Vertically-integrated medicinal cannabis and industrial hemp business ECS Botanics (ASX: ECS) has secured a landmark deal to supply resin to Australian cannabis company Cannvalate.
The deal will be managed through subsidiary ECS Botanics MC Pty Ltd and will allow for the supply of medicinal cannabis resin starting within the next 12 months.
Supply will continue for three years following the commissioning of extraction equipment at a Victorian-based facility owned by ECS supply and tolling partner Sun Pharma – an Australia-based subsidiary of Sun Pharmaceutical Industries, which is the fourth largest specialty generic pharmaceutical company in the world.
Under the terms of an agreement signed last week with Sun Pharma, ECS will supply a minimum volume (600-1,750kg) of cannabis biomass over a five-year period, from which Sun will produce the resin for ECS.
Commissioning of the extraction equipment is expected to be completed by early 2023 and the Cannvalate supply agreement will automatically renew on a yearly basis unless terminated.
Today’s agreement is expected to generate approximately $592,500 in revenue for ECS over the coming year, after which there will be a minimum obligation of $4.9 million over the remaining term of the agreement.
Largest distribution platform
Cannvalate operates the largest medicinal cannabis distribution platform in the country and its network of prescribing doctors represent over 50% of the total prescribing market.
Last year, it signed a five-year agreement with The Valens Company in Canada to manufacture medicinal cannabis through an exclusive arrangement with locally-based Epsilon Healthcare (ASX: EPN).
ECS executive general manager Nan-Maree Schoerie said the Cannvalate agreement will reinforce the quality of a long-term cultivation plan, amid increasing demand for Australian-sourced medicinal cannabis products for domestic and export use.
“This agreement further highlights [our] attractiveness as a supply chain partner to global and local companies,” she said.
“We are delighted that Cannvalate and Valens have selected [us] to supply resin and look forward to a long and rewarding relationship.”
Local resin supply
ECS’ production capacity, pricing and business-to-business model is enabling Australian cannabis companies to switch to local resin supply rather than overseas imports.
The model allows the company to capture existing market share while enjoying organic growth in patient numbers as government red tape is reduced, new cannabis clinics open up and the medical field becomes more educated on the benefits of medicinal cannabis.
Australia’s Therapeutic Goods Administration (TGA) is expected to enforce stricter quality standards on the import of medicinal cannabis products in the new year, to ensure a level playing field for domestic manufacturers and importers.
Ms Schoerie said the new rules are likely to increase demand for Australian-grown and manufactured products over the next year and further enhance ECS’ growth prospects.