Pin-insights
The nascent cannabis industry is seen by some investors as the not-to-be missed, once-in-a-lifetime opportunity
Start-ups committed to large investments are happy to oblige
Federal legislation is expected to evolve, as medical cannabinoid applications become attractive, and evolving social behavior more pressing
But this hardly suggests that the responsabilities of the FDA to guarantee safe access to a regulated substance should be ignored
Normally long delays for formal approval will only get longer while the industry consolidates, develops reliable supply chains and expands capacity to meet mass demand
This conservative stance may prove over-cautious but it cannot be a bad thing to weigh over-hyped investment opportunities against regulatory - and market - realities
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Following the legalization of cannabis at federal level in Canada in June 2018, investors focused their attention on the US where many states have approved either medical use or recreational use
Approval of medical cannabis use is widespread around the world, notably in Europe (while still prohibited in Spain, France, Belgium, Sweden and most of Eastern Europe) and in 33 US States
But vastly diverging regulatory frameworks weigh on market potential, heavy-handed in Italy (a 2018 sales est. of $7 milliion) or in California, light-footed in Germany (a 2018 sales est. of $263 million)
Recreational use however is very significantly restricted worldwide – with legalization in only 2 countries – Canada and Uruguay
This is where American legalization at state level (not federal level) stands out, with approval in 10 States, including the West Coast (incl. Alaska and Nevada), Michigan and 3 East Coast States (Vermont, Maine and Massachusetts)
While marijuana is classified by federal law as a highly restricted Schedule 1 substance, the Obama administration choose not to intervene in states that had legalized marijuana
The Trump administration has taken the same route, giving up on the original intention to enforce federal restriction, after heavy lobbying
Evolving federal legislation is widely expected to devolve the power to regulate to the States, in a singular convergence of left leaning liberals and an active minority of Republican Senators
But the health risks of over-consumption may hold back some of the more determined lobbying efforts
Marijuana, use and abuse
A 2017 review of medical research from the the National Academies of Sciences, Engineering, and Medicine put down some markers
As summarized in a Vox article, the report outlined
- “substantial evidence” in favor of marijuana for treating chronic pain, probably a decisive factor in light of the opioid painkiller epidemic, and to improve patient-reported multiple sclerosis spasticity symptoms
- as well as “conclusive evidence” that marijuana is effective for treating chemotherapy-induced nausea and vomiting
Coupled with the findings on pain, this suggests that marijuana really is a potent treatment for cancer patients in particular, who can suffer from debilitating pain and severe nausea as a result of their illness
But the report also finds “substantial evidence” of marijuana’s negative effects for a few conditions
- for long-term marijuana smokers, a risk of worse respiratory symptoms and more frequent chronic bronchitis episodes
- for pregnant women, a risk of lower birth weight for the baby
- for marijuana users in general, a greater risk of developing schizophrenia and other psychoses
- and there’s a link between marijuana use and increased risk of car crashes
While the report emphasized the need for further research, the effect of marijuana consumption is not entirely bland, flagging
- the risk of dependence - the need for repeated doses of the drug to feel good or to avoid feeling bad
- and the effect on young people given that their brains are still developing up until the age of 25
- cannabis affects the brain's frontal cortex, which is responsible for judgment and decision-making
- the Canadian Paediatric Society states the area changes rapidly in adolescence and is more vulnerable to damage from THC, the main psychoactive component of the marijuana plant
A regulatory minefield
Going mainstream, the nascent cannabis industry has to secure a reliable supply chain
The issues range from guaranteed product availability (by long-term contracts) to credible medical research to monitoring distribution networks
All of which takes time ... and any of which may disrupt legal availability, not precluding the as-yet unknown consequences of industry consolidation
But investments, running into $100 millions, are still being committed, seeming to take impending overhaul of the law on trust
It is true political support has been gaining momentum, following legal approval for medical and recretional use in Canada (Oct. '18)
But the legal and regulatory environment remains uncertain, certainly more so than the latest start-ups like to suggest
The regulatory process of turning a free-wheeling fringe activity into a U.S. Food and Drug Administration (FDA) regulated industry could, in our (non-expert) opinion, be painful
- the costs, extensive clinical research and test procedures, familiar to the healtcare industry, are indicative of probable developments
Under the FDA’s purview, established state markets for legal cannabis will come under review and there is hardly any doubt that fairly liberal state regulations, adopted with little medical oversight, will be rolled back by regulators erring on the side of prudence
The reasons to anticipate such an outcome are inescapable
- the long-term effects of cannabis consumption have not been fully evaluated
- the medical applications, still under-researched, remain partially a matter of conjecture
- state regulations run the whole gamut of loosely defined requirements - making the strictest state rules (such as implemented in California) a likely blue-print for a federal framework
The cannabis industry is backing federal legislation leaving regulatory responsabliity to the states, but this outcome, supported by the most liberal states (such as Colorado), remains improbable
Our follow-up review of the strategic options explored by cannabis firms may offer some guidelines to ponder by prospective investors