Key Subsectors in the Medical Cannabis Ecosystem

The global medical cannabis movement is quickly shaking up the biotechnology/pharma, hemp & CBD and agri-tech sectors. Today, the movement is buoyed by the tailwinds of favourable legislation, social acceptable and medical recognition. To further explore this theme, in this piece, we examine the four sub-sectors that we seek to capture in our Rize Medical Cannabis and Life Sciences UCITS ETF. We also deep-dive into our transparent, publicly-available exclusion list methodology whereby we remove companies using a two-tier due diligence process that are deemed to be either non-compliant with state or federal law and/or directly involved in the production and/or distribution of cannabis for the recreational (adult-use) consumer market.

1. Biotechnology/Pharma
2. Big Pharma
3. Hemp & CBD
4. Agriculture Tech & Supplies

Biotechnology/Pharma

Companies in this sector have a significant proportion of their revenues derived from, and/or a significant proportion of their expenditures associated with the research of cannabinoids, the endocannabinoid system and the development and sale of medical cannabis and/or pharmaceutical products that treat a variety of medical symptoms and conditions. Such companies use synthetic or biological processes, organisms, cells or cellular components to create new medical breakthroughs and technologies, or to improve old ones. Companies in this category may engage in a variety of activities but many will have a strong research and development focus on activities such as new delivery methods, novel formulations, patent generation, and similar end-goals which have medical applications.

This sector also includes vertically-integrated companies which cultivate cannabis and/or produce and sell cannabis and/or cannabis-derived products predominantly for medical / therapeutic use, biotech research and/or the production of pharmaceutical products.

This is the largest cannabis sector in the US and is gaining attention as governments, universities and private companies invest more into researching cannabinoids, the endocannabinoid system and the potential of cannabis-derived medications.

Big Pharma

For the most part, Big Pharma has watched the industry from the sidelines, but is now recognizing that further legalization of cannabis and cannabis-derived products for medical / therapeutic use and pharmaceutical products may challenge their bottom lines. Accordingly, companies in this sector are “Big Pharma” companies that are making forays into the sector through the development or acquisition of patents, distribution partnerships and sponsored clinical trials and therefore have a distinct, but not necessarily significant, proportion of their revenues derived from and/or a distinct, but not necessarily significant, proportion of their expenditures associated with the global cannabis industry. Many anticipate that Big Pharma will inevitably enter the space more directly in the near future. Such moves would further accelerate public understanding and confidence in the use and application of cannabis and cannabis-derived products for medical / therapeutic use and pharmaceutical products.

Hemp & CBD

Companies in this sector are primarily involved in the industrial application of hemp, and/or in the retail consumer CBD market geared toward sectors such as health and wellness. Hemp (sometimes referred to as “industrial hemp”) is a strain of the Cannabis sativa plant that is defined as cannabis with less than 0.30% THC. Hemp has a higher concentration of CBD. Hemp has myriad commercial applications that include but are not limited to paper, textiles, clothing, biofuel, biodegradable plastics, building materials, car parts, food and beverages.

Agriculture Tech & Supplies

Companies in this sector use modern technologies to increase cannabis yields or enhance the quality of the plant. These technologies include automated growing systems, greenhouses, farming products, nutrients, hydroponics, fertilization systems, information technology, soils, temperature and moisture sensors, aerial images and GPS technology. These systems can help reduce the impact of natural ecosystems, increase worker safety and decrease the need to use water, fertilizer and pesticides.

Related ETF

FLWR: The Rize Medical Cannabis and Life Sciences UCITS ETF 

References 

1. New Frontier Data, Classification Methodology, Pages 7-8, 2019. Available at: https://rizeetf.com/wp-content/uploads/2020/02/FLWR_NFD_Industry_Classification.pdf