THE cannabis industry is entering a new phase – Cannabis 3.0 – which will see an end to prohibition and a shift to cannabis being treated as an ingredient not the product itself.
This, combined with the arrival of the major Consumer Packaged Goods (CPG) companies and executives, will shift the focus to delivering the data required to support growth.
And, this is now providing a ‘once in a generation wealth opportunity’ for investors, delegates to the Global Cannabis Intelligence Virtual Summit, heard.
Cannabis 1.0, the emergence of a legal cannabis industry in North America, over the last decade, leaves a legacy ‘poorly-run companies’ and out-of- pocket investors, said Owen Bennett, of Jefferies Financial Group.
When Money Was Cheap
In a session entitled: ‘Capital Markets Outlook & What We Need To See For More Institutional Investment’ he estimated the global industry being worth somewhere between $50bn and $140bn by the end of the decade.
He said that while some see cannabis as a bubble, similar to Bitcoin, he believes it is more apt to relate it to the growth of the tech sector.
He said: “Following the Dotcom boom and bust technology stocks have grown steadily, and this is what will happen with cannabis. In fact what is more exciting with cannabis is that the market already exists – in the illicit sector – and this was not the case with tech.”
Cannabis needs greater institutional investment to support its growth, however, some sector-specific issues need to be resolved before this happens.
“One of the issues in the cannabis space is the existence of many companies that should not be around. They created a business when money was easy and many of these did not have a proper business model. Simply saying they were cannabis, allowed them to get retail money.”
He went on to say many early management teams were good at raising money but not running CPG businesses.
Generational Wealth Opportunity
“Very few are now making money and this creates risks for the institutions investing in the space.”
With the capital markets currently tight for cannabis many under-pressure firms are now turning to the debt markets at ‘unfavourable terms’.
“This will see the some businesses go bankrupt and clear the way for the entry of better companies,” he said.
Jeffries foresees two years of consistent sales growth and profitability and this improving picture will attract more CPG companies and similarly deliver greater confidence on execution to the institutions.
“The biggest boost to the institutions is legislation and with the US Elections there has been a great shift in this direction, providing a generational wealth opportunity,” he concluded.
An Ingredient Not The Product
This theme was taken up by Narbe Alexandrian, of Canopy Rivers, in a session entitled: The Path to Cannabis 3.0.
Cannabis 2.0 was the launch of cannabis derivates such as edibles in Canada last year following initial legalisation in 2018.
Mr Alexandrian said: “The end of cannabis prohibition across multiple geographies will open up the industry to R&D and financial activities such as banking and insurance which we take for granted in other industries.”
A second key theme is evolution of cannabis as an ingredient, not as end product in itself.
He said: “Many companies are building cannabis products as the be-all and end-all, however cannabis, the cannabinoids the terpenes are merely an ingredient in what you are trying to create.
“Instead of creating a cannabis product that is good for sleep why not create a sleep product that includes cannabinoids and other ingredients so you can hit the pain points of what consumers are looking for?”
His third key takeaway was the arrival of the CPG businesses and established brands start to secure a foothold in the marketplace.
One further development will be the increasing reliance on data to support the industry’s growth.
He added: “There is a lack of data with the roll out of cannabis 3.0, data will proliferate and the companies with first access to this will be the ones to lead the way.”
