Canadian cannabis specialist Auxly acquires contract researcher KGK Sciences

By Adi Menayang contact

- Last updated on GMT

Getty Images / Yarygin
Getty Images / Yarygin

Related tags: Cannabis, Cbd, contract research organization

Auxly Cannabis Group announced this week that it will acquire contract research organization KGK Sciences.

According to the company, KGK Sciences, an Ontario-based contract researcher, will still serve the nutraceutical industry at large with clinical trials, claims substantiation, compliance audits. Its clients in the past include Kraft Foods, Sanofi, Nature’s Bounty, and NuSkin.

The only difference is that it will be doing so as a subsidiary of a publicly traded, cannabis-focused company.

“We think its very important for ​[KGK Sciences] to remain independent and maintain its scientific integrity,”​ Jeffrey Tung, chief financial officer of Auxly, told NutraIngredients-USA. “For the existing clients, they should really see no change—in fact they will likely see an increase of service levels and benefits because now they’ll be part of a larger organization that can provide more capital.”

Announced in a press release earlier this week, Auxly Cannabis Group​ will acquire KGK Sciences​ of the issued and outstanding shares for total consideration of $12,300,000 payable in cash and common shares of the company.

What’s in it for Auxly?

Auxly, which until June this year was called Cannabis Wheaton, started a little over a year ago as a cannabis 'streaming' company focusing mainly on cultivation. This means its business model was to finance entrepreneurs who wanted to pursue business in the cannabis space and stream royalties from them.

“We began to make a shift to become a more vertically integrated company,”​ Tung explained. The strategy was to not only cultivate cannabis, but to also to add value to the crops, whether it be patented ingredients or consumer packaged goods.

This is where KGK Sciences comes in. KGK Sciences’ facilities and expertise will act as an in-house research and development arm for its new parent company while also still serving external clients, Tung said.

When Canada's adult-use recreational marijuana market opens in October, it’s projected to be worth at least US$4.28 billion, Reuters reported​. Within this new regulatory landscape, Tung said Auxly plans to develop products and ingredients for functional food and beverage as well as the natural health products space (the latter is the official term for dietary supplements used by Health Canada).

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Though the country has been credited as the first major national economy to fully legalize recreational use, the cannabis space will still be tightly regulated, especially in terms of branding and marketing.

Tung likened it to tobacco. “It will be very different than, say, in the States, if you walk into a dispensary, there’s a lot of branding, color, ability to advertise—that doesn’t really exist in Canada,” ​he said.

With KGK’s help, Auxly hopes to differentiate its products with efficacy studies.

“Our partnership continues a trajectory of growth in cannabis research and most importantly enhances our expertise to offer research services to the nutraceutical industry,”​ Najla Guthrie, President & CEO of KGK Science, said in a press release.

“Our ability to continue operating as an independent business unit within the Auxly family allows us to maintain our goals of being a high quality, objective and best practice contract research organization not only in North America but globally. Our company has deep roots in the birth of the global nutraceutical industry and we look forward to providing our expertise in both product development and claims substantiation to Auxly while continuing to grow our market share in the global nutraceutical market.”

‘We’re keeping a keen eye on the US’

All this is fine and dandy in Canada, but what about market activity and opportunities in the US, where even hemp extract free of the intoxicating tetrahydrocannabinol, is still technically illegal​?

“KGK as a standalone entity really benefited from the gray area that cannabis exista in the US. Because it’s federally illegal there, anyone that wants to do research on cannabis needs to come to Canada,”​ he said.

“We’re definitely keeping a keen eye on the US,”​ he added. They already licensed an IP from a US company to bring their product to Canada. But as a publicly traded company, there are restrictions from participating in the market.

“But as regulations and laws change, we’ll definitely be more active in the US.”

Related topics: Markets, M&A

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