€116bn opportunity spotted in cannabis

Jonathan Boyd
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€116bn opportunity spotted in cannabis

Europe is at the centre of a green boom – the remarkable rise of legal cannabis. The region is now set to become the world’s largest legal cannabis market in ten years – representing a compelling opportunity for European investors. Estimated to be worth €116bn[1], the market is driven by powerful demand dynamics across multiple sectors, from medicinal applications to materials, and supported by rapidly diminishing regulatory barriers.

At the forefront of the cannabis revolution has been Canada – which became the first G7 country to grant cannabis full legal status. This sent out a global signal of a sea-change in governmental attitudes to the myriad applications of cannabis. Now Europe is catching up, currently representing 40% of all legal cannabis markets in the world.

Indeed, European governments and their legislative arms are becoming increasingly pro-cannabis. This is down to growing public support for legalisation and the ensuing commercial and social benefits. Moreover, the current review of THC – the psychoactive compound found in cannabis – by the World Health Organisation is expected to open up the floodgates of countries recognising the legitimacy of cannabis as a medicine.

Growing opportunity

From a capital markets perspective, investors approaching or seeking to access this new asset class can also draw confidence from Canada’s experience. Viewed as the capital of cannabis innovation, it has seen huge pools of capital flow into its exchanges, providing liquidity to investors.

According to Bloomberg, the 144 companies listed in Canada have a market value of around $57bn, including Canopy Growth Corp., which is worth $9.9bn and Aphria Inc. at $3.8bn. The 136 cannabis companies on the OTC markets range have a market value of $16bn, with a diverse size spectrum – from MedMen Enterprises Inc., which is worth $2.6bn, to penny stocks like Global Hemp Group Inc., with a market value of approximately $16.3m.

Attention is now switching to Europe, as cannabis infrastructure develops across the region. For European investors, we believe cannabis represents a clear opportunity to create long-term value in an emerging asset class and tap into a fresh source of diversification.

A supporting tailwind has been a broader change in investor sentiment to traditional wells of shareholder value. As allocators and individual investors grow increasingly disenchanted with many of the maturing industries, particularly in resources, cannabis is being recognised as a true growth-orientated area with huge potential to disrupt the status quo across a range of sectors, including pharmaceuticals, healthcare and materials.

Transformative health benefits

Within the medical world, cannabis-based treatments could transform how physicians approach healthcare, providing practical and natural remedies for treating chronic pain. Cannabis also represents a solution to the global opioid epidemic and ground-breaking treatment for epilepsy glaucoma and MS.

According to highly-experienced consultant neurologist Professor Mike Barnes, there is strong evidence medical cannabis alleviates pain in spasticity, including after stroke or brain injury; reduces nausea and vomiting, especially during chemotherapy; and helps to treat anxiety disorders. In his work, Professor Barnes also highlights the usefulness of cannabis in sleep disorders, appetite stimulation, fibromyalgia, post-traumatic stress disorder, severe childhood epilepsies, bladder problems and even for some cancers.

Cannabis’ ability to reduce anxiety has also opened up the vast potential of the wellness market. Cannabidiol – CBD – is a cannabis compound with significant medical benefits and is the fastest growing segment of the health supplement market.

Material alternatives

Cannabis extracts are increasingly being use in cosmetics and skincare. For example, Estée Lauder, one of the biggest conglomerates in the skincare market, recently made its entry to the cannabis space.

The plant also produces cheaper and more sustainable sources of fuel – biodiesel and hemp ethanol – which can be used to power diesel engines. Additionally, hemp is a biodegradable alternative to oil-based plastics, used with a combination of other materials in car panelling, for example. Its fibres are more durable and environmentally-friendly than cotton, making for good use in textiles. Another plant-based product, ‘hempcrete’, makes for low density and sustainable construction material, able to replace wood and insulate buildings.

ECH is an unrivalled group of companies at the forefront of the European market. The company provide venture capital, exceptional talent and operational excellence to build the platforms and brands that are shaping the industry. Its companies are well known and instrumental in driving leadership and innovation in the ancillary space. The holdings provide ECH with a fundamental anchor in both the European and global markets, while helping it define this emerging industry.

We believe this is a uniquely exciting asset class where investors can tap into some of the most innovative companies in a space that is still in early state growth.

[1] OECD, World Bank, IMF World Drug Report, WHO, Cosmetics Europe

 

Rob Reid is CEO of European Cannabis Holdings (ECH)

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