WHO (Barely) Moves The Needle On Cannabis Reform: But What Does This Really Mean For Investors?
February 8th, 2019
The World Health Organization (WHO), the UN’s medical body, essentially, has issued its latest recommendations on how to deal with cannabis. The report, cautious and delayed since December, essentially states the obvious. Particularly given how many member states (and not just in the Western Hemisphere, let’s not forget) are jumping into the global cannabis market with abandon.
What does the report say? Remove cannabis from Schedule VI of the 1961 Convention regulating “dangerous substances.” Plus remove THC from the 1971 Convention and “just” place it under the Schedule I Convention of 1961.
Don’t get lost in the details. Delete the legislative gobbledygook from the equation and this is what it means: The WHO is NOT suggesting any real form of decriminalization much less rescheduling. Cannabis would still remain a Schedule I drug at the international level. CBD as long as it contains no more than 0.2% THC would be removed from international drug control regulations. This still does not address the novel food discussion Europe, by the way.
And pharmaceutical preparations only, could be added to Schedule III of the 1961 Convention. See dronabinol. It is already there. The UK opted, temporarily for a Schedule II situation last year, but that too, will certainly change soon.
This is, in other words, not a major “win” and is designed, on the international level, to slow things down dramatically everywhere. No member state of the EU, despite Luxembourg’s publication of a fast-track legalization timeline, is likely to run afoul of the pace of the UN. For multiple reasons. And especially over this.
The idea that Luxembourg, home of the EU Courts of Justice, would also pose a challenge to the unity of the EU over cannabis reform is also unlikely. That means, pretty much by definition, in other words, that the euphoric estimations of the “worth” of the European Cannabis market are to be treated with extreme caution for the investing class.
A Four To Five Year Window
Being bearish on the Euro canna market (or for that matter the canna market anywhere) is not popular right now, in a wave of (rightly earned), feel good news. Yes, markets are opening everywhere. But how and where is not only the stuff of strategic portfolio managers at the biggest public firms. It is also understanding what is driving markets, industry news and even more relevantly, headwinds already on the horizon if not here.
So the watchword, if one is to be had is not so much bear or bull but proceed with caution.
There are many parts to this. Part of it is the evolving discussion, on an EU member, state-by-state, national level debate about cannabis. And that is all over the lot. The British are in some ways, more ahead of the rest of the continent. When Brexit happens, if it does, so will cannabis reform, if for no other reason to stimulate the economy overall if not boost the NHS. But that is also a discussion fraught with uncertainty in all directions and not even the Brits are in a mood right now to defy the UN on something like this.
Europe, however, is also on an expedited timeframe for several reasons. It is being driven by Canadian and U.S. if not international reform. The EU as a bloc is also facing reasons to justify its existence which include conversations like drug legalization and healthcare. Cannabis falls into several fault lines, including the need for governments to seem responsive to the wants, needs and lives of citizens. Where cannabis intersects with the survivability of healthcare, it is central to the mainstream zeitgeist here far beyond just the plant, as it has been in other places (see both the U.S. and Canada). The question is, however, for all the political foment and daily press releases, where and how does one invest for not political but actual cash return on investment?
U.S. And Canadian Cash Looking Abroad Right Now
Europe is a different animal, as investors coming to Europe in droves this spring are about to learn in spades. Yes, this is a hugely valuable medical market. Germany is the most “advanced” in this discussion, but the big takeaway for value investors is that the problems seen here will be manifest everywhere, including the UK. Namely, access, cost, and doctor education if not approvals are a thicket that has yet to be broached decisively, by anyone. For all the giddy press releases about “first sales” anywhere (and by anyone), realize that the entire discussion in Europe is just different. And will take time.
Why? All forms of THC are expensive – outside the black market, which is pretty reliably clocking in at 10 euros ($12) a gram. In other words, it is EU black and grey market, not legal retail prices that seem reasonable to medical and recreational retail consumers in the U.S., Canada and of course, Holland and Spain. That is not the optic investors need right now, but rather this one: Right now, legal floss (flower) cannabis, prescribed by a doctor and picked up at a pharmacy, clocks in at around $3,000 per month. That entire discussion about sustainable pricing by the way, (also called prenegotiated bulk buy cost by the government) has yet to be really had, although it is clearly on the way. See the German bid.
CBD is not a question that is going to be solved overnight either, even with UN restrictions being lifted. Why? Novel food regulations that will impact most of the business for the next several years until things are more settled at the European level.
Look For Smart, Niche Plays
There are a gazillion ways to lose money but alot of very smart plays too. The smartest approach to invest in Europe? Get to know the territory.Visit. More than once. Understand that staggered investments and strategies are going to be necessary. In other words, where is cash flow going to come from in six months not five years?
And that understanding is not just of the legislative landscape, but a knowledge of a bit of the history too. Don’t think that investors in French wine country (for example) have not already thought about how to partner with foreign cash in prep for a longer term crop that is absolutely coming. Or that Bavarians with wheat fields once bound for beer are not plotting how to get into the cannabis game. They just need some green of the financial kind, and probably from overseas.
However, just setting your eyes on growing is not where the smart money is looking right now. Look for other kinds of plays. Hybrid solutions in other words, that keep you in compliance. Cannatech and distribution will be big here. And above all, look for investments, even at the early stage, with at least logical if not clear paths to market that take into consideration that from the medical (i.e. most valuable) conversation for the immediate to medium term future is longer and slower than most think. CBD discussions are more complicated than they seem to be at first glance. And that sales numbers are the only thing that counts.
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