PwC Canada's cannabis series

Chapter 9 - Cannabis in the pharmaceutical industry

Is ‘big pharma’ the cure or an unwanted side effect?

Since the inception of the commercial cannabis industry, pharmaceutical companies have watched the sector grow from the sidelines with only a few deciding to enter the market. In this chapter of PwC Canada’s Cannabis Series, we explore medical cannabis and outline the potential opportunity for ‘big pharma’.

A brief history of medical cannabis around the world

Cannabis has been used for medicinal and therapeutic purposes for centuries, with evidence of its use dating back more than 5,000 years ago in what is now Romania[1] and 10,000 years ago in Japan[2]. In the United States (US), cannabis was first described in the United States Pharmacopoeia in 1850 before ultimately being dropped in 1942. The removal coincided with increasingly hostile legislation towards cannabis starting in 1937, with effective prohibition under the Marijuana Tax Act and culminating in 1970 with the complete federal prohibition under the Controlled Substances Act[3], which placed cannabis as a Schedule 1 controlled substance[4].

By 1961 the United Nations Single Convention on Narcotics Drugs marked a coordinated global effort to prohibit and monitor illicit drug use. This UN treaty was amended in 1972, increasing measures to prevent the cultivation and abuse of opium and cannabis and broadening the purview of the International Narcotics Control Board. Countries with existing regulation prohibiting cannabis were now reaffirmed by the global community and those without found themselves compelled to do so out of global compliance.

Against a backdrop of increasing global criminalization, there was a burgeoning movement to recognize the therapeutic benefits of cannabis and a growing awareness of the high cost of prohibition enforcement versus the social detriment of cannabis itself. As such, soon after the 1972 amendment to the UN treaty, sentiment shifted away from greater prohibition towards increased practices of tolerance.

Despite US federal legislation, in 1978 New Mexico became the first state to legislatively recognize the therapeutic benefits of cannabis and by 1982 there were varying medical cannabis frameworks in place within thirty states[5]. As the global view of cannabis began to shift to a more positive light, other jurisdictions moved to reclassify and/or decriminalize cannabis; the Netherlands in 1972 and Paraguay in 1988. As tolerance grew, so too did medical recognition of cannabis. This spurred further decriminalization and tolerance, a trend that has led to today’s medical cannabis landscape.

A brief history of medical cannabis

The Canadian context

In Canada, cannabis was criminalized in 1923 via the Act to Prohibit the Improper Use of Opium and Other Drugs. Despite being one of the first countries to make cannabis illegal, it was not until the late 1930s that the rule became largely enforced – a shift primarily influenced by the growing hostile sentiment towards cannabis in the US.

The legalization of the medical cannabis industry in Canada was primarily the result of a few key legal challenges against the government of Canada (list not exhaustive):

  • 2000: R. v. Parker (Ontario Court of Appeal): The first decision that invalidated the prohibition on cannabis, declaring such as unconstitutional as it did not contain an exemption for medical use, leading to the adoption of the Marihuana for Medical Access Regulations (MMAR).
  • 2011: R. v. Mernagh (Ontario Superior Court): The ruling struck down the prohibition against the possession and production of cannabis contained in the MMAR leading to the adoption of the Marijuana for Medical Purposes Regulations (MMPR) and the birth of the commercial medical cannabis industry in Canada.
  • 2015: R. v. Smith (Supreme Court of Canada): This ruling found that restrictions limiting authorized patients to dried cannabis under the MMAR and MMPR were unconstitutional, leading to the introduction of cannabis derivative therapies.
  • 2016: Allard et al v. Regina (BC Supreme Court): This ruling provided injunctive relief to those previously licensed for personal production under the MMAR, leading the way for the introduction of the Access to Cannabis for Medical Purposes Regulations (ACMPR).
Key legal milestones in medical cannabis

With the numerous court challenges to medical cannabis’ legality and accessibility, and the federal government’s subsequent responses, Canada became a worldwide leader in medical cannabis, with an internationally recognized commercial industry.

Canada’s status as a global leader in the industry was cemented when the Federal Liberal Party ran in the 2015 election on a platform to legalize cannabis for recreational use, and ultimately won the election. Honouring one of their most prominent election promises, the Canadian House of Commons initially passed the Cannabis Act on November 27, 2017 and the final version received Royal Assent on June 21, 2018.

On October 17, 2018, cannabis became federally legal for commercial sale and consumption in Canada with co-existing frameworks for the recreational and medical cannabis market segments.

