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Within days of Aurora Cannabis Inc. closing its hostile takeover bid of CanniMed Therapeutics Inc., CanniMed’s long-time boss Brent Zettl was on to a new project, ZYUS Life Sciences Inc.

While CanniMed made its mark in cultivation – famously growing medical marijuana in a mine shaft in Flin Flon, Manitoba from 2000 to 2009, as the Federal Government’s sole supplier – ZYUS is all about extraction. The company bought an ethanol extraction plant in Saskatoon, and finally received a processing licence from Health Canada in early December.

ZYUS CEO Brent Zettl

The company, which will source cannabis biomass from other LPs for extraction, will begin by selling oil wholesale and doing contract extraction. Longer-term, Mr. Zettl’s plan is to invest in clinical trials in the hopes of producing cannabis formulations with Drug Identification Numbers (DINs) that can be sold in mainstream pharmacies.

Cannabis Pro spoke to Mr. Zettl about his new project, medical cannabis research, and the prospects for cultivation. The interview has been condensed and edited for clarity.

Cannabis Professional: CanniMed was the first takeover with a $1-billion-plus price tag. Given where the markets have gone over the past year, it seems fair to say you wouldn’t get that price today. How do you think about the timing of the CanniMed sale?

Brent Zettl: It’s bittersweet. Obviously we got a pretty decent price at the time. The bitter part is, where would we have been had we been allowed to continue with our plans? How far advanced would the clinical trials be today? Sure the share price would have suffered with everybody else. But we were just starting to get an understanding of what’s next and where we have to look next.

So basically three days after the deal was done, I started this company. Thirty-five members of CanniMed came across within a year. The brain trust wanted to work toward a medicine, and so now we’ve got a great team that’s focused on trying to finish that mission, which is getting to the answer of efficacy and what I refer to as fixed-dose combinations for cannabinoids.

CP: Where were you in terms of clinical research when CanniMed was acquired?

BZ: The journey started in the plant-based arena; getting them prepared for clinical trials that the Government of Canada wanted in 2000 and in 2003. The same questions that were asked by the medical community then are still being asked today. There really isn’t good, solid, statistical based efficacy data that shows that a specific formulation works for managing symptoms for certain conditions.

We had started some clinical trials, we had some evidence, we could see where the safety data was pretty compelling. We had some further evidence through the early clinical trials we did with Dr. Ware, with the Compass Study that was published in 2015, that spoke to the fact that the formulations are relatively safe. We said, ‘ok we're feeling comfortable with the safety side, what about the efficacy?’ And we were just nicely getting started on efficacy and planning for efficacy when the hostile bid came in.

CP: You mention that clinical evidence is not much better today than it was in 2003. Is that because clinical trials have not been done? Or because trials are not coming back with successful results?

BZ: GW Pharmaceuticals is a great model for the amount of spending needed. They’ve got some early wins, like Epiolex, where they had to prove it out with a CBD-based product for epilepsy.

To be honest, if you talk to the physicians, there really aren’t any landmark studies that doctors can point to that say, ‘now I know what this thing can do; I can see the efficacy statistically; it was run through the system with the proper oversight of a regulatory authority, either Health Canada or the FDA, and I’m comfortable that there’s a dosing regime for this particular condition.’ That today doesn’t exist.

You can tell that the money towards research isn’t being spent by the publicly traded companies; otherwise, just like GW, you can see the spend they’re making on research. Well, our Canadian counterparts aren’t spending that same kind of money on research. As we got closer to the rec market, all the euphoria around that rec market watered down any efforts or initiative to doing the true medical heavy lifting. There’s no way around it, you can’t avoid the science, you’ve got to spend money.

CP: Do you have any clinical trials running?

BZ: No, we were stymied because of our licence, we couldn’t do anything. We’ve set it all up, so we’ve got two pre-clinical trials that are immediately on deck, and phase one clinicals for two products shortly thereafter.

CP: What indications will you be looking into?

BZ: There will be one in the chronic pain spectrum, and there’s going to be one in the neo-psychiatry, brain disorder spectrum.

CP: I’m guessing you cannot pursue the same clinical research paths you had been pursuing with CanniMed, given that the IP was sold to Aurora?

BZ: We have a different formulation base that we’re starting from; that gives us some ability to patent the different formulations. Bear in mind that the plant produces 122 different phytocannabinoids, and we know that at least seven of them are psycho-active in human beings. You can imagine the permutations; as you move to three or more, the permutations get really wild. So the science behind it is trying to find that fixed dose combination that works on certain conditions.

CP: How hard has it been building a business in the current capital markets environment?

BZ: We raised two rounds of $25-million apiece on a private placement basis; and a lot of it has to do with friends and family and colleagues that made money in the first go-around. The markets are brutal right now for trying to anything in a public space. But we have sufficient cash to do what we need to do in the next year or so, but we want to make sure we have enough to really be able to go beyond that. Clinical trials are expensive.

CP: Would you consider going public?

BZ: It’s really not a short-term option, because the markets are brutal; you don’t want to go out and get listed and then have it drop by 50 per cent overnight. We’ve got all kinds of examples where those stocks are still under water; why would shareholders invest into something like that? But the truth of the matter is to raise enough capital to generate what we’ve got to do in clinical trials, it’s likely going to result in an IPO at some time.

As you start down the clinical trial path and you generate data, that allows companies to get access to capital quicker. Within our means, we can do pre-clinical and phase one clinical trials to start to generate some of that data. So you’ve got to generate the data that gives credibility to go to the next round of financing.

CP: How do you plan to generate cash and stay afloat in the short- to medium-term?

BZ: We’re going to start with oils in Canada, likely with an online pharmacy model, but eventually we’ll probably sell through some of the other pharma chains that are going to be allowed to sell cannabis, we expect, over the next year or less. We’ll probably also look at some form of tolling, doing extraction on contract. And then there’s those exempted markets like Germany, if we’re EU GMP-certified.

That will generate early stage cash flow, while we’re pursuing these clinical trials. Once you get a DIN-able product, then the insurance companies can support it. To me that’s the Holy Grail: then we’re no longer restricted to exempted markets like Canada, now we can move a DINable product around the planet.

CP: You’re using an ethanol extraction process. Why use ethanol over CO2 or other solvents?

BZ: With the process that we use, the ethanol is recyclable after every event, so the solvent is really a fixed cost item and not a consumable item. There’s some that gets lost in the evaporation, five per cent of it. But we can recycle 95 per cent of it. Number two: ethanol acts as a sterilant so if you’ve got microbials in the product, it is used as a way of cleaning things. It’s also highly efficient, about twice as fast as CO extraction. The big thing is it’s scalable, you can move to scale really quickly.

CP: ZYUS is not doing any of its own cultivation. Do you think there’s still value to be found in cultivation-focused companies?

BZ: In an agricultural system, it’s usually the producer that makes the least amount of money. If you look at a loaf of bread, for example, the Canadian farmer gets some south of 15 cents for every loaf of bread. So when we’re sitting at three times the capacity of what the Canadian market can consume, what’s going to happen with all this excess capacity? The only way to leverage that is if we get to these international medical sales; because then you can start to use the material. But if it’s strictly for domestic, when you’re at three times capacity, there’s only one way that business can go. I call it the flower wars.

So from an investor’s standpoint, they have to be mindful about what the cannabis industry or cannabinoid-based formulation industry 2.0 is going to look like. Cultivation is going to change. We saw a lot of outdoor grows starting or being licensed. I think we’re going to see a big switch to field models happening over the next three years, because of a global competitive race. From my standpoint, I would be cautious on any kind of production investments.