Lexaria Bioscience Corp. (LXX.CN) (LXRP) is a cannabis focused business that has been flying under the radar and is an opportunity to be aware of after it formed a strategic partnership with a second leading tobacco company.
In late August, Lexaria reportred a major milestone and announced a research and development (R&D) framework agreement with British American Tobacco (Investments) Limited (BAT) to investigate Lexaria’s technology for potential use in nicotine products.
Under the agreement, all R&D work will be paid for by BAT and we are favorable on the relationship between the companies. The agreement does not contemplate development of oral nicotine consumer products in North America and is expected to be completed within six months.
The reason why the agreement does not include the development of oral nicotine consumer products is due to Lexaria’s existing North American relationship with leading tobacco company, Altria Group Inc. (MO). We are favorable on the relationship that Lexaria has with these major corporations and believe that the market does not give the business much credit for the strategic partnerships.
When compared to the rest of the tobacco sector, Altria has been the most active in the legal cannabis industry and we will monitor how it continues to focus on it. One of the first investments that Altria made in the cannabis sector was in Lexaria and we find this to be an attractive aspect of the story.
Last year, Altria announced plans to fund the research & development of Lexaria’s patented DehydraTECH technology. As part of the agreement, an indirect subsidiary of Altria Group would fund up to US$12 million for Lexaria to conduct milestone-based clinical investigations utilizing DehydraTECH in exchange for a minority equity interest,. The partnership will explore innovation in oral, reduced-risk nicotine consumer products and potentially commercialize DehydraTECH for oral nicotine delivery.
Under the agreement, Altria will pay a royalty to Lexaria Nicotine on the revenue that is generated from the sale of nicotine products that contain DehydraTECH. Altria also holds the option to acquire 100% of Lexaria Nicotine and this would be a major catalyst for Lexaria. If the company was acquired, the royalty payments would stop, and we have been closely following how the relationship continues to advance
A few months ago, Lexaria and Altria reported to have completed Phase I of the research and development program of oral forms of nicotine delivery utilizing DehydraTECH technology. The study was conducted to evaluate reduced health risks relative to combusted tobacco of a preliminary DehydraTECH oral nicotine formulation that Lexaria had previously announced findings with in 2018.
Although Lexaria has been making a name for itself in the cannabis industry with leading tobacco companies, the market has been less than enthused with the developments and the stock has been under considerable pressure. Lexaria has fallen more than 30% from its July highs and we will continue to monitor the opportunity.
If you are interested in learning more about Lexaria’s relationships with leading tobacco companies, please send an email to email@example.com to be added to our distribution list.
Published at Thu, 17 Sep 2020 11:54:16 +0000