Current state of the industry

Industry operators, known as Licensed Producers (LPs), operate concurrently across both the medical and adult-use markets and are responsible for cannabis cultivation through to distribution to either authorized patients or provincial liquor boards. LPs are currently selling predominantly the same simple and undifferentiated products (e.g., dried leaf, oil extracts) into both markets.

Canadian cannabis markets

Source: Health Canada

Patient registrations and product sales

The number of medical cannabis patients in Canada has grown rapidly (18.3% per quarter) since inception, reaching 342,103 patients in September 2018[9]. This growth coincides with a steady, albeit slower, 8.7% quarterly increase in medical cannabis sales (by volume) into the sector, from Q1 2016 through to Q2 2018.

Medical cannabis patient and product sale growth[10]

Source: Health Canada

Physician attitudes

From April 2017 to September 2018, there was a 96% increase in patients using medical cannabis.  This was driven in large part by the  667% growth in physicians willing to authorize cannabis to patients over that same period. As of September 2018, the total number of physicians that have ever provided medical cannabis authorization for a client reached 18,086 with physicians authorizing an average of 2.1 grams/day per patient since January 2018.

The growth in the number of authorizing physicians is likely driven by increased physician knowledge, comfort with the process and increased demand from patients seeking medical cannabis as a potential alternative to traditional drugs.

Despite the increase in authorizing physicians, many continue to be reticent to authorize medical cannabis for patients due to a lack of clinical evidence. In fact, most provincial physician colleges do not endorse the therapeutic use of cannabis. However, to comply with the court rulings requiring reasonable access to legal medical cannabis, most provide limited guidance for the cautious and compassionate use of cannabis, especially where other therapeutic options have been exhausted and failed to alleviate symptoms.

Authorizing physicians vs. average authorizations amounts[11]

Source: Health Canada

Clinical data

To date, few clinical trials have been conducted for whole-plant, botanical cannabis. Without the requisite clinical data, it is unlikely Health Canada will allow any therapeutic claims for medical cannabis products. However, federal legalization in many geographies outside Canada has resulted in a growing number of trials being conducted.

Pharmaceutical companies wanting to develop prescription cannabis products have been forced to focus on specific APIs (e.g., tetrahydrocannabinol (THC) and cannabidiol (CBD)) to adhere to the strict requirements of the traditional drug approval pathway. The limitations of this approach are not only that it requires substantial investment, but also that the therapy loses the entourage effect[13] of the plant, thereby reducing its therapeutic efficacy. For these reasons, most LPs have eschewed the prescription drug development pathway in lieu of whole-plant, botanical product development without therapeutic claims.

Annual cannabis clinical trial volume (in-progress and completed) by start year[12]

Source: Health Canada, ANZCTR and NLM / NIH databases

Adjacent industry entrants

The medical cannabis industry is still primarily operated by LPs and other ancillary start-ups. To date, most pharmaceutical companies have not yet made significant moves to enter the space with the notable exception of a few generic drug companies who have formed partnerships with select LPs. The partnerships largely centre around research and development (R&D) and product commercialization.

In additional to pharmaceutical entrants, a number of Canadian pharmacy and pharma distributors have formed supply agreements with LPs, anticipating that Health Canada will eventually allow distribution through retail pharmacy similar to other drugs. While the regulations are not yet changed to permit retail distribution, Shoppers Drug Mart recently secured a license from Health Canada to sell medical cannabis through an ecommerce platform under the Cannabis Act. On January 8, 2019, Shoppers launched its medical cannabis website in Ontario to begin onboarding of authorized patients and receiving medical cannabis product orders.

Select adjacent industry entrants into Canada’s medical cannabis industry[14]

What’s next?

The future of medical cannabis is a hotly debated topic amongst all professionals operating in the industry with a variety of hypotheses emerging over the past few years.

  • Medical cannabis will disappear: The introduction of the legal adult-use market will provide medical cannabis patients an alternative and more convenient distribution channel to procure cannabis for self-directed therapeutic use.
  • Medical cannabis will remain but gain advantages over adult-use cannabis: There will be a policy shift by the federal government to create incentives for medical cannabis patients to procure medical cannabis through physicians rather than through adult-use channels (e.g., reduced taxation, insurance coverage/reimbursement, possession limits, acceptable consumption locations, etc.).
  • Medical cannabis will disaggregate and evolve: Health Canada will revise regulations that will facilitate the disaggregation of the medical cannabis industry into traditional segments that each leverage phytocannabinoids to varying degrees.

