derived from the plant itself is just one aspect that needs to be taken into consideration.
– Chief Strategic Officer Ronan Levy, Trait Biosciences
Why this matters for the industry
The ability to cut plants out of the process would be significant for the cannabis industry. All the overhead and all the space needed to house cannabis plants is very costly and is a big reason why many marijuana companies struggle to breakeven. Amid all the growth going on in the industry and a supply shortage going on, we often see big producers like Canopy Growth Corp (TSX:WEED)(NYSE:CGC) and Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) scrambling to find more space. Normally the easiest way to do so is via acquisition but that’s something that can be costly itself and take a lot of time to find the right fit.
However, given the uncertainty around quality and with the finalized technology being so far away, it’s still a bit early to know for sure how big of an impact this will have on the industry. Quality is an important consideration that simply can’t be ignored, especially in ensuring that patients get the medical benefits they’re seeking from CBD.
You can be sure that many cannabis companies will be watching the results of this research closely as it could prove to have a big impact on costs in the industry. It could also divide the industry into those focused on purity vs price. And while there may not be much pressure on cannabis companies to be profitable today, I wouldn’t expect that to last for very long. Inevitably, things will slow down in the industry and companies will not be able to simply rely on growth to keep their stock prices strong.
A company that’s not able to generate cash from its operations is going to have to take on more debt or issue more shares just to keep growing, neither of which is a particularly attractive option for investors.