Published by CityU Student Research & Investment Club Charts & Graphs SINGH Mandeep
Published by CityU Student Research & Investment Club
Charts & Graphs
SINGH Mandeep
Copyright © CityU Student Research & Investment Club 2
THE FINAL PAGE OF THIS REPORT CONTAINS A DETAILED DISCLAIMER
The content and opinions in this report are written by university students from the CityU Student
Research & Investment Club, and thus are for reference only. CityU Student Research &
Investment Club is not responsible for any direct or indirect loss resulting from decisions made
based on this report. The opinions in this report constitute the opinion of the CityU Student
Research & Investment Club and do not constitute the opinion of the City University of Hong
Kong nor any governing or student body or department under the University.
Copyright © CityU Student Research & Investment Club 3
CITY UNIVERSITY STUDENT RESEARCH AND INVESTMENT CLUB
(CURIC) DOES NOT CONDONE THE ILLEGAL USE OF DRUGS, IN
PARTICULAR, THE USE OF CANNABIS FOR ANY PURPOSES. ANY
MENTION OF DRUG USE IN THIS REPORT PERTAINS EXCLUSIVELY
TO LEGAL DRUG USE IN COUNTRIES WHERE LEGAL ADJUSTMENTS
FOR DRUG USE HAVE BEEN MADE.
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Table of Contents
Industry Overview .......................................................................................................................... 5
Introduction ............................................................................................................................................. 5
What is Cannabis?................................................................................................................................... 5
Legal Status .............................................................................................................................................. 6
Key Players ..................................................................................................................................... 8
Segments in the Cannabis Industry............................................................................................. 11
Medical ................................................................................................................................................... 11
Recreational ........................................................................................................................................... 15
Industrial Hemp .................................................................................................................................... 19
CBD Oil .................................................................................................................................................. 21
Supply Chain ................................................................................................................................ 24
Upstream (Producers & Wholesale) .................................................................................................... 24
Midstream (Distribution)...................................................................................................................... 25
Downstream (Retailers) ........................................................................................................................ 25
Investing Opportunity .................................................................................................................. 26
Drivers of Change ........................................................................................................................ 27
Political Factors ..................................................................................................................................... 27
Medical Factors ..................................................................................................................................... 28
Social Factors ......................................................................................................................................... 28
Economic Factors .................................................................................................................................. 29
Challenges .................................................................................................................................... 29
Political ................................................................................................................................................... 29
Economic ................................................................................................................................................ 30
Industrial ................................................................................................................................................ 31
Deals In this Space ....................................................................................................................... 31
Mergers and Acquisitions ..................................................................................................................... 31
Venture Capital ..................................................................................................................................... 32
Copyright © CityU Student Research & Investment Club 5
Industry Overview
Introduction
The Cannabis industry is now one of the most promising and fast-growing industries in the world. Reports
suggest that the global legal marijuana market size was estimated at USD13.8 Billion in 2018 and is
projected to grow at a CAGR of 23.9% to USD66.3 Billion by 2025. Currently, the global Cannabis market
is dominated by the U.S, Canada and several other European countries. Combined, these account for 97%
of the total market size in the world. Data as of 2019 suggests that United States is the undisputed leader in
the world with USD11.1 Billion in sales revenue, followed by Canada with USD1.1 Billion and Europe
with USD700 million.
While the Cannabis market is currently concentrated in a few countries and regions, its consumer base is
expected to broaden with more countries legalizing Cannabis usage in different capacities.
What is Cannabis?
Whilst most people intuitively perceive the term “Cannabis” as the drug, Cannabis is actually a genus of
flowering plants in the family Cannabaceae, which consists of three primary species: Cannabis sativa,
Cannabis indica, and Cannabis ruderalis. The different varieties of products that are known to the public
are derived from these source plants.
Europe
5%
US
80%
Canada
12%
Rest of the
World
3%
Global Legal Cannabis Market Size
Figure 1
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Cannabidiol (CBD) and tetrahydrocannabinol (THC) are two natural compounds found in the plants of the
Cannabis genus. They have very similar chemical structures and provide many similar medical benefits but
are different in psychoactive effects. THC is associated with “high/intoxicating” sensation and euphoric
effects. Therefore, the differences in the concentration level of these two compounds in the Cannabis-
derived products will drastically differentiate their effect, usage and even legality relative to each other.
Different terms are used to classify the Cannabis-derived products that contain different amounts of CBD
and THC. For instance, Hemp is a term used to classify the varieties of Cannabis that contain 0.3% or less
THC content (by dry weight) and the term Marijuana, on the other hand, is used to describe Cannabis with
a THC concentration higher than 0.3%, and is commonly regarded as a controlled substance and still
prohibited in majority of the countries in the world.
Legal Status
So far, more than 23% of the world has legalized the usage of Cannabis at different levels. Among these
countries, 45 have legalized Cannabis for medical use; while only 4, including South Africa, Georgia,
Uruguay and Canada, have legalized Cannabis for recreational use as well.
Region Total countries in
the region
No. of countries
in the region with
legal medical
Cannabis
programmes
No. of countries
in region with
legal recreational
Cannabis
programmes
No. of countries
that
decriminalized
recreational
usage
Africa 54 2 1 0
Asia 48 4 0 1
Americas 35 10 2 14
Europe 44 26 1 13
Oceania 14 3 0 1
Total 195 45 4 29
* The U.S. is not included in the list as Cannabis is illegal at the federal level. However, 33 states have legalized Cannabis for
medical use and 11 have legalized for adult-use, with an additional 15 states with decriminalized Cannabis usage.