Cannabis market segment evolution

Potential cannabis market segment evolution and disaggregation:

While it is uncertain which hypothesis will ultimately prove true, we do know that medical cannabis is rapidly expanding globally with many countries exploring legalization. New legal jurisdictions are beneficial for stakeholders throughout the industry. For existing operators, new geographies represent substantial growth opportunities. For medical cannabis patient advocates, they represent further validation of their fight to recognize cannabis as a therapy. Most importantly, accelerating global legalization represents additional opportunities for entrepreneurs, researchers, physicians and patients to explore and unlock the true therapeutic benefit of medical cannabis.

Current global legalization status 

What will drive future industry evolution?

There are many factors that will drive the future evolution of the medical cannabis industry; however, some of the most critical include:

  • A transition away from combustion-based consumption forms to innovative and sophisticated formulations that allow for a prescribed time of onset, duration of action, bioavailability, and dose consistency. Future delivery technologies will likely explore the concept of microdosing to optimize the balance between therapeutic effect and psychoactive events.
  • Clinical study evidence for differentiated product claims and physician dosing guidelines.
  • A Health Canada registration number for whole-plant medical cannabis products.
  • Patient education and support programs to encourage therapy adherence.
  • Insurance coverage and reimbursement to cover patients’ out-of-pocket costs.
  • Market segmentation into traditional verticals that align with existing adjacent pharmaceutical and consumer health businesses.

Why hasn’t pharma entered en masse?

Despite many potential avenues for pharmaceutical companies to participate in, and enhance, the medical cannabis space, we have not seen large transactions or market entry similar to those made by alcohol or tobacco companies. While there are likely many strategic, commercial and operational reasons pharma has not yet entered, our experience shows that pharmaceutical executives/the board have typically delayed market entry into medical cannabis for one of the following reasons:

  • Stigma and reputational risk: The longstanding stigma generated by the decades long “war on drugs” combined with the lack of clinical evidence for therapeutic efficacy creates reputational risk exposure in an industry that is highly sensitive to adverse patient events.
  • Global governance structure: The commercial medical cannabis opportunity is currently localized to a few small geographies with large, attractive jurisdictions either developing a regulatory framework or remaining federally illegal. Globally-governed companies must weigh the potential impact of entering the medical cannabis market against other, likely lower-risk, opportunities.
  • Regulatory ambiguity and rapid changes: Regulations can be ambiguous and/or fluid with regulators often revising regulations in response to industry operators leveraging their agile business models to construct workarounds to stringent restrictions.
  • Lack of clinical evidence and standard regulatory approvals pathway: Medical cannabis lacks clinical evidence to support therapeutic claims with evidence largely being anecdotal from patients; as such, Health Canada does not recognize the therapeutic benefits of phytocannabinoids preventing medical cannabis from obtaining registration numbers similar to prescription, over-the-counter or natural health products.
  • Unfamiliar IP protection pathways: Phytocannabinoids, including the widely recognized THC and CBD, are known molecules and therefore present unique commercialization challenges for branded pharmaceutical companies who are accustomed to competing in an IP-protected environment until loss of exclusivity.
  • Difference in product/go-to-market strategies: Given that whole-plant medical cannabis cannot receive a Health Canada registration number, and that patients develop and direct their own therapy regime, the industry’s commercialization strategy is different from most traditional pharmaceutical business models.

What is pharma’s opportunity at this stage of the industry’s lifecycle?

There is a significant opportunity for pharmaceutical companies to influence and shape the future medical cannabis industry given the nascency of the market and the short lifespans of current industry operators. While every pharmaceutical company will focus on different market segments (e.g., prescription, consumer health, nutraceutical, etc.) and have different core competencies to offer, this is precisely what creates the plentiful opportunities.

In our opinion, pharmaceutical opportunities in the space should capitalize on the current market gaps and align with the core competencies of most pharmaceutical companies. While there are countless opportunities, a few of the largest include:

Support ongoing R&D programs and initiatives: Cannabis illegality and stigmatization has resulted in a dearth of understanding of both individual cannabinoids and the entourage effect of whole-plant cannabis oil extract (i.e., botanical mix of phytocannabinoids). Pharmaceutical companies can leverage their existing R&D infrastructure to understand and manipulate the pharmacokinetics and pharmacodynamics of cannabinoids to support clinical therapy development.

