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The Canadian cannabis industry has made significant strides over the last year and although licensed producers have been in the spotlight, other companies have also benefited from this movement.
One company we have been watching is Lexaria Bioscience (LXRP) which is levered to the North American cannabis industry. Over the last year, Lexaria has announced several developments that have the company well positioned for growth.
During the last few months, Lexaria has improved its fundamental story through the following developments: 1) The company applied for a new patent from the U.S., 2) Lexaria has advanced its agreements and launched new businesses, 3) Expands its Reach into Asia, 4) Focused on R&D with major organizations, and 5) The company’s cash position has improved significantly and has fully funded new initiatives.
Improves and Strengthens United States IP Portfolio
In October 2016, Lexaria announced that it has been issued United States Patent No. 9,474,725, Cannabinoid Infused Food and Beverage Compositions and Methods of Use Thereof, pertaining to Lexaria's method of improving bioavailability and taste of certain cannabinoid lipophilic active agents in food products.
Its first patent granted or awarded by the United States Patent and Trademark Office (USPTO) was a significant milestone for the company. The patent protects Lexaria’s intellectual property related to the primary focus of its business, the infusion of cannabinoid compounds in edible products.
Last month, Lexaria Bioscience filed a new provisional patent application with the US Patent and Trademark Office. The new patent application expands Lexaria's lipophilic food and beverage composition claims to include microwave (dielectric energy) processing as well as heating/dehydration in a vacuum environment.
The patent application covers processing of cannabinoids, vitamins, NSAIDs and nicotine. Lexaria believes that its patent portfolio is the broadest of any comparable company in North America. Lexaria has 19 patent applications filed and pending in more than 40 countries worldwide.
This development is significant and follows the company’s successful application in October 2016 when Lexaria was issued a United States Patent on its method of improving bioavailability and taste of certain cannabinoid lipophilic active agents in food products.
Lexaria’s technology makes cannabis edibles taste better and allows the active ingredients enter the bloodstream more quickly and much more effectively. The patent protects Lexaria’s intellectual property related to the primary focus of its business, the infusion of cannabinoid compounds in edible products.
Lexaria and NeutriSci Execute on Partnership Agreement
The issuance of a patent from the USPTO further strengthens Lexaria’s positioning in any potential agreements. Prior to the issuance of a patent from the USPTO, Lexaria had completed two definitive agreements and issued two letters of intent for licensing its technology.
In November, the company announced two more agreements. The first was a MOU to establish a joint venture with Canadian public company Neutrisci International (NU: TSX Venture) to produce and sell a line of healthy edible cannabinoid products.
In April, the companies executed its previously announced joint venture to produce and commercialize a line of edible cannabinoid mouth-melt products. The products will utilize Lexaria’s patented technology and Neutrisci’s proprietary pterostilbene tablet form factor.
The joint venture will operate under the name, Ambarii Trade Corporation and initial operations will be equally funded by the companies. Lexaria and Neutrisci will contribute its respective technologies through a license agreement and will share profits derived from the JV on a 50/50 basis.
Ambarii intends to secure licensees in California, Colorado and in Canada to manufacture and sell mouth-melt products containing THC. These products will combine the benefits of each of Lexaria’s and Neutrisci’s existing technologies and ingredient mixes. In June, a licensed California entity is scheduled to manufacture and test a THC version of the products.
Ambarii also intends to develop hemp oil-based products for distribution through networks including Neutrisci’s existing network of retail distributors as well as other methods. Initial production runs on these products have already achieved positive results in a human focus group.
Joint Venture Signs LOI to Enter Asia
Last month, Lexaria announced that Ambarii Trade Corporation has entered a LOI with Naturally Splendid Enterprises Ltd. (TSX VENTURE: NSP) for the production, sale and distribution of Ambarii's proprietary sublingual full spectrum hemp CBD tablets in Japan and South Korea.