Because of different legal status, the usage of Cannabis greatly varies across the world. The industry is just
starting to gain some traction while initiating trends to follow in the future. Even within a country, the
Figure 2
Copyright © CityU Student Research & Investment Club 7
Cannabis policy can be inconsistent among different states or cities. United States, for example, is currently
one of the largest Cannabis markets in the world with 33 out of the 50 states having legalized Cannabis
usage in different capacities, yet it still remains illegal at the federal level.
We believe that it is fair to say that the industry is currently experiencing a legalization trend as more and
more countries begin to legalize or at the very least decriminalize the usage of Cannabis in some or the
other form. However, decriminalized status should not be seen as equivalent to legalized. Decriminalization
is the loosening of criminal penalties imposed for personal use of marijuana, even though the manufacturing
and sale of the substance remain illegal. This means instead of criminal charges; defendants face civil fines.
The constituents of the markets which this report focuses upon, the United States, Canada and several
countries in Europe, are as follows. Out of all, the US has the most users of Cannabis in one form or another,
at 36 million Americans (aged 18 and above.) Following this, the European Union has 16.6 million
individuals using Cannabis. Lastly, Canada has 4.9 million, or 16% of Canadians aged 15 and older (who
have consumed Cannabis in the previous 3 months).
Copyright © CityU Student Research & Investment Club 8
Key Players
Tilray Inc. (TICKER: TLRY)
Market Cap USD 2.19 Bn (06/11/2019)
Stock Price USD 22.43 (06/11/2019)
Revenue 2018 USD 43.1 Mn
Tilray Inc. engages in the research, cultivation, processing, and distribution of medical Cannabis. The
company offers its products to patients, physicians, pharmacies, governments, and hospitals; and for
researchers for commercial purposes, and compassionate access and clinical research applications. It
operates in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New
Zealand, the United Kingdom, the United States, and South Africa. The company was incorporated in 2018
and is headquartered in Nanaimo, Canada.
Canopy Growth Company (TICKER: WEED)
Market Cap USD 6.91 Bn (06/11/2019)
Stock Price USD 19.88 (06/11/2019)
Revenue 2018 USD 139 Mn
Canopy Growth Corporation, together with its subsidiaries, engages in production, distribution, and sale of
Cannabis in Canada. It operates through two segments, Cannabis Operations and Canopy Rivers. The
company's products include dried flowers, oils and concentrates, soft gel capsules, and hemps. It offers
its products under the Tweed, Spectrum, DNA Genetics, CraftGrow, Tokyo Smoke, DOJA, Van der Pop,
and Maitri brands. The company also provides growth capital and a strategic support platform that pursues
investment opportunities in the global Cannabis sector. Canopy Growth Corporation has a clinical research
partnership with NEEKA Health Canada to investigate the efficacy of cannabinoids for the treatment of
post-concussion neurological diseases in former NHL players; partnership with Parent Action on Drugs;
and a collaboration with Cure Pharmaceutical Holding Corp. for the development of low dose cannabidiol
oral thin films. The company was formerly known as Tweed Marijuana Inc. and changed its name to
Copyright © CityU Student Research & Investment Club 9
Canopy Growth Corporation in September 2015. Canopy Growth Corporation is headquartered in Smiths
Falls, Canada.
Aurora Cannabis Inc. (TICKER: ACB)
Market Cap USD 3.87 Bn (06/11/2019)
Stock Price USD 3.76 (06/11/2019)
Revenue 2018 USD 41.9 Mn
Aurora Cannabis Inc. produces and distributes medical Cannabis products. It is vertically integrated and
horizontally diversified across various segments of the Cannabis value chain, including facility engineering
and design, Cannabis breeding, genetics research, production, derivatives, high value-add product
development, home cultivation, wholesale, and retail distribution. The company produces various strains
of dried Cannabis, Cannabis oil and capsules, and topicals kits for medical patients. It also sells vaporizers;
consumable vaporizer accessories, including valves, screens, etc., and herb mills for using CanniMed herbal
Cannabis products, as well as grinders and vaporizer lockable containers. In addition, the company engages
in the development of medical Cannabis products at various stages of development, including oral, topical,
edible, and inhalable products; and operation of CanvasRX, a network of Cannabis counseling and outreach
centers. Furthermore, it provides patient counselling services; design and construction services; and
Cannabis analytical product testing services. As of September 11, 2019, the company had operations in 25
countries across five continents. Aurora Cannabis Inc. is headquartered in Edmonton, Canada.
GW Pharmaceuticals PLC (TICKER: GWPH)
Market Cap USD 4.14 Bn (06/11/2019)
Stock Price USD 134.75 (06/11/2019)
Revenue 2018 USD 13 million
GW Pharmaceuticals plc, a biopharmaceutical company, focuses on discovering, developing, and
commercializing cannabinoid prescription medicines using botanical extracts derived from the Cannabis
plant. Its lead product is Epidiolex – an oral medicine for the treatment of refractory childhood epilepsies,
as well as for the treatment of Dravet syndrome, Lennox-Gastaut syndrome, tuberous sclerosis complex,
and infantile spasms. The company also develops and markets Sativex, an oromucosal spray for the
treatment of spasticity due to multiple sclerosis. In addition, it develops various product candidates for the
treatment of glioblastoma, neonatal hypoxic-ischemic encephalopathy, and schizophrenia. Furthermore, the
company has license and development agreements with Almirall S.A., Bayer HealthCare AG, Ipsen
Copyright © CityU Student Research & Investment Club 10
Biopharm Ltd, and Neopharm Group. It primarily operates in Europe, the United Kingdom, the United
States, Canada, and Asia. GW Pharmaceuticals plc was founded in 1998 and is based in Cambridge, the
United Kingdom. It is also important to note that the revenue for Q2 2019 for GWPH is USD 72Mn. This
result is mainly because of the drive in sales of Epidiolex.
