Cannabis has been cultivated as a medicinal herb for over 5,000 years and the earliest signs of its use as an herbal remedy appeared sometime around 2,500 BCE. The plant has also been used as a vehicle for spiritual enlightenment and for recreation, but only recently has it come out of the shadows and into the mainstream as a potentially powerful tool in modern medicine and a feature of many modern portfolios.
For most of modern history, the use of cannabis was widely prohibited throughout the western world. Within the last few decades, and especially in more recent years, use of cannabis and views surrounding the plant have become more liberalized, fuelling the growth of a new legal industry. This industry is set to grow further as more countries pass legislation to enable medical-use cannabis treatments and products. As of February, 2020, there are already 50 countries with some form of legal medical cannabis and 28 of them are in Europe.
The Medical Cannabis Industry
The growth of the global medical cannabis market has particular importance for European businesses as countries like UK, Italy, Netherlands and Switzerland are regional leaders in the production and export of medical grade cannabis. In fact, the UK is the world’s largest single producer and exporter of medical grade cannabis, producing close to 100 tonnes a year.
Medical cannabis takes the dominant market share of the cannabis industry as a whole, having accounted for an estimated 70% of revenues in 2019. With the global medical cannabis market estimated to be worth north of $150 billion over the next 10- 15 years, numerous medical studies now in place and regulatory easing within sight, there are multiple positive catalysts to push the industry forward.
The cannabis plant contains many chemicals of interest to the medical community – these chemicals are known as ‘Cannabinoids’. While recreational users of cannabis want the effects of THC (the cannabinoid that creates a ‘high’), researchers delving into the medical uses of cannabis typically focus on CBD – the primary active chemical in the cannabis plant. CBD has been shown to have uses in the treatment of back pain, cancers, Alzheimer’s disease, Epilepsy, Arthritis, Parkinson’s disease, MS and many other common illnesses and ailments.
Given that many people suffer from these conditions, there is an immediate and massive addressable market for medical cannabis: The Global Health Data Exchange estimates that there are 1 billion people who suffer from conditions, like those mentioned above) that can be treated or alleviated by CBD and there is also a significant demand from the veterinary and pet care markets. These numbers are only the tip of the iceberg as with scientific understanding of the uses of cannabis for medical purposes still in its infancy, the landscape is ripe for further scientific discovery.
This new frontier is attracting the interest of large pharmaceutical companies including GW Pharmaceuticals, Novartis and Pfizer, amongst others, who are actively developing new treatments and medicines using CBD and cannabis derivatives.
But, the medical cannabis industry is not just about growing the plants – the sector includes growers and producers, hydroponic suppliers, refiners, agricultural chemical producers, pharmaceutical companies and suppliers of specialized equipment and technology – all of which stand to benefit from growth as the industry matures and continues to expand.
The expansion has been so rapid and significant that many companies involved in the legal industry have issued shares for public trading on exchanges. In fact, the number of public companies is now prolific enough to support the creation of funds, including ETFs,that target the medical cannabis theme.
A Budding Opportunity
This growing industry naturally presents an opportunity for investors – potentially equivalent or larger than investing in alcohol producers in the post-prohibition period. As of 2018, the global medical cannabis market size was $11.7 Billion and the market is expected to reach a value of $148 Billion by 2026, exhibiting a CAGR of 26.4%.
As the world resets growth expectations, the secular growth story of cannabis remains largely untold in the background. Over the past couple years, investors have been working diligently through a price-discovery phase for the sector which is newly legalised and regulated. This has meant testing the limits of success and overcoming the multiple hurdles that come with the development of a new sector. Excessive valuations and rapid discounts have kept the sector associated with volatility and speculation.
In late February 2020, Covid-19 shut down major parts of Europe and North America. Stock markets collapsed as investors fled in droves and cannabis stocks did not escape the carnage. The silver lining out of this pandemic has been the importance placed upon medical cannabis being available to patients. In Canada and at least 21 U.S. States, medical cannabis has been deemed an essential service, showing solid support from regulators of the definitive future of the medical cannabis industry.
With numerous medical studies now in place and regulatory easing within sight, there are multiple positive catalysts to push the industry forward. The euphoria has come to an end as long-term investors come to join.
Summary
The landscape is not only ripe for further scientific discovery, but also for investors. Cannabis has in essence become a new sort of commodity and a new industrial vertical. An entire industry, supply chain, service infrastructure and market has been developed over the last decade from a plant that humans have been using for thousands of years.
Governments are driving legislative change, healthcare companies are pioneering cannabinoid research and financial backers no longer shy away from supporting legal cannabis companies - Cannabis is becoming mainstream and, in our view, has great potential to deliver long-lasting social, medical, industrial and economic effects and play an important role in the modern portfolio.
