[Column] Julia Chatterley: Haze is clearing for cannabis investors
Few Investment opportunities promise the potential highs and lows offered by the Cannabis Industry. Pot stocks are smoking hot.
Like dozy eyed stoners jolted awake by a 2 am pizza delivery, investors are rousing to the possibilities offered by this largely-elicit substance.
More than 25 countries are apparently considering the legal status of the wicked weed, and its reputation as a business proposition is rapidly evolving. If you can handle volatility in the shorter term, the longer term looks fruitful.
The legal marijuana market could hit USD 66 billion globally by the end of 2025, according to a report by Grand View Research, Inc.
So, if your image of a cannabis consumer is a pallid slacker with a passionate interest in tie-dyed t-shirts and the early works of Pink Floyd, then you’re seriously off the mark.
That’s not what enticed the likes of Kathy Ireland, Martha Stewart, big beverage firms like Constellation, and tobacco giants such as Altria, to get in on the action.
Yet expectations for Canada’s budding market post-legalization are being pared back. Research firm Brightfield Group says the Canadian market will be worth just $5 billion by 2021 — far less than previously estimated. With the nation’s top ten players valued at US$40 billion-plus, investors’ jitters will remain for now.
One issue is competition from the black market. Vape pens, edibles and other popular products remain illegal, so it’s hard to draw customers away. Legal cannabis is also more expensive. Perhaps more importantly though, legal cannabusiness is incredibly confusing.
The legalities of growing, buying, selling, taxing and using the product are fiendishly complex. It’s keeping consumers cautious, while investors – caught between fear of missing out and fear of falling foul of the law – struggle to weed out good bets from bad.
Anthony Saniger, CEO of Standard Dose, is trying to help consumers gauge what’s available. His company tests products at the safer end of the cannabis spectrum to ensure they comply with the law.
What constitutes ‘safe’? Here’s the science bit: cannabis plants have two crucial elements: THC, the psychoactive compound beloved by Snoop Dogg and Dr. Dre; and CBD, or Cannabidiol, which has no psychoactive properties. According to the 2018 U.S. Farm Bill, anything with less than 0.3% THC is classed as industrial hemp and fine to use.
Saniger's company is concerned with CBD-based products focused on medicinal benefits. He says the industry desperately needs regulation. Many of the products he tests don’t comply with the rules; some ‘CBD oils’ contained no CBD at all. Right now, the FDA appears lost in the weeds.
Governments, meanwhile, are weighing up the heady prospect of pot-related tax revenues, against the risk of unintended consequences. In the U.S, ten states - plus Washington DC - have legalized marijuana, but it remains illegal at Federal level. As a result, even legal ‘cannabusinesses’ still use cash – sometimes literal suitcases full of it – for day to day business transactions.
Public opinion, however, appears to be shifting. In the United States, a recent Nielsen survey suggests people are more interested in relieving pain than getting high. It found one in three US adults is interested in using cannabis to treat things like chronic pain or minor injuries, to aid sleep, or improve mental health. That’s a sizeable market; more than three times the entire Canadian adult population. Reframing the plant’s image would likely define its investment potential.
Bruce Linton, the chairman & co-CEO of Canopy Growth – understands that better than most. He has seen a change in attitude towards the industry in just a few short months, including his recent partnership with Martha Stewart.
Like Saniger, Linton is excited by the potential for products focused on wellness. But he also believes higher-margin offerings such as drinks, edibles and vapes could elevate the sector from the basic raw material, adding value to both consumers and investors. It’s just going to take time for the former to get comfortable with it all.
Of course, it is far easier to address this topic in a country where even presidential candidates are discussing legalization, it’s quite another in countries where prohibition is rigorously enforced and attitudes more entrenched.
One such country is the UAE, where CBD oil is regarded as no different to its psychoactive cousin. Dubai police recently reported that over 100 people were arrested in the Emirate in the first quarter of 2019 for possessing the oil inside vaping devices. Even in the UAE, however, there may be a glimmer of light amid the fragrant clouds: so-called hemp seed oil is legal, according to a recent statement by Dubai Municipality. Like olive or coconut oil, it is harvested by cold-pressing seeds, rather than flowers and leaves. This, the Municipality says, makes it okay. Once again, nuance is everything.
The challenge for an industry desperately seeking both legal legitimacy and an image overhaul is how to navigate these complexities.
No matter where you sit in the world, the investment potential is clear; the obstacles lie in a legal framework, regulation and product standards. More and more countries are looking seriously at a product that might have previously looked like a non-starter.
It will be fascinating to watch where this story goes, but for now: let’s say there are both high expectations and an element of pot luck.