Cronos Group Inc. (TSE: CRON)
Market Cap USD 2.8 Bn (06/11/2019)
Stock Price USD 8.23 (06/11/2019)
Revenue 2018 USD13.02 Mn
Cronos Group Inc., formerly known as PharmaCan Capital Corp., is a principal investment firm. The firm
invests in companies that are either licensed, or actively seeking one, to produce medical marijuana pursuant
to Canada's Marijuana for Medical Purposes Regulations (MMPR). The firm typically invests in companies
based in Canada. The firm, which is primarily an equity investor, may also advance debt as appropriate.
The firm seeks board representation in-line with the size of the investment but does not need control. Cronos
Group Inc. was incorporated in January 2013 and is based in Toronto, Canada.
Copyright © CityU Student Research & Investment Club 11
Segments in the Cannabis Industry
Although Cannabis has existed in mankind's history for over 10,000 years, in the modern era, the major
usage of Cannabis can be broadly divided into 3 categories: Medical, Recreational and Industrial.
Medical
The Global Medical Marijuana market was estimated at approximately USD11.8 Billion in 2017 and is
expected to grow to USD40.9 Billion by the end of 2024 at a CAGR of about 19.4% between 2018 and
2024.
One of the stereotypes associated with consuming Cannabis is that it is solely used for pleasure/recreational
purposes. However, in recent times, Medical Cannabis has been gaining a lot of attention, as a result of
which many pharmaceutical companies are investing into R&D for its usage in treating critical medical
diseases and conditions. Medical Cannabis is usually referring to products containing high CBD content,
which helps in subsiding pain and inflammation, controlling epileptic seizures and possibly even mental
illness and addictions.
Copyright © CityU Student Research & Investment Club 12
All these factors together contribute towards a substantial and quick growth of the CBD Market. The global
CBD market is expected to grow from USD14.54 Billion in 2018 to USD17.35 Billion by 2026 at a CAGR
of 36.3% during the forecast period of 2019-2026.
The United States Market
In 2019, new medical markets including Florida, Maryland, Ohio, Oklahoma and Pennsylvania saw strong
patient demand of medical marijuana, broad lists of qualifying conditions and adequate access to
dispensaries. These factors propelled sales beyond initial expectations.
Two of the most comprehensive medical markets in the nation – California and Michigan – will probably
see precipitous declines in MMJ sales as recreational programs in both states get off the ground. Moreover,
only a few states remain where medical use is not legal including South Dakota, Wisconsin, and Wyoming
– many of whom have expressed little to no concern in changing that.
Figure 3 shows the growth in terms of revenue of the Medical sector in the U.S. over the forecasting period
of 2018 – 2023.
7.1
4.7
6.157.1 7.5 7.65
2018 2019 2020 2021 2022 2023
Tota
l R
etai
l S
ales
($)
Medical Use; US Estimated Sales Figures (in USD Billion)
Figure 3
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The Canadian Market
The Medical Cannabis Market in Canada generated approximately USD450 million in 2018. According to
AllianceGlobalPartners, the whole Canadian Cannabis market is expected to experience a 38% CAGR
growth during the period 2019-25. The estimates assume clinical trials supporting the benefits of the plant
as well as increases insurance coverage.
In Canada, Canopy Growth (TICKER: WEED) is the market leader with 25% of the market share and
approx. 83,000 registered patients. Listed below are the prices per gram of WEED. They also show the
potential of international expansion as the price of the same company in Germany is 47% higher than in
Canada.
0.6
0.7 0.7
0.8 0.8
0.9
2018 2019 2020 2021 2022 2023
Tota
l R
etai
l S
ales
($)
Medical Use: Estimated Canadian Sales Figures (in USD Billion)
Figure 5
Recreational
Only
61%
Medical/
Recreational
23%
Medical
Only
16%
All Cannabis Users
Figure 4
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The European Market
According to a new report, Europe is expected to become the world’s largest market of Cannabis. With a
population more than double that of the US and Canada combined, the region has great potential which is
already starting to show. The industry in the region has grown more in last year (2018) than the last six
combined.
France, the UK, and Spain are reviewing current legislation, while countries considered industry leaders –
Germany, Italy, and the Netherlands – are focusing on expanding their existing medical programmes. The
total number of estimated Cannabis users is 25 Million with ages 15 to 64. Germany has the most extensive
customer base for Cannabis among all EU nations. It is estimated that the medical Cannabis market alone
will be worth USD8.5 Billion. Germany intends to pursue the local cultivation of Cannabis for medical
purposes.
Nevertheless, companies entering this space might need to spend between USD33.1 - USD66.2 million due
to high application fees and exacting requirements. These costs will remain high over the following 1-and-
half years, at least, as supply deficits guarantee strong sales and high market prices for any successful
applicant.
Revealed by a 2016 UN report, England exported 2.1 tons of medical marijuana that year. This accounted
for around 70% of the world’s total legal Cannabis exports while producing 95 tons of this "green gold" for
WEE
D
ACB
21%
TLRY
8%
Canntrust
17%
Others
29%
Canadian Medical Market
6.969.03
13.28
Canada Adult use Canada Medical Germany
3rd Quarter 2019: Price Per Gram
Figure 6 Figure 7
Copyright © CityU Student Research & Investment Club 15
medical and scientific purposes, officially making England the world's largest legal producer and exporter
of medical Cannabis.
On the other hand, Britain’s black-market Cannabis trade is worth USD3.31 Billion per annum, with 255
tons traded to 3 million users in the UK between the 2016/2017 period. From these statistics, the Institute
of Economic Affairs (IEA) has concluded that if Cannabis was legalized, tax revenues alone could exceed
USD1.27 Billion per year.
Interestingly, Portugal is emerging as a top hub for medical Cannabis production and distribution. Aurora
Cannabis and Tilray have invested in production facilities in the country. Tilray CEO, Brendan Kennedy,
highlighted the lower production costs on operating in Portugal in the company's recent Q4 conference call.
