A biotech known for its sleep and brain drugs just made a $7.2 billion bet that medical cannabis is crucial to its neuroscience ambitions

CBDvsTHC

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Jazz Pharmaceuticals is making a $7.2 billion bet on the future of medical cannabis

The drugmaker said on Wednesday it will acquire GW Pharma, the maker of CBD-based epilepsy treatment Epidiolex, in a cash-and-stock deal. It’s the largest cannabis-industry deal so far. 

The deal, in which Jazz Pharmaceuticals will pay $200 in cash and $20 in Jazz shares for each GW share, represents a 50% premium on GW’s Tuesday closing price — a strong signal that the pharmaceutical giant is bullish on the future of cannabis-based medicines. 

The news sent stocks in the cannabis sector soaring on Wednesday morning, with GW shares surging over 46%. The deal is expected to close in the second quarter of this year. 

Analysts from the investment bank Stifel called the deal an “outstanding outcome” for GW Pharma in a Wednesday morning note. 

In 2018, GW was the first company to receive FDA approval for a cannabis-based drug, Epidiolex. The drug, which is essentially an ultra-high dose of cannabidiol, or CBD, is designed to treat seizures linked with two rare forms of childhood epilepsy, Lennox-Gastaut syndrome and Dravet syndrome.

Cannabis is considered a Schedule I drug by the US federal government, a class of drugs reserved for those with no accepted medical use and a high potential for abuse. Regulators moved Epidiolex to Schedule 5, similar to codeine-containing cough syrup. 

While CBD has since become a widely used consumer product, appearing in everything from lattes to skincare products, Epidiolex is so far the only FDA-approved cannabis-derived drug

A ‘new era’ for cannabis-based drugs

Jazz CEO Bruce Cozadd said Epidiolex has “near-term blockbuster potential” on a Wednesday morning call with investors, adding that neuroscience is a key focus area for the company.

“We think this is just the beginning for Epidiolex,” GW Pharma CEO Justin Gover said on the call. He added that what GW Pharma has been able to demonstrate over its 20-year history is that cannabinoids — the active compounds in the cannabis plant — are “real and compelling science.”

“We have potential first-in-class candidates across disease states such as autism, schizophrenia, and other neuropsychiatry targets,” Gover said. 

Getting a cannabis-based drug approved in the US was an uphill battle, GW Pharma CEO Justin Gover told Insider in an interview in 2019. He called Epidiolex’s approval the start of a “new era” for medical marijuana.

“If one applies the same rigorous standards to cannabis as they do to other drugs, they should be able to get a drug approved,” Gover said.

epidiolex gw pharma

GW is also conducting Phase III trials for Nabiximols, a potential multiple sclerosis drug containing both THC, the main psychoactive component in cannabis, as well as CBD. The company said in the Wednesday investor call that it expects to submit a new drug application (NDA) to the FDA in the next one or two years. Nabiximols is already approved as Sativex in countries outside the US. 

The FDA has approved another THC-containing drug, AbbVie’s Marinol, which treats nausea, vomiting, and lack of appetite associated with chemotherapy and AIDs treatment. That drug contains a synthetic version of THC.

Analysts from the investment bank SVB Leerink said the deal is an “interesting strategic fit” with Jazz’s neurosciences focus, and “adds a platform of innovative cannabinoid product candidates.” 

Goldman Sachsand Centerview Partners served as financial advisors to GW, and Cravath, Swaine & Moore LLP and Slaughter and May provided legal advice. Evercore and Guggenheim served as lead financial advisors to Jazz Pharmaceuticals, which also received advice from BofA Securities and J.P. Morgan Securities LLC. 

Wachtell, Lipton, Rosen & Katz, Macfarlanes LLP and Arthur Cox LLP served as Jazz’s legal advisors. 

The cannabis industry is on a dealmaking tear, a stark reversal from last year 

The GW Pharma deal is the latest blockbuster tie-up for the rejuvenated cannabis industry, which has been buoyed by hopes that a Democratically-controlled Senate and White House will lead to relaxed regulations, and perhaps in the most optimistic scenarios, full-scale federal decriminalization or legalization.

To be sure, much of the US cannabis industry exists in a legal gray area, because many of its products are federally illegal. That isn’t the case for GW Pharma.

Many cannabis investors, analysts and other experts told Insider they predicted rapid consolidation in 2021, in a bid for scale as investors return to the industry after a horrid 2020. 

