Cannabis: The green gold rush

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10/17/2018 | 05:04 pm
Today, Canada entered a new era, that of the legalization of cannabis. The maple leaf country is not setting foot in uncharted territory, since Uruguay already reached the milestone in 2013, but is becoming the first G7 country to allow the cultivation and use of cannabis for recreational purposes. Other governments will likely keep a close eye on the matter
A diffusion of the Canadian model to other Western economies would necessarily be accompanied by an exponential growth of the cannabis industry, which is still in its infancy, offering many investment opportunities with it.

Legalization is still very rare but regulation is increasingly flexible

After almost a century of cannabis prohibition, in which the production, sale and use of marijuana has been strongly repressed, the situation is gradually changing. However, it is important to distinguish between the regulatory constraints that differ according to the use of cannabis between its therapeutic use and its recreational use.

Canada thus provides a real legal framework for the consumption but also for the production of cannabis, 20 years after the legalization of its medical derivatives. In the United States, the situation is more complex. Despite the firmness of federal laws prohibiting the cultivation, sale and consumption of cannabis, states have the prerogative to determine their own amendment on the issue.  Thus, 29 states allow the therapeutic use of cannabis and a handful (8 in addition to the capital Washington) allow its recreational use, including California, considered the world's largest market for recreational cannabis.

In Europe, the laws governing the sale and consumption of cannabis are heterogeneous, as each country applies its own laws. In general, about ten European countries allow the medical use of cannabis (including Germany, Switzerland, Italy, Austria, the Czech Republic, etc.), a figure that is on the rise, with the United Kingdom having announced that therapeutic cannabis will be authorized by prescription as of November 1.  France could also open up to medical cannabis. On the recreational side, it has to be said that the talks are struggling to make progress. Only two countries, the Netherlands and Spain, tolerate and control the sale and cultivation of cannabis.

In very general terms, the trend remains towards easing the regulatory constraints that govern activities directly or indirectly related to cannabis. More and more countries are thinking, through legalization, of alternative models, learning from prohibitive, costly and counterproductive policies. The idea is also to take advantage of a considerable tax mass confiscated by the black market: legalizing is like taxing. This would be equivalent to seeing a flourishing reality for a still young market, that of legal cannabis.

A market with huge potential

The figures differ among specialized firms, but all agree that the cannabis industry is among the fastest growing markets by 2030.  Their conclusions are similar: the increasing adoption of marijuana in several medical applications, coupled with its legalization for recreational use, is expected to generate significant income growth over the next decade.

Observers talk about the snowball effect. It should be noted that the global cannabis market is estimated at $177 billion in 2017 alone, largely captured by illegal trafficking (up to $165 billion), with a marginal focus on authorized trade ($12 billion). Bryan Garnier, who has conducted a study on this industry, sees the legal market reach $140 billion over the next ten years. According to estimates (more or less optimistic), the average annual market growth rate hovers around 30% per year by 2030.
Fluctuations in the Canadian Marijuana Index over the past months - source: The Marijuana Index

On this basis, the valuations of companies linked to this industry are soaring. The majority of cannabis producers are listed on the Toronto Stock Exchange. Indeed, thanks to early medical cannabis legislation introduced in 2001, Canada is now to cannabis what California is to the Internet. Surprisingly, about 200 listed companies around the world have a direct or indirect relationship with cannabis, including more than 80 in Canada.

These companies are on the rise, as evidenced by the dynamics of their benchmark index, the Canadian Marijuana Index (composed of 18 companies), which has grown by nearly 210% in one year.

How to take advantage of this green gold rush? You will soon find out, as we publish in the next few days a series of articles to understand the stakes of the cannabis market and seize its opportunities.
Jordan Dufee 2019
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