Tilray CFO Mark Castaneda said that its Portuguese facility will be used "to meet demand from countries
around the world".
Recreational
Recreational marijuana is also known as adult-use marijuana. It can be purchased, particularly in American
states like Colorado and Washington, by anyone who is at least 21 years old with a valid government-issued
ID from a recreational dispensary. Strict by-laws govern recreational Cannabis pharmacies in contrast to
medical Cannabis pharmacies. Generally, recreational Cannabis strains have higher levels of THC. There
are a number of factors to increase in consumption, and therefore demand of Recreational Cannabis. Some
of which are – elevates mood, reduces anxiety/strain, helps sleep, increases creativity, improves sex life,
etc.
Factors increasing recreational Cannabis Factors decreasing recreational Cannabis
To help relax or sleep Traffic accidents and deaths increase
To reduce stress or anxiety It is addictive
To have fun with friends Emergence of Black Market
To improve mood Increase in medical related emergencies
As an alternative to alcohol Negatively effects brain
To make activities more interesting Increase mental health problems
For specific medical reasons such as acute pain
relief, etc.
hurts businesses by causing preventable accidents
and lost productivity.
To increase creativity or expressiveness Harms the Environment Figure 8
Copyright © CityU Student Research & Investment Club 16
The United States Market
Advocates of legalizing Recreational
Marijuana said that it would boost the
economy by creating employment, free
up scarce police resources, and reduce
or prevent the enormous racial
prejudice in marijuana enforcement.
Moreover, regulating marijuana will
not only break the back of drug cartels
by taking away business from them, but
also lower street crime, and make
marijuana use safer through required
testing, labeling, and child-proof
packaging.
Sale of U.S. retail marijuana is on pace to surge by 35% in 2019. Additionally, sales in mature markets such
as Colorado, Oregon, and Washington state continue to increase, although slowly. By the end of 2019, each
of those states could experience single-digit YOY sales gains – the first time that this would have happened
in a recreational marijuana industry. Nationwide recreational sales are set for a significant increase in the
5.757.75
11.2
14.3517.4
20.05
2018 2019 2020 2021 2022 2023
Tota
l R
etai
l S
ales
($)
Recreational Use; US Estimated Sales Figures (in USD Billion)
Figure 9
Copyright © CityU Student Research & Investment Club 17
coming years, as California and Massachusetts are supposed to hit their strides by 2020, and markets such
as Maine and Michigan are expected to come online.
The above figure shows the growth in terms of revenue of the recreational sector in the U.S. over the
forecasting period of 2018 – 2023. The recreational sector is set to overtake the medical one, both in terms
of YOY growth and revenue. Already, sales revenue generated from medical & recreational sector dominate
the overall revenue generated from the industry. The world's two largest Cannabis markets, the U.S. and
Canada, together contribute about USD11 Billion worth of spending on medical and recreational use of
Cannabis (as of 2018).
The Canadian Market
Reports suggest that the recreational Cannabis market in Canada generated approximately
USD115 million in 2018. As mentioned earlier, the market is expected to experience a 38% CAGR growth
during 2019-25. The estimates assume the availability of novel form factors, and an increase in B&M stores
which will help in better competing with the black market. In the recreational market, Canopy Growth
Company is also the market leader.
0.2
0.8
1.6
2.3
3.1
4
2018 2019 2020 2021 2022 2023
Tota
l R
etai
l S
ales
($)
Recreational Use: Estimated Canadaian Sales Figures (in USD Billion)
Figure 10
Figure 11
Copyright © CityU Student Research & Investment Club 18
The European Market
Whilst recreational Cannabis is illegal in almost every EU country, cities such as Amsterdam and Barcelona
are known for their social clubs and coffee shops. Punishments for marijuana possession and consumption
vary: some EU countries have prison sentences, but others have entirely decriminalized possession of small
amounts (Portugal, Germany and Spain). According to a 2016 World Health Organization survey, France
had the highest number of teenage Cannabis users in the world. To date, more than USD558 million has
been invested in the Cannabis Market as a whole.
The Netherlands is laying the foundation to become the first country in Europe to allow the production of
adult-use (recreational) marijuana. Although initially, the program would be considered an experiment, it
would permit a minimum of six and a maximum of 10 Dutch municipalities to participate.
“Since the beginning of 2018, Germany, Denmark, Malta, Greece, and Italy have all discussed the
possibility of a fully regulated Cannabis market, while Luxembourg has promised to introduce a regulated
adult use market before 2023. By 2028, we estimate the European recreational Cannabis market will be
worth €65 Billion. New products, distribution, and supply channels have further advanced Cannabis
consumption and presence throughout Europe over the last 10 years,” the European Cannabis Report
states.
Meanwhile, an analysis by Deloitte highlights that the legal Marijuana market in Europe could grow to
USD4.3 Billion.
WEED
32%
ACB
18%TLRY
5%
Others
45%
Canadian Recreational Market
Copyright © CityU Student Research & Investment Club 19
Industrial Hemp
Hemp has been regarded as the strongest natural fiber in the world and has over 10,000 years of history
with mankind using it to produce crucial resources such as food, rope, clothing, paper, housing material,
CBD oil and more. Hemp started gaining attention and interest after the passage of the 2018 Farm Bill in
December which removed Hemp
from the Federal Drug
Enforcement Administration’s list
of controlled substances and put it
under the oversight of the U.S.
Department of Agriculture
(USDA).
The global industrial hemp market
is expected to grow from USD4.41
Billion in 2018 to USD14.67
Billion by 2026 at a CAGR of
16.2% during the forecast period
2019-2026. The growth of the industrial hemp sector is very likely stimulated by the increasing application
and demand in industries and the growing legalization of hemp cultivation.