Commercialize innovative product delivery technologies: Medical cannabis is primarily consumed by inhaling combusted dried leaf or consuming small volumes of whole-plant cannabis oil extract. A major limitation of all currently available product forms is the ability to accurately measure and track dosing to align with a therapy regime. Pharmaceutical companies can develop, or license, existing drug delivery technology and apply to phytocannabinoid therapies to generate new, innovative therapies for patients.

Conduct clinical trials to generate data for product claims: Health Canada currently does not recognize the effect of phytocannabinoids. As such, no whole-plant medical cannabis product can market claims of effect nor efficacy. Pharmaceutical companies can leverage their extensive knowledge of regulatory, clinical and product development capabilities to support the hypothesis of cannabis as a therapy as well as develop indication-specific cannabis therapies.

Support physician education and awareness: Physicians lack sufficient knowledge and evidence on cannabis therapies. While a growing number of physicians will authorize medical cannabis for patients, additional authorization guidance is required for greater adoption (e.g., dosing, drug interactions, etc.). Medical affairs teams can leverage existing and de novo R&D initiatives to develop education materials for physicians to learn about cannabis and provide patients with consumption advice.

Develop patient support materials: Patients currently drive their own therapy decisions upon receiving a physician authorization. In the absence of detailed dosing guidelines similar to prescription drugs, patients are turning to third-party cannabis clinics for guidance on strain selection, phytocannabinoid profile, dosing regime and consumption format. Pharmaceutical companies can leverage medical affairs and pharmacovigilance infrastructure to field patient questions and provide evidence-based education in the absence of physician direction.

Conduct ongoing pharmacovigilance: Currently LPs are developing their own records of patient experiences with medical cannabis to meet Health Canada’s requirements. However, many teams are still developing sophisticated systems, processes and human capital. Pharmaceutical companies could build on the existing LP pharmacovigilance efforts to standardize, enhance and report adverse events to Health Canada for medical cannabis products.

How PwC can help

The future of the global medical cannabis industry is both uncertain and exciting. With legalization accelerating around the world, there is a rapidly growing body of research exploring the potential therapeutic benefits of the cannabis plant. We believe that pharmaceutical companies are ideally placed to leverage their decades of experience conducting R&D, and commercializing products to contribute to the growing compendium of cannabis knowledge.

To explore potential market entry in the space, we understand the hurdles facing pharmaceutical executives. Our engagement approaches are custom-designed and tailored for each client to help them understand, assess and execute the critical milestones:

  • Confront the stigma and reputational risk associated with medical cannabis.
  • Align internal capabilities and IP with the external market gaps and opportunities.
  • Develop a purpose-built market entry strategy.
  • Create an agile business model.
  • Engage stakeholders throughout the journey.

By successfully navigating these milestones, pharmaceutical companies can avoid paralysis around the decision-making process, capitalize on a unique commercial opportunity, drive demonstrable benefits for patients and physicians, while generating defensible data to legitimize an industry with the potential to improve patients’ lives and health outcomes globally.

The bottom line

Will ‘big pharma’ be the cure for growing pains within this emerging industry, or an unwanted side effect for existing industry operators? We believe that pharmaceutical companies have an important role to play in developing this industry. However, should they let stigma or uncertainty push them to the sidelines, there is a new generation of young, entrepreneurial and well-capitalized companies eager to close the capability gap and become global leaders in medical cannabis.

[1] Bennett C. Early/ancient history. In: Holland J, editor. The Pot Book: A Complete Guide to Cannabis. Rochester, Vermont: Park Street Press; 2010.
[2] Cannabis: Evolution and Ethnobotany, Robert C. Clarke & Mark D. Merlin, University of California Press, 2013.
[3] Drug Enforcement Administration Office of Diversion Control. Schedules of controlled substances. (1) Schedule I. Springfield, Virginia: U.S. Department of Justice; 1970. [Accessed January 3, 2019]. Title 21 United States Code (USC) Controlled Substances Act. Subchapter I–Control and enforcement Part B–Authority to control; standards of controlled substances §812. [also known as Controlled Substances Act, 21 United States Code § 812(b)(1), 1970].
[4] Schedule I controlled substances are defined by the Drug Enforcement Agency (DEA) as drugs with no currently accepted medical use and a high potential for abuse ( 
[5] Markoff, Steven C. "State-by-State Medical Marijuana Laws". Accessed January 3, 2019.
[12] Health Canada, ANZCTR and NLM / NIH databases
[13] The entourage effect is a proposed mechanism by which non-psychoactive cannabinoids modulate the overall psychoactive effects of the plant.
[14] Company websites and press releases

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