Marijuana stocks may not have had the best year in 2018, but the one thing that really stood out was the maturation of the industry as a whole. Following months of debate, Canada finally passed the Cannabis Act in June, and officially legalized adult-use pot in October, legitimizing the marijuana industry as a valid business model. Within a few years, Canadian pot stocks should be generating billions of dollars in added annual sales.
This growth isn't lost on brand-name companies that aren't or weren't previously involved in the cannabis industry. It enticed Molson Coors Brewing Co. to form a joint venture with Quebec-based HEXO to develop and retail cannabis-infused nonalcoholic beverages, once they're legal in Canada. It also encouraged tobacco giant Altria to take a $1.8 billion equity investment in Cronos Group, with the expectation that the two will work on vape products in the near future.
The gamut of surprising cannabis players is growing by the day, and now we can firmly add Intrexon (NYSE:XON) to the list.
Intrexon really likes to think out of the box
Although Intrexon is far from a household name like Molson Coors and Altria, it's nevertheless a leader in its niche of gene regulation in the biotechnology industry. The company's gene regulation platforms are believed to be unique in their ability to up-and-down-regulate genes (e.g., essentially turning them on and off), which, when combined with other therapies, could allow for the improved treatment of certain types of cancers.
These genetic technologies are also used by the cattle industry and farmers. More specifically, Intrexon's synthetic biology approach could help improve the shelf-life of foods.
But the company was perhaps best known for its brief stint of fame in 2016 when the Zika virus gained notoriety. Although Zika had been around for decades, an explosion in reported cases and transmission through Southern and Central America in 2016 put the virus on the map. Even though only one out of five Zika virus carriers would develop symptoms, those who did would deal with a fever, rash, headaches, and joint pain. Additionally, rare complications emerged for some folks who were infected with the Zika virus.
Intrexon's solution for the Zika virus was truly unique. Rather than developing a medicine to treat the virus, Intrexon's solution was to attack the source of the disease: the Aedes aegypti mosquito. Oxitec, a company Intrexon purchased in 2015, had been genetically modifying male Aedes aegypti mosquitoes, allowing these males to pass along a genetic mutation to the next generation of males that would make them infertile. In other words, modifying the DNA of a specific type of male mosquito could, in one generation, eliminate nearly all mosquitoes that carry the virus. While it was never put into broad-based use, Intrexon's ability to think outside the box didn't go unnoticed.
Intrexon is going green
Then, in September, Intrexon announced its next venture.
The company, which had primarily been known for its medical advances, would try its hand at developing a microbial platform to produce cannabinoids for medical use. The idea was that Intrexon would develop yeast strains capable of producing low-cost cannabinoids from fermentation. Since cannabinoids are such a high-margin product relative to dried cannabis flower, this could be an easy way to boost its top and bottom lines, assuming it could be done at scale.
Since its September announcement, little had been heard from Intrexon regarding its cannabis ventures -- until last week.
On Jan. 15, Intrexon announced that it had partnered with British Columbia-based micro cap Next Green Wave Holdings to produce cannabis. Of course, this isn't your run-of-the-mill partnership. Next Green Wave entered a "licensing agreement to utilize Intrexon's Botticelli next-generation plant propagation platform to enable rapid production of Next Green Wave's proprietary cannabis cultivars for the California market." The Botticelli platform is itself an advanced tissue culture technology that should allow growers to produce genetically pure cannabis at commercial scale.
As you can expect, there'll be a bit of a feeling-out phase in the beginning, with Intrexon calibrating its platform to optimize the production of Next Green Wave's cultivars. But the end goal here is that it allows Intrexon to receive royalties on Next Green Wave's plantlet usage, with the duo splitting revenue on third-party sales.
Clearly, there's some uncertainty as to whether this platform can really lead to commercial scale, genetically pure production. Then again, we're talking about a California market that could easily hit between $6 billion and $7 billion in annual sales by perhaps the early part of the next decade. This would give Intrexon access to high-margin revenue if it proves successful.
Long story short, there's a new name to keep an eye on in the cannabis space.