The United States Market
The new rules call for the USDA (United States Department of Agriculture) to award hemp planting licenses
to farmers, but the agency has not yet regulated the process, meaning individual states are still issuing the
licenses. Industrial hemp plantings this year could double from the 78,176 acres seeded in 2018 to 156,352
in 2019, said Eric Steenstra, President of advocacy group ‘Vote Hemp’. U.S. sales of hemp reached USD1.1
Billion in 2018 and are projected to reach USD1.9 Billion by 2022, according to ‘Vote Hemp’ and Hemp
Business Journal, a trade publication.
The Canadian Market
Copyright © CityU Student Research & Investment Club 20
According to the most recent data from Health Canada, 77,800 acres of industrial hemp was planted in 2018
– 30,000 acres (38.5%) in Alberta, 27,100 (35%) in Saskatchewan, and 11,500 acres (15%) in Manitoba.
According to market experts, over 90% of the seed for hemp cultivation is produced and manufactured in
Canada. Hemp seed yields typically reach nearly 1,000 lb./acre on dryland (around 22 bushels/acre on a
44-pound bushel), and up to 3,000 lb./acre on irrigated fields. Certified organic hemp production is a
growing trend, reaching about half of the total output, according to industry estimates. In 2018, Canada
exported approximately 5,400 metric tons (MT) of hemp seed valued at nearly USD50 million. More than
70% of Canada’s export volume went to the United States, followed by South Korea and the European
Union (EU) member countries. Canada has generally imported insignificant amounts of hemp seed under
HS 1207.99. In 2017, Canada imported 726 MT of hemp seed, valued at USD1 million, mostly from the
United States (323 MT), followed by EU countries and China. In September 2018, the federal government
declared an investment of CAD 330,550 (around USD 250,000) for the Canadian Hemp Trade Alliance
(CHTA) to develop industry-wide grading standards so that Canadian hemp products could be known
globally for their quality and consistency.
The European Market
Switzerland is developing an impressive and competitive hemp market. Coop, the Swiss supermarket chain,
now stocks Cannabis cigarettes high in CBD (around 20%). Swiss-brand Heimat, produced by Koch & G
sell AG, launched Cannabis cigarettes in July 2017 to add to their existing range of hemp-infused products
such as iced tea, beer, and food supplement oils.
Alberta
44%
Saskatchewan
39%
Manitoba
17%
Industrial Hemp in Canadian Market
Figure 12
Copyright © CityU Student Research & Investment Club 21
France is the world’s leader in hemp seed production, currently responsible for 59% of the total seeds
globally. The country also dominates the market for use of hemp fiber, accounting for over 50% of hemp-
based pulp and paper production in Europe, even though only 20 specific strains are allowed to be cultivated
legally. While dwarfed by France, Germany’s industrial hemp production is in the top five in Europe.
The Chinese Market
In 2014, the Ministry of Public Security
said it found a large number of unregistered
hemp and marijuana plantations across the
nation, particularly in Jilin and Inner
Mongolia. According to Hanma Industrial
Group Co. Ltd.’s website, half a million
hectares of land were used to grow hemp in
Anhui province, close to Shanghai in
eastern China, in 2014. Other provinces,
excluding Heilongjiang and Yunnan,
accounted for 0.4 million hectares.
China permits the sale of hemp seeds and hemp oil and the use of CBD in cosmetics, but it has not yet
approved cannabidiol for use in food and medicines. So, for now, the bulk of Hempsoul’s product —
roughly two tons a year — is bound for markets overseas.
It is interesting to note that whilst Cannabis is still illegal in China, it is the largest supplier of Hemp in the
world with nearly USD 1.2 Billion in 2018, followed by the United States (USD 1.0 Billion), Europe (USD
980 million) and South and Central America (USD 220 million).
CBD Oil
Cannabidiol, also known as CBD, is extracted from hemp plants and marijuana. It possesses numerous
medical benefits, such as anti-anxiety, anti-inflammatory, etc. It does not contain any intoxicating effects,
and therefore it is best known as non-psychoactive phytocannabinoid.
The Global CBD market is expected to reach USD17.3 Billion by 2026 from USD1.4 Billion in 2018 at a
CAGR of 36.3% during the forecasting period 2019-2026. Adoption of various Cannabis products
China
1.2
USA
1 Europe
0.98
South & Central
America
0.22
Global Hemp Sales in (Billions $USD)
Figure 13
Copyright © CityU Student Research & Investment Club 22
simultaneously with increasing consumer expenditure on Cannabis products, usage of CBD in medical
applications, and significant Research and Development investments in the pharmaceutical industry have
spurred the growth of the industry.
Currently, the CBD market in the US is worth USD3 Billion and is expected to reach USD25 Billion by
2025. As expressed in the graph below, this market has great potential but is currently in the initial
developing stages. Many corporations would be willing to seize this opportunity to either expand their
current base or to enter the US Market (e.g. Canopy Growth Corporation (TICKER: WEED)).
The sales of CBD in the USA are expected to swell fivefold until 2024 because of the spurt of new products
and distribution channels. The most significant determinant of this growth might be a swell in hemp-based
CBD sales via general retail outlets such as CVS and Kroger, plus mass merchants such as Walmart. The
sale of CBD-based Epidiolex* of GW Pharmaceutical accounts for current pharmaceutical channel sales in
the U.S.
* Epidiolex (cannabidiol) is a prescription medicine used to treat seizures in people with Lennox-Gastaut syndrome or Dravet
syndrome.
