Cannabis investment to grow both in US and Canada this year

With Canada legalizing recreational marijuana last October the year 2018 saw a lot of investment in cannabis related companies in Canada. However, U.S. companies and investors are now working to gain a slice of the profits.

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Investor interest could shift to the U.S. market this year

However, U.S. investment in cannabis related areas will not only pick up in Canada but in the U.S. as well. According to the Financial Post recreational marijuana is already legal in 10 states as well as Washington DC but is still banned at the federal level. Medical marijuana is legal in 33 states.

The market has expanded dramatically as well as hemp can now be legally grown in the U.S. as reported in a recent Digital Journal article.

Alfred Avanessy of Cormark Securities which has cannabis as its biggest source of business in Canada said: “Investors’ imagination is being captured more by what’s possible in the U.S. The U.S. is a couple years behind us from a regulatory perspective and it’s also by definition 10 times larger than we are.”

U.S. consumer spending on legal cannabis is projected to reach $20.9 billion by 2021 as contrasted with just $4.5 billion in Canada according to a report from Arcview Market Research and BDS Analytics.

U.S.-based firms entering Canadian market

In 2017 there was only one U.S. cannabis firm listing on the Canadian Securities Exchange (CSE) and it raised only $145,000. In contrast, in the first ten months of last year U.S.-based cannabis firms raised $1.1 billion U.S. on the CSE. This was about 60 percent of the total amount raised by all cannabis firms. In the first ten months of the year, U.S. firms invested $417.4 million in the CSE. The trend increased at the end of the year with several new firms being listed.

Richard Carleton CEO of the CSE said: “We have applications in hand from a number of significantly sized U.S. issuers and we’ve been talking to a number of folks who don’t have applications in yet but it seems a certainty that they will be showing up on our doorstep at some point in the first or second quarter of next year. The U.S. issuers are also providing a more compelling story to investors, coming to market with “a significant operating history, revenue in place and a significantly higher degree of maturity than we saw from the Canadian producers back in the day."

Canadian marijuana market's growth is slowing while US is accelerating

Investors may sense that the Canadian cannabis market growth is flattening somewhat. It is also plagued by supply shortages, and rather disappointing earnings. In contrast as more US states legalize recreational marijuana a much larger market than Canada's is expanding.

Steve Winokur, of Cannacord Genuity Group, one of the leading investment bankers in the industry said: “There are hundreds of businesses in the United States that are just getting their act together relative to accessing the capital markets and building their business plans, so there’s a lot of runway left for the U.S. industry.”

US companies may come to dominate the cannabis industry

Canadian companies have a head start in investing in Canada. Yet Canada's population is smaller than that of California. US firms are already selling in a much larger market, perhaps around ten times the size that Canada will be. A recent article notes: "As the thinking goes, America is where brands and fortunes are made, and there’s no reason to think that cannabis will be any different, despite the current federal prohibition."

Afzai Hasan, president of Origin House in Ottawa said: “We’re going to have a great cannabis industry here, but the people who, for whatever foolish reason, thought that Canada was going to dominate the world of cannabis, they need to disabuse themselves of that notion because it was never founded on any reality... We’re not as aggressive and competitive and capitalistic as the folks down south of the border.”

The CEO of Curaleaf, Joe Lusardi, a large US cannabis retailer does not like to be lumped in with Canadian competitors saying: “I don’t think we should be correlated with the Canadian stocks at all In many cases they’re just growers.” This may be overly negative about the role of Canadians in the cannabis industry. Some Canadian firms may very well expand into the US and be successful and also remain as retailers not just growers.

Previously published in Digital Journal

US Congress passes bill legalizing the growing of hemp

(December 14)Yesterday, the U.S. Congress passed the U.S. Farm Bill which includes the legalization of growing of hemp. Hemp has been used as material for such items as carpets and sweaters but derivatives are used for many other purposes such as food and medicine.

The legislation was earlier agreed upon as reported in a recent Digital Journal article.

Hemp had been illegal to grow in the U.S.

Hemp has in the past been illegal to grow in the U.S. except for small plots which were made legal to grow marijuana for research purposes. However, the use of marijuana for some medical purposes is legal in many states but with varying often complex regulations.
Wikipedia notes: "In the United States, the use of cannabis for medical purposes is legal in 33 states, plus the territories of Guam, Puerto Rico, and the Northern Mariana Islands, and the District of Columbia, as of November 2018.[1] Fourteen other states have more restrictive laws limiting THC content, for the purpose of allowing access to products that are rich in cannabidiol (CBD), a non-psychoactive component of cannabis.[1] There is considerable variation in medical cannabis laws from state to state, including how it is produced and distributed, how it can be consumed, and what medical conditions it can be used for.[2]"

At the federal level cannabis remains a prohibited substance through the Controlled Substances Act(CSA) of 1970. The U.S. Drug Enforcement Administration (DEA) lists cannabis as a Schedule I drug, determined to have a high potential for abuse and no accepted medical use. The Justice Department has used criminal prosecution, civil asset forfeiture, and even para-military type raids that have targeted medical cannabis providers. It has used these and various threats even against individuals involved in state-legal medical cannabis activities including even doctors and state officials. However, the Rohrabacher-Farr amendment to the CSA in December of 2014 prohibits the Justice Department from spending funds to interfere with the implementation of state cannabis laws.

CBD a popular medical ingredient

Hemp is very low in the psychoactive ingredient of marijuana plants TCH. It has less than 0.3 percent. However, it is high in the non-psychoactive component CBD. CBD is becoming a popular medical ingredient with proponents claiming it can soothe anxiety, relieve stress and pain, and also help insomnia. It does not get people high in the process.

A recent article notes: "With hemp’s legalization, CBD is bound to become even more visible. Its legal status remains unclear — the Drug Enforcement Administration classifies CBD as illegal, although it doesn’t go after anyone using or possessing it, and it hasn’t said if it will reclassify CBD now that hemp is legal. But regardless, the passage of the farm bill has big implications for the burgeoning CBD industry. " With legalization of growing hemp the CBD industry will receive a big boost. It would seem though that further legislation may be needed to make it clear that using the derived products are not illegal.

Move could be a boon for farmers

The hemp plant is said to detoxify the soil and prevent soil erosion. It also requires much less water than many crops and does not need pesticides compared to traditional crops. Supporters of the bill such as Mitch McConnell think that hemp could take the place of present cash crops such as tobacco in his home state of Kentucky.

Bill should help CBD industry thrive as well

The DEA has not strictly enforced restrictions on the use of CBD as they have on marijuana products with high TCH content. However, legalizing hemp growing is likely to spur the growth of the industry from sales of about $350 million last year to about $1 billion by 2020. However, there needs to be much more research done to confirm all the medical benefits claimed for CBD.

Eric Baron of the Cleveland Clinic Neurological Institute claims: "There is a huge void of research in terms of confirming most effective dosing for various symptoms, so most of this is done by trial and error and self-titration. Unfortunately we are nowhere near close to having any definitive trials on effectiveness for most symptoms claimed to benefit from CBD with trials that are scientifically relevant, such as prospective randomized placebo-controlled trials.” However, the new legislation could make for more substantial tests of CBD derivatives for medical use.

Previously published in Digital Journal