Cannabinoids have become some of the most popular health and wellness products in the world. For example, CBD-infused topicals are expected to reach $4.5 billion in sales by 2025, according to Cultivating Wellness, which represents a 540% increase since 2020. At the same time, topicals infused with THC or combinations of CBD and THC are becoming more popular.
Ovation Science Inc. (CSE: OVAT) (OTCQB: OVATF) has the exclusive worldwide rights to formulate and market topical cannabis products made with Invisicare®, a patented polymer delivery system that controls the release of active ingredients, including CBD, THC or combinations of the two, to the skin and through the skin.
Let’s take a look at the science behind Ovation Science’s drug delivery system, what sets its 30+ product formulations apart from the competition and why investors should pay close attention to its unique business model as it ramps up commercialization.
Making Topicals More Effective
Cannabis topicals are CBD and/or THC infused lotions or creams that are applied to the skin for localized relief of pain, soreness, irritation, as well as for its anti-aging properties. On the other hand, transdermal products are absorbed through the skin to provide systemic effects while avoiding the liver metabolism and lung damage associated with oral or inhalation.
Ovation Science differentiates itself from other infused product manufacturers with its expertise in pharmaceuticals and drug delivery. For example, President and Co-Founder Terry Howlett has over 35 years of experience in pharmaceuticals and skincare management roles and James Roszell, Ph.D., Head of Product Development, is a doctoral chemist and developer of Invisicare® with over 40 years of product development experience.
The company’s Invisicare® technology is a patented polymer delivery system that enhances the delivery of active ingredients for topically applied skin care products. Using hydrophilic and hydrophobic polymers, the technology bonds active ingredients to the skin for up to four hours and forms a barrier that resists wash off and perspiration. The barrier also protects the skin from outside elements and toxins while “supercharging” active ingredients.
The company’s research demonstrated only a 3% release after two hours for market-leading formulations compared to a 40% topical release for its Invisicare® CBD formulations. Furthermore, leading transdermal formulas state that they have a 10% to 25% release while the Invisicare® formulation showed a greater than 80% transdermal penetration at six hours.
There are several benefits to releasing more CBD or THC in topical and transdermal formulations. The release of more THC or CBD into the body potentially produces a greater therapeutic effect for patients or consumers, which could lead to more repeat customers over time. Less THC or CBD can also be used to produce the same effect and lower costs.
Attractive Royalty-based Model
Ovation Science licenses its proprietary formulations on a state-by-state basis to multi-state operators, or MSOs, that sell cannabis products in local jurisdictions. The company supplies the manufacturing know-how along with the Invisicare® polymers to the licensee that in turn manufactures and markets the formulations in their own state.
In exchange for the formulations, the company earns a “packaging fee” that amounts to a royalty on the licensee’s product sales. Many investors are drawn to royalty-based companies since there’s little to no cost of goods sold (COGS) and lower capital expenditures (CapEx), which translates to higher profit margins and improved scalability.
With medical marijuana legal across 36 states, the company has ample opportunities to expand beyond Nevada where the company’s inaugural licensee has already proven to be a market leader including the distinction of achieving the #1 in topical dispensary sales. The company is also actively pursuing international expansion opportunities in Canada and the European Union to grow and diversify its revenue.
The company also launched its own CBD-focused product lines, including Invibe® MD and ARLO CBD Beauty. Invibe® MD is focused on pain, sports recovery and relaxation creams and other anti-inflammatory conditions whereas ARLO CBD Beauty is focused on anti-aging products that help the skin look younger.
The Bottom Line
Ovation Science is well-positioned to capitalize on the increasing popularity of CBD and THC topicals within the cannabis industry. With its scalable and high-margin royalty-based business model, the company aims to attract MSO licensees in the 36 states that have legal medical marijuana as well as pursue international opportunities in Canada and the EU.
Investors may want to keep an eye on the company over the coming months and quarters. After reporting a 70% increase in January revenue, the company believes that the topical cannabis business could be experiencing the start of a big turnaround especially with the reopening of most dispensaries and retail outlets.