Aurora Cannabis 'more than ready' with pot supply for legalization

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TORONTO -- The former chief executive of licensed producer CanniMed Therapeutics Inc. has a budding new cannabis business largely made up of his former employees -- but his newest venture won't involve growing pot.

Biopharmaceutical company Zyus Life Sciences Inc. will instead buy cannabis from licensed producers and focus on extraction and development of plant-based medicinal products for the global medical market, said former CanniMed CEO Brent Zettl.

He said he started this venture just days after leaving CanniMed at the end of March, a resignation that came after the Saskatoon-based licensed producer agreed to be acquired by rival Aurora Cannabis Inc. following a hostile takeover battle.

While CanniMed's expertise was in cultivation -- it was the first licensed producer to sell medical cannabis in Canada -- Zettl is anticipating an oversupply of dried flower in the country as production capabilities get up to full speed. The shortages plaguing the recreational market since Canada legalized cannabis for adult use on Oct. 17 will be short-lived, he said.

"We're growing experts but when we looked it from a competitive landscape, we said it makes zero sense to start investing in growing and production... I think we'll be swimming in it," Zettl said.

Instead, Zyus has acquired a former ethanol extraction facility in Saskatoon and will focus on research and development of medicinal oil products, which he anticipates will come with bigger margins as well.

Last January, Edmonton-based licensed producer Aurora Cannabis struck a stock-and-cash deal valued at $1.1 billion to buy CanniMed. Zettl co-founded CanniMed's parent company Prairie Plant Systems Inc. in 1988.

Zettl sees this new company as a continuation of the work he and his team began at CanniMed. Zyus will focus on plant-based medicines, which includes those derived from cannabis but not limited to that plant, Zettl said. It will also focus on the global medical market, rather than the "crowded" recreational market in Canada.

The company's extraction facility in Saskatchewan will be upgraded in the first phase by early 2019 and is expected to have a production capacity of 500,000 50 ml bottles of cannabis oil per year. By 2020, after a second phase of expansion, Zyus is aiming to produce 35 million bottles of cannabis oil per year.

The company has roughly $25 million in funding via private placement, of which Zettl says he contributed $9 million in cash.

Zyus is aiming to have products on the market by mid-2019, however this hinges on whether it receives its processing license from Health Canada, Zettl said.

"We know that the lineup is long," he said.

The Saskatoon-based company originally known as CB3 Life Sciences now has 43 employees, 35 who had previously worked at CanniMed, he said.

Looking back at the "emotionally charged" takeover battle with Aurora, Zettl said he would have liked to have continued on the path with CanniMed and the broader reach the company would have offered.

"We could have gotten a better price, a much better price... which is why my heart burns. If you're going to sell it, might as well sell it for what it's really worth," he said.

Still, he has "no hard feelings" towards Aurora, Zettl said, adding that he is fond of and stays in touch with the licensed producer's chief executive, Terry Booth.

"They were just swept up in the middle of it... They've been actually good to work with," Zettl said.

He does have hard feelings for some former board members, however. Before the $1.1 billion deal was reached, CanniMed had filed a lawsuit against Aurora and certain board members alleging a conspiracy to injure its interests.

"The guys that started the process... suffice it to say that statute of limitations is not done yet," he said.

Aurora, however, was helpful during the transition and agreed to sell some of CanniMed's intellectual property pertaining to a research and development program focused on a protein known as Interleukin 37, he added.

In any case, the takeover and acquisition of CanniMed provided an opportunity to pause and clarify where the future opportunity is in the cannabis sector, Zettl said, which is not in cultivation.

As more dried cannabis flower supply comes online, he anticipates there will be a drop in prices in the sector.

"The fire sale is coming.... The flower wars haven't started yet," Zettl said. "The flower wars are coming."