Analysts at U.S. financial services firm Cowen & Co estimate that products with CBD as an ingredient will
generate USD16 Billion in retail sales for humans and animals in the U.S. by 2025. Companies are also
0.6
1.4
4.4
6.7
9.4
12.6
0.61 1.2
1.51.8
2.2
1.2
2.1
2.8
3.5
4.14.6
5.3
2018 2019 2020 2021 2022 2023 2024
US CBD Sales (Billions($))
General
Retail
Pharmaics
Dispensary
Figure 14
Copyright © CityU Student Research & Investment Club 23
making big bets: Kroger Co, the nation’s largest grocery chain, said that it plans to sell CBD creams, balms
and oils in nearly 1,000 of its stores across 17 states. Unilever Plc’s Ben & Jerry’s ice cream chain said in
a May 30 statement that it planned to debut CBD-infused ice cream flavors, as soon as consuming the oil
is “legalized at the federal level.” In Kentucky, which launched a pilot program for hemp in 2014, farmers
who used to grow tobacco are finding hemp grown for CBD oil to be a profitable alternative with a better
reputation. Farther west, in the U.S. midsection where farmers are more familiar with commodity crops,
like corn and wheat and have been more scarred by the trade war, some see hemp as a rotational crop grown
on a larger scale for seed and fiber, rather than for its labor-intensive CBD oil.
CBD infused products sold through licensed dispensary channels in legal Cannabis states may account for
only about 26% of the category sales in 2024, down from 65% currently, according to BDS Analytics Data.
The graph above shows the sale of CBD Oil in Canada from Oct’18 to Jun’19. The variation experienced
in roughly 10% month on month.
Reports suggest that CBD industry in the UK could be around USD1.28 Billion a year by 2025, which will
be equivalent to the current UK Herbal Supplement industry in size. The German supermarket chain Lidl
began selling low-THC, high-CBD Cannabis products in Switzerland, as alternatives to tobacco, the
Botanicals produced two varieties at the price of USD16.6 for 1.5 grams. This company offers Cannabis
strains produced in automated greenhouses through sustainable agriculture and claims to be completely
organic. Meanwhile, another company, KannaSwiss, has begun selling CBD oil for a rather steep price at
150.18 USD in Switzerland.
4,533
5,1224,968 5,012
4,683
5,064
4,760
5,688
4,686
Cannabis Oil Sales Market in Canada (Liters)
Figure 15
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Although Germany is the most prominent Medical Cannabis market in Europe, the largest European CBD
markets right now are the United Kingdom and Austria. Brightfield Group estimates that by 2023, the CBD
markets in the U.K. and Austria would reach USD440.8 million and USD137.4 million respectively.
Supply Chain
The Cannabis industry can be divided into two main parts: plant touching and ancillary businesses. The
primer refers to cultivations, processing, distributions and retail. The latter refers to companies providing
B2B support for growth, processing and sale of Cannabis products, without actually touching the plant
itself. Examples of such businesses include data platforms, accessory manufacturers, agricultural
technology, legal field, banking solutions, consulting, digital marketing, and infrastructure.
Among all the aspects of the Cannabis industry, the supply chain management appears to be a segment that
people are intrigued about. The following section will give an overview of the supply chain of the Cannabis
industry.
Upstream (Producers & Wholesale)
As Cannabis is essentially an agricultural product, the very first step of the Cannabis production is farming.
The cultivation process of Cannabis can be done either indoor or outdoor, and like any crop, the quality
will be affected by the growing environment and the manner in which it is grown. Companies that invest
heavily in this stage are looking for technologies and proprietary growing methods of growing that can
offer a consistent and dependable harvest schedule that can shorten the time it takes for the Cannabis plant
to mature and at the same time, enhance the quality.
Once the crop is mature, the harvest will be sent to a wholesaler for the drying and trimming process and
then, based on the regulations of different countries and states, these semi-finished products are usually
required to go through a lab test which will provide reporting on cannabinoid potency and the presence of
pesticides and other foreign agents.
Cultivation Harvesting Testing ProcessingSample Testing
Packaging Wholesale
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Then, the dried Cannabis products will be processed and transformed into different types of end products,
including vaporizers, topicals, edibles and more. These finished products will then go through another
sample testing to make sure the products are made from the same original harvest and with the same
constituents. These test results are then associated with that batch in the state’s seed to sale software.
If the finished products can pass the testing, they will go into the final stage before wholesaling to the
distributors, which is the stage focused primarily on the packaging and branding of the products. One thing
to mention is that many ancillary companies are engaging in the production and wholesale support include
packaging, banding, testing, and seed to sale software development.
Midstream (Distribution)
The packaged and branded products will wholesale to different distributors in the market. Since the industry
has just recently turned into a legalized business, it is still new and has not developed a mature reselling
system.
Therefore, at this stage, they are still many forms of Cannabis distributors in the market. The 5 major types
of distribution are as follows:
• Shipping product on behalf of the wholesaler
• Warehousing product on behalf of the wholesaler
• Serving as an external sales team for the wholesaler
• Collecting payments from retailers and moving money on behalf of the wholesaler
• Contract manufacturing of product
As the industry is growing larger and more mature, we believe there will be a consolidation and
simplification of these models in the near future.
Downstream (Retailers)
The legal sources to buy Cannabis at this stage are usually through licensed retailers, often called
dispensaries. Like other retail stores in other industries, these dispensaries will provide different types of
Cannabis products with different qualities in order to cater their customer demographic.
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An important thing to notice is that the retailers are usually required by the law to input their inventory into
a seed to sale software system to ensure the traceability of every unit of product from the moment it was
placed in the soil all the way through to its purchase by a consumer.
Investing Opportunity The cultivation and retail sectors of the Cannabis
industry are by far the most profitable sectors in
the investment circle. While most people are
looking for investment opportunities in the
“plant-touching” companies, firms within the
cultivation and retail sectors appear to be highly
volatile. Some of the big names of the Cannabis
industry engaging in the cultivation and retail
business have been suffering severe loss
recently, including Cronos Group and Green
Thumb Industries, whose stock price has
decreased by 50% over the past six months.
