It has been around a year since synthetic biology companies have started selling cannabinoids. A good time to look at how the industry has changed since my last major coverage. I’ll only be covering public companies whose cannabinoids have made it to market.
Willow recently provided an update to investors on the state of their CBG products. It provides some insight into how they’re going to attempt to commercialize CBG, like attempting to get Generally Recognized as Safe (GRAS) status, but makes no mention of their current legal issues. It does make this general statement about their manufacturing costs:
“Willow has also refined and advanced its industry leading downstream process (“DSP“), which allows for significantly reduced costs and optionality for working with additional CDMO’s in the future“
It’s impossible to know if the statement is true since Willow doesn’t have a line item for Cost of Goods Sold (COGS):
Hard to gain insight into claims made by the company without insight into how much something is selling for and how much it costs to make.
Amyris launched their Terasana brand and first CBG product a little over a year ago. They ramped up production of CBG months before their brand launch, anticipating huge demand. It’s impossible to isolate the sales of just CBG from their financials since Amyris sells a range of products. We can instead look at general trends in their financials over the last year:
I’ve combined snapshots from three quarters, excusing their annual which doesn’t break this out, so we can see what the three quarters across two years looks like. The most interesting trend is the flip from revenue > COGS to COGS > revenue in the three months ending Sept 30, 2021, the same quarter they launched Terasana, The trend hasn’t reversed since. Another interesting trend is the increase in sales being eclipsed by the increase in SG&A, while R&D remains relatively flat. Sales increased 97% between the last three months ending Sept 30, 2020 to the three months ending June 30, 2022, while SG&A ballooned 230%. Apart from the single quarter bump from licenses and royalties, losses from operations have been steadily increasing every quarter, due mainly to SG&A and selling products for less than it costs to make them. Amyris’s narrative of synthetic biology creating molecules cheaply is currently a fantasy.
They did recently open a new fermentation plant, so we’ll see if that at least gets the company back to selling goods for a profit in two quarters.
Ginkgo Bioworks and Cronos:
The Ginkgo/Cronos relationship and reporting of financials makes it impossible to know the economics behind their cannabinoids produced using Ginkgo’s system. We know that last year Cronos licensed parts of the cannabinoid biosynthetic pathway from Aurora and 22nd Century Group. Luckily for Ginkgo, having to license this IP from a third party doesn’t seem to have impacted their deal with Cronos:
Cronos launched their CBG gummies last year, like Amyris, they don’t break out CBG produced by microorganisms from the rest of their business:
As you can see, in the first 6 months of 2022 Cronos made a profit selling products, unlike the first 6 month of 2021. It’s possible that incorporating the IP licensed though Aurora and 22nd Century group allowed Cronos/Ginkgo to create a profitable system for their current selling price of CBG gummies. It’s also possible the gummies make up such a small percentage of their overall sales, it doesn’t have much impact on their financials. The most interesting aspect of the IP licensing deal is that it happened just over a month after Cronos launched their CBG gummies. I don’t think we’ll ever know what the cost of production was before they made the deal.
I wanted to do a quick mention of Xinteze, who claims to have licensed a non-plant cannabinoid biosynthetic pathway from the Weizmann Institute of Science. So far they’ve only published two of the four steps required to reach CBG from a simple input molecule. I will be keeping a close eye to see if they’ve actually managed to find a unique pathway. Despite the lack of uptake of cannabinoids produced through microbial fermentation, the dream isn’t dead for some.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author has a position in 22nd Century Group and no position in any other company mentioned.