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Cannabis, a business that arouses all desires

“Firecracker”, “bédo” “cone”… Are the French addicts right to believe in it? Not sure ! Since the legalization of cannabis in Canada on October 17, 2018, and in eleven American states, the millions of joint enthusiasts have dreamed that this wave of liberalization will extend to France. Many already imagine themselves doing their shopping around the corner – without going through a dealer -, like in Colorado (see page 52). But for the moment, the French authorities remain inflexible. No question, in fact, for President Emmanuel Macron to follow in the footsteps of his friend and Canadian Prime Minister Justin Trudeau. Opposed to legalization, the Head of State opted for a fixed fine for consumers of grass in small quantities, without giving up the possibility of criminal prosecution. Gone are the days when François Hollande’s ex-minister wondered, in September 2016, about “efficiency” of the legalization of cannabis on its consumption and its trafficking. “I am not against it but I leave the subject open”he then estimated at the microphone of France Inter.

While Germany and Great Britain have authorized the use of cannabis for therapeutic purposes, the French Medicines Safety Agency (ANSM) has just judged it “relevant”. However, if France is hurrying slowly, the tempo is accelerating in other countries. ” Cannabis regulation has evolved more around the world in the past five years than in the previous three decades.underlined recently Ivana Obradovic, director of the French Observatory of drugs and drug addiction (OFDT). “Faced with political reluctance, the hostility of part of the legal community and the conservatism of the Academy of Medicine, the legalization of cannabis in France could well take ten years! »deplores the jurist and activist of this cause Renaud Colson.

Tax opportunity

According to its supporters, legalization would constitute a miracle remedy against the black market and would also have virtues in terms of public health: while the increase in consumption would be limited, the products put on the market would be less dangerous because they are regulated. But for its opponents, the existence of an official “shit” market would not magically eliminate traffickers and criminality. While it would expose a psychologically fragile fraction of the population to the addictive use of a drug, and its heavy consequences: risk of psychosis, attacks of paranoia, irreversible neuronal damage in people under 25 years old. The debate is not over. There is no doubt that the Canadian experience – a first in a G7 country -, if it is conclusive, could move the lines faster than expected in France and Europe.

The only certainty is that the liberalization of the marijuana trade makes states salivate, who see it as a new source of taxation, and even more so investors around the world. According to estimates from Arcview Market Research and BDS Analytics, the global market could grow two and a half times by 2022 (see graph opposite) to reach $32 billion. Even more optimistic, Eight Capital is counting on 63 billion dollars just for the United States in 2022. In France, cannabis trafficking would represent a turnover of around one billion euros. (see page 50).

No wonder, with such prospects, that everyone is getting into it, even the people! From former boxer Mike Tyson, star leaf grower on his California ranch, to former Israeli Prime Minister Ehud Barak, who turned to medical marijuana, to filmmaker Francis Ford Coppola, founder of the Coppola Cannabis Company, or by rappers Snoop Dogg and Wiz Khalifa, who are jointly developing a cannabis brand in Colorado, the sector is getting very hyped.

As with the Internet in its infancy, start-ups have multiplied at an incredible speed. And the Toronto Stock Exchange now has a hundred jar stocks (listed cannabis companies). Suddenly, the sector has already experienced a speculative surge and suffered a first mini stock market crash in the space of six months. After soaring 40% between August and mid-October, the index investment fund Alternative Harvest dropped 35% in the wake of the official legalization of cannabis in Canada. Tilray, a specialist in medicinal marijuana, meanwhile, saw its market capitalization halve, after jumping 1,100% between mid-July, the date of its IPO, and mid-September 2018.

Structuring in progress

More prosaically, the growth of this business will depend on several parameters. First key factor: the more or less rapid extension of its legalization in the world, and especially in the United States, the world’s leading consumer of weed (grass). Ten US states have taken the plunge and 33 have authorized marijuana for medical use. But legalization at the federal level will be a decisive tipping point. Breaking this lock would allow this industry to have access to bank financing and to compete on equal terms with its Canadian competitors.

Second essential ingredient: the emergence of profitable heavyweights. If the alcohol sector took several decades to concentrate, after the end of prohibition in the United States in 1933, the same movement could take a few years for cannabis. “Two months after legalization, only about ten players share most of the Canadian market, analyzes Mark Whitmore, vice-president of Deloitte Private Canada and co-author of a study on the subject. And this figure should be halved. » In addition, the development of cannabis will have positive consequences on other areas of activity, whether agriculture (agricultural land, industrial real estate and sheds dedicated to its cultivation), e- commerce, marketing, legal professions or finance.

Economic diversification

Third decisive booster: the interest of other sectors for this business, such as the majors of alcohol, tobacco or the pharmaceutical industry (see page 49). Less than three months after its legalization, the substitution effect of cannabis to the detriment of alcoholic beverages is already palpable in Canada. Some wine and spirits heavyweights have anticipated this trend. Constellation Brands, the owner of Corona beer, has already invested $3.8 billion in the Canadian producer of weed Canopy Growth. Just like the Heineken group, which recently launched a soft drink infused with cannabidiol, the non-psychoactive ingredient in cannabis. While the giant Coca-Cola would also consider entering the dance, the French Pernod Ricard is closely monitoring the evolution of the sector (see box opposite).

Finally, the stoner market is a diversification opportunity for the cigarette giants, wishing to impose themselves on the vaping market via cannabis-based products. It is in this perspective that the acquisition by Altria, world number one and holder of the Marlboro brand, of 45% of the Canadian producer Cronos for 1.8 billion euros, in December 2018. In other words, the candidates to dominate the legal marijuana market abound. The war has only just begun.

Planet 13Robert Groesbeck, founder of Planet13 stores. This Las Vegas company is one of the jar stocks, these publicly traded cannabis companies.

SOURCE: ARCVIEW MARKET - RESEARCH/BDS ANALYTICSThe liberalization of the marijuana trade has investors around the world salivating, despite a mini-crash in the sector’s values ​​on the Toronto Stock Exchange in 2018.

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