The major factor that lead to the setback of the “plant-touching” companies might be the possible change
in the U.S. federal law of lifting the interstate trade restriction. If the interstate trading restriction is
cancelled, it could shake the supply of the industry due to a free flow of Cannabis supply within the U.S.
As a result, the oversupplied states could quickly flood the market with cheap supply, and companies that
are high-cost growers and in area with less favorable climates for Cannabis growing will be undercut.
Therefore, the prospect for these plant-touching companies is full of uncertainty.
An alternative to the investment into the cultivation and retail companies will be investing into the ancillary
business of the Cannabis industry. Investing into the “non-plant touching” companies will be a safer option,
as their businesses are not directly affected the supply or demand of Cannabis, and they can make profit as
long as there are more players in the industry that they can provide services to.
In addition to the above factors the Cannabis stocks are further very volatile/falling down because of:
1. Shift from Upstream to Downstream
2. Oversupply in Canada (as a result of which price per gram is falling)
Figure 16
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3. Mistrust of Cultivators (Health Canada recently suspended the license of a top Cannabis grower
CannTrust after it was found conducting unlicensed cultivation and giving inaccurate information).
One of the lucrative segments within the Cannabis ancillary sector will be the real estate investing (Canna-
Real Estate). As more and more countries and states are considering legalizing Cannabis, it is foreseeable
that there will be a booming demand for land and property that can be used as a Cannabis cultivation factory.
Investing in a Cannabis real estate trusts is also another option. A major problem that the Cannabis growers
in the U.S. are facing now is that they cannot apply for a regular loan or mortgage to facilitate their business
expansion, as Cannabis is still illegal at the federal level and the banks are still very conservative towards
the industry. The function of these Cannabis real estate trusts is to provide financing solutions to these
growers, usually in a sale and lease-back format, so that the Cannabis company will have free cash flow to
finance their expansion plan. A good example of a profitable Cannabis real estate trust will be Innovative
Industrial Properties (NYSE: IIPR). The company usually makes a rental yield of 15% on these deals
(double the U.S. average for industrial property) and its stock price has gone up by 96% so far in 2019.
Drivers of Change
There are several factors that drive the booming Cannabis industry, such as legalization, shifting of the
consumer base, the economic conditions, etc. All of these factors can be divided into three different aspects,
political, medical, and social.
Political Factors
The legalization of the Cannabis industry helps in reaching the true potential and, thus, can affect the
industry in a major way. Currently, several countries allow legal trading of industrial Cannabis. Legalization
from the government can regulate the industry so that providers have to ensure the quality of the product;
additionally, investments can only be conducted via trusted agencies when there is government intervention.
Sources suggest that “broader legalization and the advent of fresh consumers and consumption missions
will drive the legal market to around 80% of the total, at USD166 Billion in 2025 when legalization is in
place”.
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The legalization of marijuana in the Canadian market has increased the total sales by 10% in just one
quarter. That said, legalization offers stability in the economy for the industry, and hence the investor will
be more convinced and confident about the idea of investing in this industry. Therefore, in terms of politics,
legalization of the Cannabis industry creates a momentum that aids a dramatic increase in the size of the
industry.
Medical Factors
Since 2010, the Cannabis industry was stormed by the innovation of new products; this includes vaping
equipment, different edible products such as olive oil and beverages. There is still extensive research taking
place and products undergoing development and testing stages. If Cannabis-related products are removed
from the Schedule I classification i.e. the drug which is not considered safe and not accepted for medical
use even if used under medical supervision, the medical sector of Cannabis is expected to see a notable
increase. Various breakthroughs in the pharmaceutical development of Cannabis has boosted the growth of
the industry. With ever-evolving medical technology, it was discovered that Cannabis has a good curative
effect on various intractable diseases such as depression, epilepsy, Parkinson's disease, skin disease, and
mental illness.
This status change would allow for rapid adoption across the USA, potentially developing into a more
significant segment of the Cannabis market virtually overnight. Given the 2018 U.S. Farm Bill (ending
hemp prohibition and making hemp a legal commodity in the US), some analysts expect that hemp-related
products, in particular, could be on the rise in 2019 but it’s too soon to tell as the law still categorizes hemp
derived CBD products with less than 0.3% THC as a schedule I drug. Till now, only EPIDIOLEX has been
rescheduled from a Schedule I to a Schedule V drug (FDA-approved drugs that contain CBD derived from
Cannabis and no more than 0.1% THC).
Social Factors
The socially increased acceptance of Cannabis has diversified the consumer base. As more and more people
believe that smoking and alcohol consumption will have a detrimental effect on their health, they are willing
to embrace the newly rising Cannabis industry. Additionally, according to statistics gathered by Deloitte,
over half of the people in the USA believe that recreational Cannabis has the same effect as alcohol; this
reflects that the public will increasingly favor legalization (which can be seen in the US at the moment).
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With globalization, countries can trade freely with one another, and talents in this industry can move around
as well for mutual benefits. With time, it will engrain more and more in the consumers’ daily routines.
Economic Factors
Many factors can influence investment returns, but at a basic level, the business cycle is perhaps the most
important factor driving investment performance. Business naturally booms during cyclical expansions,
and younger, growth-oriented firms and industries often enjoy strong spurts of growth that make their
investments attractive early in these cycles. When the inevitable recession arrives, economically sensitive
investments are most likely to underperform, while defensive investments and those that are sensitive to
falling interest rates have greater potential to outperform. As the Cannabis industry is considered as one of
the latest industries that falls under both recreational and medical, the industry is expected to perform well
during both expansion and recession periods. Medical demand should remain steady throughout the cycle
and recreational demand is expected to grow during expansion periods.