Under the terms of the agreement, Ambarii will manufacture and supply Ambarii CBD Tablets to Naturally Splendid for exclusive distribution in Japan and South Korea. In addition to the revenue generated from product sales, Ambarii will also receive a royalty on all sales.
Ambarii CBD Tablets are quick dissolving and offer a consistent dose of full spectrum hemp oil, combined with the powerful antioxidant properties of pterostilbene. Tablets for each nation will be flavor optimized and zero-sugar. Ambarii high absorption CBD Tablets are the first commercially ready tablet of its kind and, utilizing patented technology, are designed to be the standard to which others will aspire to reach.
Hemp oil containing CBD is legal in Japan, and with a population of over 127 million, it represents one of the largest markets in the world. South Korea is expected to open its market to CBD from hemp oil soon, and its population of 50 million makes this an attractive market as well. Ambarii expects these markets to contribute to meaningful revenue growth in 2017 and 2018.
This development is a testament to the significance of the patent issuance as it clearly strengthens Lexaria's position in potential deals and accelerates the potential for additional future agreements.
Continues to Execute and Create Value for Shareholders
2016 was a major year for Lexaria and 2017 is proving to be even more significant. The company has continued to execute on its previous initiatives and is focused on creating value for its shareholders.
In May, Lexaria announced plans to commence nicotine absorption research in the summer and the company is focused on developing technology to more effectively deliver cannabinoids, vitamins, pain relievers, and other active molecules in the body.
Lexaria believes there is a large untapped market for more efficient/healthier nicotine delivery methods with edible products. In 2017, Lexaria will perform its first nicotine absorption study utilizing human intestinal tissue to determine if its technology improves nicotine absorption across the intestinal wall.
Positive results from Lexaria’s nicotine tests would support nicotine-based edible products as an alternative delivery system. If successful, follow-up testing would be required to see if the technology also aids in intestinal tolerance.
Focused on Strengthen and Building Out its IP Portfolio
A few days before this announcement, Lexaria announced a $1 million combined research and development and intellectual property budget. The program is comprised of studies both inclusive of and complementary to its collaborative R&D with Canada's National Research Council.
Lexaria's R&D budget is fully funded from existing capital, applying existing funds. Highlights from the announcement include:
- The company’s patent applications name the following groups of molecules, all of which will be studied within this budget, Cannabinoids, Vitamins, NSAIDs, and Nicotine.
- The R&D will include in vitro absorption studies utilizing Lexaria's technology to examine improvements in absorption across human intestinal tissue.
- For the first time, Lexaria will conduct in vivo (animal) studies, designed to provide more detailed information on whole-body reactions to efficient and rapid delivery of these various payload molecules. The in vivo studies are expected to advance its IP.
- Initial in vitro human intestinal cell absorption studies conducted in 2015 for non-psychoactive cannabinoids reported increases in cannabinoid absorption at that time in the range of 325% to 499%.
- Included within this budget is intellectual property pursuit in the North America and abroad. Lexaria currently has a total of 18 patents pending, and patent applications filed in more than 40 countries around the world. Lexaria's existing financial resources are sufficient to aggressively pursue positive outcomes within this large IP portfolio.
- Lexaria expects new opportunities to arise because of successful R&D results and additional information on planned R&D programs will be released soon.
An Improved Cash Position and Attractive Valuation
In April, Lexaria raised more than $1.7 million through a brokered private placement of units at $0.42 each. The net proceeds will be used to fund the research collaboration with National Research Council Canada, other R&D initiatives, and for working capital and general corporate purposes.
This financing combined with the funds received through the early exercise of warrants have significant improved Lexaria’s capital position and leaves them well funded through 2019. In total, from November 2016 through May 2017, Lexaria raised over US$4 million in equity.
We are favorable on the improved balance sheets and the much smaller warrant overhang faced by the company. We expect to see the company use this capital to significantly advance its story and see upside to current levels.
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