No one could have predicted the events of 2020. It has been, in a word, unprecedented. In recent years, reputable data firms have published projections on the trajectory and tremendous growth potential of the global cannabis market. However, given the events of 2020 and the resulting global economic downturn, many of these firms will have to reassess their projections.
Yet, cannabis seems to be resilient. Further, the economic stimulus that cannabis offers seems to provide a solution to the uncertain, and indeed, uncharted waters we now find ourselves in. This is simply put, because cannabis services countless industries, simultaneously offering a renewable, plant-based alternative to many petroleum-based goods that sustain our “Consumer Packaged Good (CPG) World.”
Before we examine further, let me clarify that the word cannabis refers to both psychoactive marijuana and non-psychoactive industrial hemp. These are legal distinctions that carry enormous weight and stigma both in the United States and abroad. While there is a patchwork of laws governing commercial marijuana and industrial hemp around the planet, there is also a global supply chain that is becoming stronger year-over-year. This global supply chain is informed by consumer behavior and in an effort to keep our finger on the pulse of cannabis as an emerging global commodity, let’s briefly consider the latest policy updates, consumer trends, and underlying forces that are driving this international marketplace.
Five states are voting on cannabis reform in the 2020 U.S. election. Nearly half of the country now has some form of commercial, regulated marijuana, and a green wave this year (or a new presidential administration) could very well further push momentum closer to nationwide cannabis reform. Additionally, banking legislation is currently sitting in Congress that could open the resources of the U.S. banking system up to cannabis industry operators – a move that some have speculated would be the floodgate moment for international and institutional investment to flow into the industry like we have never seen before.
Despite that some would qualify hemp as “overhyped,” industrial hemp as a new agricultural commodity in the United States is showing tremendous promise. While the hemp-derived cannabinoid sector certainly became crowded and burdened with the issue of oversupply, the potential for the industrial uses of the crop – what the Congressional Research Service estimated was upward of 25,000 uses – is just now becoming realized. This year, for the first time since hemp was re-legalized in 2014, U.S. hemp acreage decreased. Without context this can appear discouraging, but it is a sign of progress. More than 75% of hemp produced over the past five years in the U.S. has been for cannabinoids, and mostly for a single cannabinoid – CBD. As previously mentioned, this caused the market to crash. Now, as more and more fiber and grain processors spring up across the country, traditional row crop farmers are showing interest in hemp. This year, acreage produced for grain and fiber increased. This is very exciting and indicates a trend that is reflective of the myriad of downstream, sustainable products consumers are demanding that can be made from hemp – plastics, food, clothing, paper, and building materials – just to name a few.
Across the pond, the European Parliament has just voted in favor of increasing the allowable THC threshold for industrial hemp from 0.2% to 0.3%. While Europe has an strong, robust market for hemp grain and fiber, the 0.2% THC threshold has been a barrier for CBD producers. This has driven a reliance on imported CBD from Canada, the U.S. and Latin America. While also advancing the field of pharmaceutical-grade cannabis medicines like Epidiolex, which was developed by UK-based GW Pharmaceuticals. From a genetics perspective, for years European plant breeders have developed high-yielding grain and fiber varieties, while cannabinoid-rich cultivars are hard to come by. Anticipate an influx of high producing cannabinoid genetics into the European market in the months and years to come.
Latin America is one of the largest international markets. In recent months, and in some part due to the economic stimulus offered by the plant, promising cannabis policy has opened new markets in Latin America. Ecuador has just recently legalized low-THC cannabis. This is causing entrepreneurs to consider the possibilities hemp offers as an alternative to other costly crops in multiple industry verticals. An example is hemp grain as a cost-effective alternative to corn for the country’s booming shrimp farming industry.
In addition, Costa Rica has recently legalized hemp farming and processing. Some are now speculating that Argentina may have hemp legislation in place by the end of the year. Yet, it’s Mexico that will be fascinating to watch over the next 12 to 18 months. With legislation moving swiftly through the Mexican Senate allowing for hemp production, paired with the country’s strong agricultural and manufacturing sectors, possibilities abound.
In Africa there is an abundance of interest even though there are fewer policy updates to share. The protein-rich grain that hemp produces could be hugely impactful for a continent where food insecurity is a pressing issue. Recently, the Zimbabwean government published a legal framework for cannabis production, including industrial hemp. Only government sanctioned varieties may be cultivated, but other cultivars may be considered for research and development. China is the dominant world leader in hemp textiles. Yet, now the country is quickly moving toward the CBD sector. This is no doubt in response to the global market that has erupted for CBD consumer goods. CBD is strictly regulated by Chinese authorities. Currently, only cosmetics products are allowed on the domestic retail market, but it’s likely the consumer demand will drive progressive policy reform in the near future.
The largest opportunity for businesses and countries to participate in the global cannabis industry is to identify how to marry cannabis into core competencies. This is not only the case from a policy perspective, but this is how to avoid either a) the bottleneck and price crash we’ve seen in the United States and b) the need for large scale capital investment to foster growth. By examining a nation’s leading commodities, the existing infrastructure to foster those industries, and the standardized controls and processes that govern the international trade of those goods, we can more easily answer the question of, “how do I fit into the global cannabis industry?”