In December, Canadian cannabis heavyweights Tilray and Aphria agreed to merge in a deal that would give the combined companies a near $4 billion valuation. And the biggest US cannabis companies, like Curaleaf, TerrAscend, and Cresco Labs, among others, raised nearly $1 billion in January to fuel dealmaking. 

Nawan Butt, the portfolio manager of the European Medical Cannabis and Wellness UCITS ETF said he expects dealmaking on the medical side of the cannabis industry to ramp up.

“Today’s events should draw attention to other companies doing work in this sector and the opportunities they are exploring,” he added in an email.

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Here's the 14-slide pitch deck that cannabis startup Sanity Group used to raise $29 million from some of Europe's top VCs and celebrity investors like Scooter Braun, Alyssa Milano, and Will.i.am

Summary List PlacementAs the cannabis industry in Europe heats up, Sanity Group, a Berlin-based CBD and medical cannabis startup, is raising millions in a bid to dominate the burgeoning market.
Sanity Group sells CBD in Germany and Austria under the VAAY brand and recently entered the UK market. It’s raised $29 million from a range of investors including Scooter Braun’s TQ Ventures, Berlin investment fund Cherry Ventures, Hotspring Ventures, AGB Venture Capital, and Atlantic Food Labs, and celebrities like the Black Eyed Peas’ Will.i.am, actress Alyssa Milano, and soccer player Mario Goetze.
The $29 million came from three funding rounds, Sanity Group managing director Finn Hänsel, told BI in an interview. The funding gave Sanity Group a valuation in the “high 9-digits” Hänsel said, but declined to disclose the specific number.
The company is looking to raise another $24 million (20 million Euros) this summer. 
Read more: Here are the 26 hottest cannabis startups that are set to take off in 2021, according to top investors
What sets Sanity Group apart from its North American counterparts, says the 38-year old Hänsel, is that the startup doesn’t grow cannabis, because that cultivation can take place in warmer climates with cheaper labor. Instead, it focuses on what Hänsel says are the more lucrative parts of the supply chain.
“Look, tell me one beer brand in the world that still grows their own hops,” Hänsel said. He added that cold countries like Germany or Canada will end up being outcompeted as growing cannabis indoors is expensive.
Sanity Group’s purview is “everything that comes after cultivation,” Hänsel says, like processing, product development, and research. 
Hänsel said it’s challenging to get investors on board with the cannabis industry, but Sanity Group’s management team, past performance, and future plans helped them raise money.
“If you invest in other markets, you probably have already a history of the market. That’s probably three to four or five years, and you already have revenues. You already have a lot of unit economics,” Hänsel said.
Cannabis, especially European cannabis, is a “very young market.”
Read more: The 5 top cannabis startups that VCs can’t stop talking about
“What also convinced investors to invest with us is that we keep that we have a good balance between already showing revenues and already having very strong brands in the market and having really an infrastructure, but on the other hand, still also having a vision for what we believe is going on in the next two to three years,” Hänsel said.
Here’s the pitch deck that helped Sanity Group raise $29 million from major investors in a bid to dominate European cannabis:Sanity Group is a Berlin-based CBD and medical cannabis startup.

Sanity Group is led by Finn Hänsel, an alum of the Boston Consulting Group and a founder of the Sydney, Australia based fashion e-commerce company The Iconic, and by Fabien Friede, who also worked with Hänsel at The Iconic.

Sanity Group has two main businesses, one focused on medical cannabis and pharmaceuticals, and one focused on “wellbeing” or branded products containing popular cannabinoids like CBD and CBG.

Raising money in 2020 was a challenge, says Hänsel. The first $22 million closed before the pandemic took hold in Europe. Hänsel says they had celebrities lined up to invest early last year, though as the pandemic forced many countries into lockdown, “suddenly everyone was insecure about how this would affect the global cannabis industry.”

The startup raised a small seed round in 2019. In February of last year, Sanity Group closed a $22 million “pre Series A” as Hänsel calls it, led by Calyx, a European fund focused on cannabis, HV Holtzbrinck Ventures, and Karan Wadhera, a managing partner of the cannabis-focused fund Casa Verde. The remaining $4.8 million came in December in the round that included the celebrity investors, Hänsel said.

THC-containing cannabis is legal in limited medical applications in Germany, though lawmakers rejected a recreational legalization bill last October.