Challenges Even though the industry size has significantly grown over the past few years, different problems can
impede the growth of the industry; these challenges can be divided into several different perspectives,
ranging from political to social factors.
Political
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The difference in legal systems around the globe hinders the development of the industry. In the world,
only Canada and some states in the USA consider marijuana to be legal. That said, it is forbidden to conduct
any business for recreational marijuana in any other part of the world, which could potentially cause more
than half of the revenue loss. Even if other derivatives of Cannabis are available for sales, heterogeneous
legal and financial systems cast difficulties on importing and exporting these products. Moreover, the voice
against the legalization of the Cannabis industry remains a difficulty in the development. The American
Society of Addictive Medicine believes that: “Marijuana is a mood-altering drug capable of producing
dependency. While popularly thought to be a fairly benign ‘drug,’ marijuana can have adverse effects on
memory and learning, perception, behavior and functioning, and on pregnancy.” Since crude marijuana
contains over 60 active cannabinoids, yet few of them are well studied. Marijuana growers often breed their
plants to alter the concentrations of different chemical compounds. For instance, the strength of
tetrahydrocannabinol (THC), the principal psychoactive ingredient, is more than 20-fold more than in
marijuana products used several decades ago. Therefore, given that medical evidence of justifying the use
of marijuana is still lacking, some population believes that there could be a detrimental effect on the users
and hence the legalization of the Cannabis industry.
Even though the cultivation of Cannabis is not a complicated process, just like any agricultural crop, it takes
knowledge and experience to grow the best quality. According to Professor Lester Grinspoon, Emeritus at
Harvard Medical School, author of ‘Marijuana, The Forbidden Medicine,’ the genetic of the seed plays an
indispensable role in determining the quality of the plant. Unfortunately, for an inexperienced grower it is
hard to observe the difference. Moreover, a cultivation license is required to grow Cannabis in different
regions of the world. For instance, in the USA, Pennsylvania, was only granted 13 licenses with a 13 million
population, Florida was granted 7 licenses with over a 20 million population, and Ohio was granted 12 with
only a population of 11 million people according to Forbes. This reflects that the companies fortunate
enough to have one see sky-high values attached to these licenses even before they become operational.
Therefore, the environmental factor can be a challenge to the business as the competition for these limited
permits is extremely fierce, and having a license is extremely crucial to thriving in the Cannabis industry.
Economic
Different laws of economic institutions of the world can also hinder the development of the sector. Different
countries have different restrictions when it comes to trading in the Cannabis industry. To make matters
worse, since the Cannabis industry is often associated with the impressions of underground economy, the
business is unlikely to receive support from the Federal Union, not to mention the soaring taxes as all the
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plant-touching businesses in the U.S. are not allowed to deduct their business expense through tax credits
such as rent and insurances.
Industrial
Looking at the industry, it can be said that even at the early stages, it is very competitive in the established
markets. The barriers of entry are too high at the national level (Capital Expenditure and Paper Work) as
well at the local level (Paper Work, Licenses and other regulations). As much as legal Cannabis is an
interesting market to enter, consumption drivers and regulatory complexity are in line with tobacco
companies. It is also attractive to the tobacco and alcohol industry leaders as an expansion and
diversification plan. Applying for a business license in the Cannabis industry is a complicated, time-
consuming, and expensive procedure especially for a small business owner. Even after bearing all the costs,
the probability of getting a license is very low.
Deals In this Space
Mergers and Acquisitions
2018 and 2019 were both very important years for the Cannabis industry as they witnessed quite a lot of
acquisitions than mergers. Given the current fragmentation of the Cannabis industry, the companies who
are flushed with cash and have access to cheap capital (due to very strong valuations) are on a company-
shopping momentum. Just like motives for other M&A deals, players in this space seek economies of scale,
enter new markets, and expand their current customer share. As legalization comes closer, the size of the
deals started to grow as well.
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This year is already set to experience a 31.7% increase in annual legal Cannabis sales around the globe.
U.S. specifically is on track to a USD13.6 Billion revenue in the Cannabis market.
In addition to the deals stated above, some other mid-cap deals took place in various markets.
• In Sep 2019, Medicine Man Technologies Inc. (OTC: MDCL) purchased several outlets of
‘Starbuds,’ one of Colorado’s largest dispensary chains for USD31 million and stock shares. Later
in the month, MDCL acquired Colorado Harvest Company for USD12.5 million. These events took
place soon after Colorado passed a bill allowing public companies to hold ownership in other
Cannabis Companies.
• In April, Cresco Labs Inc. (OTC: CRLBF) purchased Origin House (OTC: ORHOF) for USD823
million. Because of the acquisition of Origin House’s 500 dispensaries, CRLBF gains a leading
market share and a 60% market penetration.
• Health Harvest and Recreation, Inc. (OTC: HRVSF) is set to acquire Verano Holdings for USD850
million all stock deal. This was the largest deal in the U.S. Cannabis Industry and covers 16 states
and 200 facilities.
Venture Capital
Figure 17
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2018 was the biggest year for VC Financing in the global Cannabis industry. Investors put in around
USD881 million across 139 deals as per PitchBook. That is more than double the amount invested in 2017.
It may come as a surprise that the largest fundraise of the year went not to a company, but to an investor,
‘Privateer Holdings,’ the first PE firm to invest exclusively in Cannabis. It raised USD100 million in Series
C funding.
Some of the top VC Investors in the industry are:
• Altitude Investment Management
• Casa Verde Capital
• Salveo Capital
• Green Acre Capital
• Merida Capital Partners
• Canopy Ventures
100
300
200
400
881
2014 2015 2016 2017 2018
Capital Invested (Million($))
Figure 18
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