Foreign investment in the global cannabis market hit record highs in 2019, thanks largely to a spike in US-bound investment, according to greenfield investment monitor fDi Markets. It reports that, matching this year’s boom in venture capital to the global cannabis market, the industry saw 50 foreign investments valued at $1.8bn in the first nine months of 2019, thereby topping 2018’s total of 28 projects for $614m. 

According to fDi Markets, foreign investment into the global cannabis market was non-existent before 2013, but has grown exponentially since 2016, with the majority of foreign capital going into manufacturing facilities that produce medicinal cannabis. The legalisation of medical or recreational cannabis for use or production across many parts of the Americas in recent years has made the region a driving force in the market and has opened the gates to foreign investment. 

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Canada quick on the draw

Most of 2019’s foreign investment into the legal cannabis sector went to the US – especially the west coast – followed by Colombia, according to fDi Markets. This is unprecedented, since the US witnessed very little of such investment prior to 2019. 

Canada is by far the largest source of greenfield investment in cannabis – through the likes of industry heavyweights Cronos Group and Canopy Growth – followed by the US, reports fDi Markets.

Though Canada has had a first-mover advantage due to federal legalisation of cannabis, the US market has greater potential and opportunity due to its size, according to Steve White, CEO of Harvest Health & Recreation, a US seed-to-sale cannabis company. “Most US multi-state operators have [listed] on public exchanges in Canada. We expect that with the States Act and other national legislative developments, companies will eventually be able to list on US exchanges,” he says.

Gone to pot? 

The legal situation across the global cannabis market could be described as a free-falling free-for-all, creating a high-risk, high-reward situation. “The whole industry is at such an early stage. Most people don’t have an overall perspective on how different jurisdictions compare, and there is a lot of uncertainty. There’s no model, [just] lots of people doing different things, globally speaking. There are many failures and lots of people moving back into the illegal industry,” says Geoff Miller, CEO of Cannafi Group, a Guernsey-based cannabis finance business. 

Banking also remains a major issue for the market globally since medical cannabis is still illegal at a US federal level, meaning federally regulated and insured banks in the US do not fund the industry. “Companies in North America are being banked, by and large, by small ‘mom and pop’ banks,” adds Mr Miller. 

“The vast bulk of the industry in the US is unbanked, despite it being a multi-billion dollar industry. It’s a ridiculous situation, and has a knock-on impact as larger non-US banks who are reluctant to jeopardise dollar access by getting involved in the industry. There are only one or two banks that will consider [discreetly] financing certain companies in the sector, but it’s rather a minefield.”

Subsequently, the legal cannabis industry is being financed almost exclusively by equity. The growth of asset-rich, cash-generative industries such as medical cannabis are usually financed by debt, through which they would make better returns. Cannafi Group is one of the few entities assisting medical cannabis companies with debt-based funding. 

An industry buzz

Big business is moving one step closer to financing the cannabis industry, however, after the Safe Banking Act was passed by the US House of Representatives in September 2019. The bill now needs to be signed off by the Senate and president Donald Trump. 

“There’s a window for it to get passed in the next six months. After that point we get into the election cycle and it becomes very difficult to get through [as] no one wants to do anything too controversial before the election. After the US elections, however, it will get passed,” says Mr Miller. 

About 62% of Americans think the use of marijuana should be legalised, reflecting a steady increase over the past decade, according to Pew Research Center survey in late 2018. “We see greater support from state-elected officials [regarding legalisation]. Many voters understand the potential economic impact, community benefits and job creation potential, but may be unclear on the best way to regulate on a federal level,” says Mr White. “More and more, entities are making a play for early US investment as the potential payout with federal legalisation in the next couple of years places the US in a leadership position for outsized financial returns.” 

The global legal marijuana market is expected to reach roughly $66bn by 2025, with the US market estimated to have the most share, according to a recent report by Grand View Research. 

A new leaf

After the US, Canada and Colombia, China and parts of Europe are welcoming the highest levels of foreign investment in legal marijuana production or development, according to fDi Markets, due to favourable legal changes and consumer demand.

The wider Latin America region also looks set to become a hub for legal cannabis production due to its climate, disposable land and tolerant policies, with Chile, Mexico, Colombia and Argentina at the forefront, according to Pablo Cano Trilla, head legal analyst at ECigIntelligence, a provider of analysis for the e-cigarette and cannabis markets.

The cannabis industry can be divided into three sub-sectors: recreational, medicinal and wellness. Wellness refers to the cannabidiol market (known as ‘CBD’, a predominantly legal product that produces no ‘high’). 

Fresh grass

In Europe, recreational cannabis has mostly not been legalised, while a legal medicinal market exists but is moving slowly (Germany has a medicinal framework). This has created a lot of interest in the continent's nascent CBD market, where there is big consumer demand in the UK, Spain, France and Germany, says Mr Trilla. 

“However, the EU’s Novel food law means that any new food products (including many CBD products) need to be approved through a year-and-a-half-long process. This has slowed investment. I think this problem might disappear in the coming months, if CBD foodstuffs are approved. The UK’s Brexit might free the country from that law,” he adds. 

Further east, China is one of the few Asian countries to have embraced hemp production (hemp comes from the same plant as cannabis, but is non-psychoactive). A fast-growing number of countries are jumping on the bandwagon each year, and thanks to consumer demand and legalisation around the world, foreign investment opportunities are growing at breakneck speed, despite the lack of funding from the US. However, once funding from big business is approved, the market could reach hitherto unseen highs of its own. 