Hänsel said investors asked questions like how does the European market compare to Canada? What will it look like in five years?

“This is something we discussed very, very intently with investors,” Hänsel said.

“I think it’s very important for a company at our stage that we have the balance that we already show that we are able to execute by showing revenues, but then also actually have a clear vision about where we think the market will go over the next five years,” Hänsel said.

Last year, the UN Commission on Narcotic Drugs reclassified cannabis to a less restrictive regime, acknowledging the drug’s beneficial medical qualities Hänsel said the UN’s move is creating a “huge movement” within the European Union of legalizing cannabis.

Sanity Group has about 65 employees, with plans to expand to over 100 in 2021, Hänsel said.

Hänsel says investors he spoke with were “really sensitive” about the background of his management team, doubly so since they were trying to raise millions and steer a startup through an industry with byzantine, rapidly evolving regulations during a pandemic.

And that’s also because it’s hard for investors to separate “the good from the bad” in cannabis as more companies pile into the industry, Hänsel said.

Investors always asked Hänsel the golden question: Will there ever be a recreational cannabis market in Germany? “What we normally say is we see ourselves two to three years behind the US market,” Hänsel said. “So we see basically medical cannabis is picking up like crazy, especially in Germany.”

Big pharma is using AI and machine learning in drug discovery and development to save lives

Summary List PlacementThe pharmaceutical industry has been slow-moving when it comes to adopting digital health technology, and pharma companies overall have taken a long time to implement AI and machine learning strategies — making broad-scale digital transformation difficult.

There is ample opportunity for drug discovery and development, but it relies on the ability of companies to implement advanced health tech into everyday strategies. 
While the healthcare industry is rapidly adopting digital tech, the pharma industry is lagging on digital maturity, and any measures even early movers are taking to catch up are patchworked due to a lack of strategy and digital-focused leadership.
AI & Machine Learning in the Drug Development Process
An incredible amount of time and money goes into drug development — bringing a drug to market costs about $2.8 billion dollars over 12+ years, according to Taconic Biosciences’ tally.  
Utilizing AI and machine learning can help at every stage of the drug discovery process. Healthcare AI startups were able to raise over  $2 billion in Q3 2020, and those using AI to streamline the drug making process were the recipients of some of the heftiest sums compared with startups deploying the tech in other healthcare segments.
AI in Drug Discovery (Phase I)
The drug discovery process ranges from reading and analyzing already existing literature, to testing the ways potential drugs interact with targets. According to Insider Intelligence’ AI in Drug Discovery and Development report, AI could curb drug discovery costs for companies by as much as 70%.
AI in Preclinical Development (Phase 2)
The preclinical development phase of drug discovery involves testing potential drug targets on animal models. Utilizing AI during this phase could help trials run smoothly and enable researchers to more quickly and successfully predict how a drug might interact with the animal model.
AI in Clinical Trials (Phase 3)
After making it through the preclinical development phase, and receiving approval from the FDA, researchers begin testing the drug with human participants. Overall, this is a four-phase process and usually considered the longest and most expensive stage in the drug making journey. 
AI can facilitate participant monitoring during clinical trials—generating a larger set of data more quickly—and aid in participant retention by personalizing the trial experience. 
Pharma Investments in AI
Big tech investments in pharma are at an all time high. Specifically, big tech firms with a broad range of AI and cloud solutions make valuable partners to drugmakers, which have varied needs when it comes to AI.

For example, Moderna leverages Amazon’s AWS cloud platform to speed up its drug development process. And while Moderna has recently made headlines as a top contestant in the race to develop a coronavirus vaccine, the company should also be recognized for its success in developing a cancer vaccine in just 40 days while leaning on AWS. 
Moderna is just one example of the many pharma companies taking advantage of Big Tech’s growing interest in the digital health industry. And Insider Intelligence expects Big Tech to continue using their AI brawn to forge pharma tie-ups.
Here are the companies analyzed in the report:

AbbVie
Amazon
Apple
AstraZeneca
Atomwise
Biofourmis
Eli Lilly
Exscientia
Google
Insilico
Litmus Health
Microsoft
Moderna
Novartis
Otsuka
Pfizer
Recursion Pharmaceuticals
Repurpose.AI
Roche
Sanofi
TriNetX
Verily
Verisim
XtalPi

Interested in getting the full report? Here’s how you can gain access:

