In recent months we have witnessed tremendous progress across the global cannabis industry. Despite the multitude of challenges presented by the COVID-19 pandemic, the industrial hemp, and commercial cannabis sectors have thrived over the past 12 months. This has been reflected in policy and market developments that have set the table for fruitful growth in the international cannabis sector. Now, we’ll explore some of the recent developments seen in the last quarter and what they mean for industry movers and shakers in the emerging cannabis markets in 2021.
First things first, on December 2nd, 2020, the organization at the highest level of intergovernmental and global policy – the United Nations – voted to remove cannabis for medicinal purposes from Schedule IV of the 1961 Single Convention on Narcotic Drugs. It’s no secret that many countries are facing an economic downturn as a result of the COVID-19 pandemic. This move to adopt cannabis reform measures from the United Nations could not have come at a more critical time for global economic development and the opening of new market sectors.
The global cannabis industry promises to be extremely fast-growing. As we have seen here in the United States, on both the commercial cannabis and industrial hemp sides, the industry is a job creator and generates desperately needed new tax revenue streams. To highlight this point, the State of Colorado experienced the highest sales revenues for adult-use cannabis last year since legalization occurred in 2012. This shift in global policy from the United Nation represents a seismic shift toward the further opening and institutional support of the international cannabis market and clears a path for the continued growth of the industry worldwide.
Next, we saw Mexico move toward legalizing the world’s largest market for legal cannabis. This would likely happen after November, as lawmakers may postpone the debate on a landmark bill that would decriminalize cannabis, citing inconsistencies that require further discussion. When this comes to fruition, Mexico will boast the largest country in the world, by population, to legalize cannabis nationally. Mexico has a consumer market of more than 125 million people and has just established rules and regulations that will allow for the creation of the country’s medical cannabis infrastructure. Mexico’s cannabis reform effectively sandwiches the United States between two nations with federally legalized cannabis.
While Mexico’s progress represents an enormous leap forward for the developing global marketplace and emerging cannabis markets in 2021, it may also put pressure on the Biden administration and the legislative branch of the U.S. government to address federal cannabis reform sooner rather than later.
This brings us to a historic vote by the United States House of Representatives to pass the Cannabis Opportunity, Reinvestment and Expungement (MORE) Act. While the U.S. Senate is unlikely to pass the Act in its present form, this piece of legislation will have huge consequences going forward. The MORE Act presents a very promising foundation and bright future for the commercial cannabis industry in the United States of America, while focusing especially on matters of social equity and racial justice which are aspects of the history of cannabis prohibition in the U.S. that must be addressed.
Alongside federal legislation, we also saw five states enact cannabis reform measures in the 2020 election – New Jersey, Arizona, Montana, South Dakota, and Mississippi. License procurement will be vitally important for businesses interested in establishing a presence in these emerging cannabis markets in 2021. GPS is offering license procurement consulting services to trailblazers looking to strategically grow their operations in these newly opened jurisdictions.
Additionally, cannabis stocks have performed well since the inauguration of President Joe Biden. At the beginning of February, Senate Majority Leader Chuck Schumer joined with other Senators in a commitment to make federal cannabis reform a priority. Nevertheless, moving legislation through Congress relating to cannabis reform will take time. In the short term, we may see elements of the SAFE Banking Act – a piece of legislation that would make banking resources available to cannabusinesses, while also opening the cannabis market up to institutional investment- come into law.
As suspected, increased M&A activity is expected in the cannabis sector. In the past month, Ireland-based Jazz Pharmaceuticals moved to acquire UK-based GW Pharmaceuticals for $7.2 billion in cash and stock. GW Pharmaceuticals was the first company to receive FDA approval for a cannabinoid-based therapy, Epidiolex. In recent years, Epidiolex sales have hit approximately $510 million.
On January 15th, 2020, the U.S. Department of Agriculture (USDA) released the long-awaited final rule on domestic hemp production. While we are still waiting for the Food and Drug Administration’s policy on hemp-derived cannabinoids, the final rule from USDA provides concrete regulations on the cultivation, sampling, and testing of industrial hemp in the United States. The 300-page rule took into consideration public comments submitted by stakeholders over the last 18 months and sets the table for the 2021 production season and beyond. One of the advantages to having crystallized regulations is that it provides more assurance on the export of plant material to international markets. This of course is essential to fostering the continued growth of a global industry. More than likely, 2021 holds additional regulatory progress in the U.S. and abroad that will help mobilize capital investment and governmental support, all necessary ingredients to propel the cannabis industry forward.
The recent momentum we’ve seen in the industry opens bountiful new opportunities for those businesses, countries, and entrepreneurs who want to position themselves for future success in this uncharted territory. What keeps many on the sidelines is uncertainty, particularly with respect to domestic and international regulations. With the collective experience of our firm’s leaders, we are able to bring black and white to a grey world. We are here to guide you and provide you with the context necessary to navigate the emerging cannabis markets in 2021.