$7.2B GW Pharma acquisition is another sign of cannabis normalization

By Alex Halperin
Feb 4, 2021

This week Jazz Pharmaceuticals said it would acquire GW Pharmaceuticals in a $7.2B cash and stock deal, the strongest indication yet of big drugmakers’ long-speculated interest in cannabis. 

In 2018, the U.S. Food and Drug Administration (FDA) approved GW’s Epidiolex, a CBD-based pharmaceutical, as a treatment for severe pediatric epilepsy disorders. It was the first time the agency greenlit a cannabis-derived drug. 

U.K.-based GW has also developed a medicine containing CBD and THC which has won approval in several countries as a treatment for multiple sclerosis-related spasticity. It’s currently in late-stage trials under the brand name Sativex, with an eye on U.S. approval for spasticity and PTSD. Further back in its pipeline, GW is developing cannabis-derived drugs for schizophrenia and autism. 

By a large margin, the acquisition is the biggest cannabis-related deal ever. Wall Street analysts regard it as a way for Dublin-based Jazz to beef up its neuroscience pipeline.

Jazz stock has dipped since the announcement on worries that it’s overpaying. The deal, expected to close in Q2, valued GW at 50% above its pre-deal price, which has climbed more than 85% in the last year.

Cannabiz stays cool

For pot professionals, pharmaceutical companies are a source of wariness that can stray into paranoia. There’s often speculation in cannabis circles about drugmakers lobbying to slow marijuana legalization for fear it would undermine opioid sales. Policy proposals such as changing cannabis from a schedule I controlled substance to the less strict schedule II or III have evinced fears that the shift would enable pharma to usurp the REC market.

Morgan Fox, spokesman for the National Cannabis Industry Association, pooh poohed those ideas. GW isn’t a direct competitor for the adult use cannabis industry, he said. He couldn’t remember a big pharmaceutical company openly opposing legalization since 2016. 

Instead, he said the deal indicates interest in cannabis-based drugs. It also suggests to him that cannabis is becoming less risky “legally and reputationally” for mainstream companies across industries. 

Pharma has held out longer than liquor and tobacco other industries seen as harboring an interest in cannabis. It’s been nearly four years since Constellation Brands became the first big U.S. liquor company, to invested in a Canadian cannabis operator. Marlboro parent company Altria did so in late 2018.

“A mainstream play”

The GW deal “is a mainstream play,” said Sander Zagzebski, a corporate attorney at law firm Greenspoon Marder, which has a big cannabis practice. (Zagzebski wasn’t involved in the deal.)

As he sees it, the deal offers a window into how more mature industries are likely to “play to their strengths” as they venture into the cannabis field. “Big tobacco isn’t going to get into a pharma product,” he said, and vice versa. 

It’s possible, he said, that a non-U.S. company, such as Jazz, would be more comfortable than an American counterpart acquiring GW, given cannabis’ U.S. federal illegality, but that doesn’t strike him as a driving factor of the deal. 

A big week for CBD

The GW acquisition comes at a period of excitement for the cannabis operators, who are optimistic that Democratic control of Congress will lead to federal legalization or key incremental reforms, such as industry access to the financial system. 

CBD, the active ingredient in GW’s Epidiolex, is legal in the U.S. However, the regulations governing it are sufficiently murky that mainstream consumer packaged goods companies and retailers have largely kept their distance, despite strong consumer interest. 

This week members of the U.S. House of Representatives introduced a bi-partisan bill that would allow hemp-derived CBD to be categorized as a dietary supplement. It’s an unusual step for the active ingredient in a pharmaceutical. If the bill passes it would almost certainly accelerate over-the-counter CBD’s introduction to the mainstream economy.

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