Join other Insider Intelligence clients who receive this report, along with thousands of other Digital Health forecasts, briefings, charts, and research reports to their inboxes. > > Become a Client
Purchase the individual report from our store. > > Buy The Report Here
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The 5 top cannabis startups that VCs can't stop talking about

Summary List PlacementIf 2020 was the year for cannabis startups to tighten their belts, trim the fat, and focus on weathering the pandemic, then 2021 is set to be a boon for the companies that have emerged mostly unscathed, investors told Business Insider.
We asked the top private equity and venture investors in the cannabis industry to name the startups they believe are poised for major growth this year. The startups that made our list range from dispensary and cultivation chains, like Ascend Wellness Holdings, to cannabis software firms like Dutchie.
Most of the investors we talked to said that startups with strong management teams that made it through 2020 will have lots of opportunity in front of them next year, as more states open legal cannabis markets, and institutional investors start getting more comfortable with the industry. 
Read more: From LeafLink to Greenbits, meet the 8 buzzy cannabis startups that raised the most cash in 2020
There was a significant uptick in VC interest in cannabis startups in 2020, particularly on the software side, around August. Two tech startups that made our list — Dutchie and LeafLink — closed large funding rounds this year.
To put together this story, Business Insider asked a representative from each of the 17 investment firms that made our list of the top investors in the industry to name two companies that are poised for huge growth in 2021.
Each investor was asked to recommend one startup they invested in and one they hadn’t. In total, investors gave us 27 names — the following five came up most often.
Here are the top five startups cannabis investors say will blow up in 2021:LeafLink — 3 votes

Founded: 2015
Located: New York City (HQ), Los Angeles, Toronto
Post-money valuation: Declined to disclose.
Biggest funding round of 2020: $40 million closed in December 2020
Total raised to date: $91 million, according to LeafLink. The company also closed a $250 million debt facility earlier this year to support its payment product.
What the company does: LeafLink is a wholesale marketplace for the cannabis industry. The company says its e-commerce marketplace approach has “optimized and fueled the growth of the cannabis industry, creating new efficiencies in the wholesale buying process with supply-chain software and services.”
Why VCs like the company: 
DCM Ventures partner Kyle Lui says LeafLink’s payments product, LeafLink Financial, is “a much-needed solution that should see strong continued growth.”
“LeafLink, a portfolio company since January 2017, is our top pick and best performing investment,” Phyto Partners’ Larry Schnurmacher told Business Insider. He says the startup is the largest business-to-business marketplace in the cannabis industry.
Schnurmacher says his firm made its initial investment in the company’s seed round. “We believe LL [LeafLink] will be the most valuable ancillary company in cannabis,” he added in an email.
Gron Ventures managing partner Wilder Ramsey says that he likes Leaflink because it powers a third of the cannabis wholesale market in the US. This, he said, is “an incredible, winning position that would be difficult or impossible to achieve in a mature industry.”
“Their new lending and logistics products are solving critical problems in the space, allowing customers to scale compliantly with far more flexibility, and we expect the company’s services to be so ubiquitous and foundational in the space that in 10 years it will be no exaggeration to say the industry was built on Leaflink,” Ramsey continued.
Dutchie — 3 votes

Founded: 2017
Located: Bend, Oregon
Post-money valuation: $205 million, according to PitchBook. Dutchie declined to disclose a figure.
Biggest funding round of 2020: $35 million closed in August 2020. Read Business Insider’s coverage of the round here, where we got an exclusive look at the pitch deck Dutchie used to close the round.
Total raised to date: $53 million, according to Dutchie. 
What the company does: Dutchie is an e-commerce software startup that connects cannabis consumers to dispensaries and allows them to order products from their homes. It also powers online ordering tools for the dispensaries themselves. 
Why VCs like the company: 
“Dutchie was an early mover in the B2C eCommerce space in cannabis, and while not a HALLEY portfolio company, B2C eCommerce is a large component of nearly every other product and service outside of cannabis,” HALLEY Venture Partners Managing Director Steve Schuman told Business Insider. “WeedMaps’ recently announced $1.5 billion deal with Silver Spike SPAC is a validation of the growing importance of that piece of the puzzle.”
In general, Schuman said, e-commerce feels fragmented and underdeveloped in the cannabis space, and his firm continues to look for solutions to help brands and dispensaries connect with consumers and patients online.
“Dutchie is the leading e-commerce platform in cannabis,” says Gron Ventures managing partner Wilder Ramsey. “In three years it has grown from zero to more than $2.6 billion in annual GMV, making it one of the fastest-growing and most efficient commerce platforms of all time, in any vertical.”
“This performance is testament to a remarkable team,” Ramsey continued, “anchored by brothers Ross and Zach Lipson, who are setting pace for all of us in an industry characterized by torrid growth.”
“Dutchie is already a success story and they are going big with their recent raise,” said Panther Opportunity Fund’s Jordan Tritt. “Their CEO, Ross Lipson, has already exited multiple businesses in the online ordering and delivery space and his timing is right with the increased digitization of cannabis favoring online ordering.”
Grassdoor — 3 votes

