Vertically integrated medical cannabis and industrial hemp company ECS Botanics (ASX: ECS) has signed a landmark deal to supply resin to Australian cannabis company Cannvalate.
The transaction will be processed through subsidiary ECS Botanics MC Pty Ltd and will enable the delivery of medical cannabis resin within the next 12 months.
Delivery will be made after the extraction equipment is commissioned at a Victoria-based facility owned by ECS supplier and subcontractor Sun Pharma – an Australia-based subsidiary of Sun Pharmaceutical Industries, the world’s fourth largest manufacturer of specialty pharmaceuticals continued for three years.
Under the terms of an agreement signed with Sun Pharma last week, ECS will supply a minimum (600 kg to 1750 kg) of cannabis biomass that Sun will use to make resin for ECS over a period of five years.
The commissioning of the extraction equipment is expected to be completed by early 2023 and the Cannvalate supply contract will be automatically renewed annually unless terminated.
Today’s agreement is expected to bring ECS revenue of approximately $ 592,500 in the coming year, with a minimum commitment of $ 4.9 million for the remainder of the agreement.
Largest sales platform
Cannvalate operates the largest medical cannabis distribution platform in the country and its network of prescribers accounts for over 50% of the total prescription market.
Last year, the company signed a five-year contract with The Valens Company in Canada to manufacture medical cannabis under an exclusive agreement with locally based Epsilon Healthcare (ASX: EPN).
Nan-Maree Schoerie, ECS Executive General Manager, said the Cannvalate agreement would strengthen the quality of a long-term growing plan in the face of increasing demand for medicinal cannabis products from Australian sources for domestic and export use.
“This agreement highlights others [our] Attractiveness as a supply chain partner for global and local companies, ”she said.
“We are pleased that Cannvalate and Valens have chosen [us] Harz and we look forward to a long and rewarding relationship. “
Local resin supply
ECS ‘production capacity, pricing and business-to-business model enable Australian cannabis companies to switch to local resin supplies rather than foreign imports.
The model enables the company to capture existing market share while achieving organic growth in patient numbers as state bureaucracy is cut, new cannabis clinics are opened, and the medical community is better educated about the benefits of medicinal cannabis.
The Australian Therapeutic Goods Administration (TGA) is expected to enforce stricter quality standards for 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 would likely increase demand for products grown and manufactured in Australia over the next year and further improve ECS’s growth prospects.