Foreign investment in the global cannabis market hit record highs in 2019, thanks largely to a spike in US-bound investment, according to greenfield investment monitor fDi Markets. It reports that, matching this year’s boom in venture capital to the global cannabis market, the industry saw 50 foreign investments valued at $1.8bn in the first nine months of 2019, thereby topping 2018’s total of 28 projects for $614m. 

According to fDi Markets, foreign investment into the global cannabis market was non-existent before 2013, but has grown exponentially since 2016, with the majority of foreign capital going into manufacturing facilities that produce medicinal cannabis. The legalisation of medical or recreational cannabis for use or production across many parts of the Americas in recent years has made the region a driving force in the market and has opened the gates to foreign investment. 

Canada quick on the draw

Most of 2019’s foreign investment into the legal cannabis sector went to the US – especially the west coast – followed by Colombia, according to fDi Markets. This is unprecedented, since the US witnessed very little of such investment prior to 2019. 

Canada is by far the largest source of greenfield investment in cannabis – through the likes of industry heavyweights Cronos Group and Canopy Growth – followed by the US, reports fDi Markets.

Though Canada has had a first-mover advantage due to federal legalisation of cannabis, the US market has greater potential and opportunity due to its size, according to Steve White, CEO of Harvest Health & Recreation, a US seed-to-sale cannabis company. “Most US multi-state operators have [listed] on public exchanges in Canada. We expect that with the States Act and other national legislative developments, companies will eventually be able to list on US exchanges,” he says.

Gone to pot? 

The legal situation across the global cannabis market could be described as a free-falling free-for-all, creating a high-risk, high-reward situation. “The whole industry is at such an early stage. Most people don’t have an overall perspective on how different jurisdictions compare, and there is a lot of uncertainty. There’s no model, [just] lots of people doing different things, globally speaking. There are many failures and lots of people moving back into the illegal industry,” says Geoff Miller, CEO of Cannafi Group, a Guernsey-based cannabis finance business. 

Banking also remains a major issue for the market globally since medical cannabis is still illegal at a US federal level, meaning federally regulated and insured banks in the US do not fund the industry. “Companies in North America are being banked, by and large, by small ‘mom and pop’ banks,” adds Mr Miller. 

“The vast bulk of the industry in the US is unbanked, despite it being a multi-billion dollar industry. It’s a ridiculous situation, and has a knock-on impact as larger non-US banks who are reluctant to jeopardise dollar access by getting involved in the industry. There are only one or two banks that will consider [discreetly] financing certain companies in the sector, but it’s rather a minefield.”

Subsequently, the legal cannabis industry is being financed almost exclusively by equity. The growth of asset-rich, cash-generative industries such as medical cannabis are usually financed by debt, through which they would make better returns. Cannafi Group is one of the few entities assisting medical cannabis companies with debt-based funding. 

An industry buzz

Big business is moving one step closer to financing the cannabis industry, however, after the Safe Banking Act was passed by the US House of Representatives in September 2019. The bill now needs to be signed off by the Senate and president Donald Trump. 

“There’s a window for it to get passed in the next six months. After that point we get into the election cycle and it becomes very difficult to get through [as] no one wants to do anything too controversial before the election. After the US elections, however, it will get passed,” says Mr Miller. 

About 62% of Americans think the use of marijuana should be legalised, reflecting a steady increase over the past decade, according to Pew Research Center survey in late 2018. “We see greater support from state-elected officials [regarding legalisation]. Many voters understand the potential economic impact, community benefits and job creation potential, but may be unclear on the best way to regulate on a federal level,” says Mr White. “More and more, entities are making a play for early US investment as the potential payout with federal legalisation in the next couple of years places the US in a leadership position for outsized financial returns.” 

The global legal marijuana market is expected to reach roughly $66bn by 2025, with the US market estimated to have the most share, according to a recent report by Grand View Research. 

A new leaf

After the US, Canada and Colombia, China and parts of Europe are welcoming the highest levels of foreign investment in legal marijuana production or development, according to fDi Markets, due to favourable legal changes and consumer demand.

The wider Latin America region also looks set to become a hub for legal cannabis production due to its climate, disposable land and tolerant policies, with Chile, Mexico, Colombia and Argentina at the forefront, according to Pablo Cano Trilla, head legal analyst at ECigIntelligence, a provider of analysis for the e-cigarette and cannabis markets.

The cannabis industry can be divided into three sub-sectors: recreational, medicinal and wellness. Wellness refers to the cannabidiol market (known as ‘CBD’, a predominantly legal product that produces no ‘high’). 

Fresh grass

In Europe, recreational cannabis has mostly not been legalised, while a legal medicinal market exists but is moving slowly (Germany has a medicinal framework). This has created a lot of interest in the continent's nascent CBD market, where there is big consumer demand in the UK, Spain, France and Germany, says Mr Trilla. 

“However, the EU’s Novel food law means that any new food products (including many CBD products) need to be approved through a year-and-a-half-long process. This has slowed investment. I think this problem might disappear in the coming months, if CBD foodstuffs are approved. The UK’s Brexit might free the country from that law,” he adds. 

Further east, China is one of the few Asian countries to have embraced hemp production (hemp comes from the same plant as cannabis, but is non-psychoactive). A fast-growing number of countries are jumping on the bandwagon each year, and thanks to consumer demand and legalisation around the world, foreign investment opportunities are growing at breakneck speed, despite the lack of funding from the US. However, once funding from big business is approved, the market could reach hitherto unseen highs of its own.