Founded: 2018
Located: Commerce, California
Post-money valuation: Declined to disclose.
Biggest funding round of 2020: Declined to disclose.
Total raised to date: Declined to disclose.
What the company does: Grassdoor is a startup that sells and delivers cannabis products to consumers in Southern California. The company declined to comment for this article.
Why VCs like the company: 
Grassdoor has an impressive team and technology, Navy Capital’s Sean Stiefel told Busness Insider. The company also has a “differentiated business model to go after the DTC delivery market,” Stiefel said in an email.
“Because they developed their depot processes in parallel with their proprietary tech stack, they have been able to scale their business in an incredibly efficient manner,” said AFI Capital Partners’ Nico Richardson. “As a result, Grassdoor has become a leading delivery platform in less than two years of operation.” 
“Operating in DTC (direct to consumer) cannabis delivery, Grassdoor has a lot of competition,” Measure 8 founding partner Boris Jordan told Business Insider. “In a short period of time, the company has earned top marks from customers as the ‘go-to’ platform for cannabis on demand.”
With constant focus on efficiency and customer service, Jordan says his firm sees a bright future for the company.
 
We updated this article to clarify Grassdoor’s business model on December 30.
Connected — 2 votes

Founded: 2009
Located: Sacramento, California
Post-money valuation: Decline to disclose.
Biggest funding round of 2020: N/A
Total raised to date: $25 million Series A round closed July 2019
What the company does: Connected is a craft California cannabis brand that sells high-end flower.
Why VCs like the company: 
Connected is “the leading flower company in California with a fantastic management team,” said Navy Capital’s Sean Stiefel.
The company dominates the premium flower market in California, Stiefel said. 
“Connected Cannabis grows and manufactures high-quality cannabis flower at scale,” said Gotham Green Partners’ Jason Adler. “Compared to most craft brands in the state, Connected has differentiated itself with an ability to produce a consistent quality product at scale and seamlessly introduce new strains in a relatively short time frame.”
“We believe that the high-end flower segment will continue to benefit from several tailwinds, particularly the maturation of the consumer palate and new recreational markets with greenfield opportunities for expansion,” Adler continued.
Ascend Wellness — 2 votes

Founded: 2018
Located: New York, New York
Post-money valuation: Declined to disclose. 
Biggest funding round of 2020: $68.2 million closed in August.
Total raised to date: $208.63 million, according to PitchBook. Ascend Wellness declined to disclose a figure.
What the company does: Ascend Wellness is privately owned cannabis cultivation and dispensary chain, known in the industry as multi-state operators or MSOs. It operates in five states including Illinois, Michigan, Massachusetts, New Jersey, and Ohio.
The company said in an email to Business Insider that it focuses on limited license states east of the Rockies, “with flagship locations in desirable retail corridors serving key medical and adult-use markets.”
Why VCs like the company: 
Salveo Capital’s Michael Gruber says he believes Ascend Wellness’s presence in key states like New Jersey means it will be well-positioned for growth.
“We are an investor in the company and had added additional capital to our investment this year. The passing of adult-use in NJ this November is a huge step, and with NJ in our belief will be an amazingly good market,” Gruber said in an email. “This will also likely be key impetus to spur NY, PA, and CT to legalize adult-use as well.”
Gruber added that Salveo is “bullish in general on private MSOs that are focused on key limited license states and where they have gone deep within a limited number of states, and where management has been able to execute in an efficient manner.”
Silverleaf Venture Partners’ Andre Haroche describes Ascend Wellness’ growth as “astounding.”
“They have a fantastic management team lead by industry-veteran Abner Kurtin and we wouldn’t be surprised to see Ascend be publicly traded in the next year or so based on its momentum,” Haroche said.

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