The Investor's Guide to Marijuana – Part 1

The Cannabis world is a crazy one. Not only is it growing fast, but it's evolving faster. You've likely read about it in the newspaper, heard a mate talking about it, or watched some of your colleagues follow it at work. It seems so exciting and seems to be such a massive opportunity, yet it all feels so random and foreign.

  • Isn't weed illegal?
  • Is this just a bubble?
  • Haven't all the gains been made already?
  • How does the whole industry even work?

These are some of the questions I had at the start of my investing journey and I wish someone had written the following for me. It's your A-Z of the Cannabis Industry. The history, the plant, the medicinal benefits, the recreational market potential, the current political climate and of course, how the industry itself actually works.

Before moving forward, let's take a step back. In Part 1 I am going to give you a brief history of the plant and how it ended up being illegal (it wasn't always). Then I will walk you through what medicinal marijuana is and the benefits to the human body efficacy based results are proving.

A history

Cannabis has been used for over 3000 years as a medicinal product in some way, shape or form. And it's first cousin Hemp was also widely used in a variety of products such as clothing, rope and oils.  By the mid-1800's, Cannabis in the form of tinctures is common in American pharmacies. However, the widespread availability of aspirin by 1900 effectively ends the market for them.

 A Kentucky hemp farmer - circa 1920.

A Kentucky hemp farmer – circa 1920.

During the early 1900's many Mexicans started migrating across the border and into the US. They brought with them the "marijuana" plant – and large amounts of it.  By the early 1930's the press begins to link the drug with crime and the Mexican immigrants. Often fuelled by anti-Mexican sentiment, states began to outlaw the drug. California being the first (the irony of this will be clearer a little later on). By 1937, the Federal government had outlawed marijuana pushing the growth of the industry, and it's sales, underground.

Then in 1970, the US Drug Administration upgrades Cannabis to a Schedule 1 drug. To put this in perspective, Cocaine is a Schedule 2 drug and Heroine is a Schedule 1 drug. In the eyes of the drug administration, smoking a joint was as dangerous as taking a hit of Heroine with a needle.

Given its Scheduled status, it was very difficult for scientists and doctors to get their hands on the plant for research purposes. However in Israel in the early 1990's the government allowed for the production and cultivation of Cannabis for the purposes of scientific research.

In California in 1991, the first Marijuana dispensary – the Cannabis Buyer's Club – opens in San Francisco.  A big part of this was to provide marijuana to the AIDS sufferers.

In 1996, Proposition 215 passes, making California the first state to legalise medicinal marijuana (clearer on the irony now?) The wheel had, as they say, come full circle. In 2016 Colorado became the first state to legalise marijuana for adult recreational use. In 2018, California legalised marijuana for adult recreational use, and Massachusetts is set to go recreationally legal on 1 July. And in the late North American summer, Canada will become the first G-7 nation to legalise marijuana for adult recreational use at the federal level.

The tide is turning. I honestly believe the tipping point has been reached. It is not a matter of if anymore. It is simply a matter of when.  A mother of a 6-year-old girl in the UK is driving attention for the legalisation of marijuana for medicinal use.  The mother currently acquires the product on the black market. The reduction in the number of seizures this little girl has per day is noticeable – and that is a massive euphemism.  Germany, Denmark, Spain and Italy are there, and the rest of the EU is a formality. Like I said, "not if, but when."

Medicinal versus Recreational

A lot of people are under the impression that taking marijuana for medicinal purposes will also get you high. It's one of the reasons people are so polarised on the issue. Before breaking down the two – let's consider the marijuana plant itself.

Often, people are confused between the terms cannabis and marijuana. Cannabis is a category for a plant species that includes both hemp and marijuana. For a lot of people, the best way to think about cannabis is with an analogy: hemp and marijuana are to cannabis as lemons and oranges are to citrus. Two related but different plants, from the same "family."

Marijuana is broken out into two major strains: Cannabis indica and Cannabis sativa. These taxonomical classifications, established in the 18th century after scientists recorded differences in the strains' structure and resin production, vary in appearance, flowering time, yields, and flavour.

Many cannabis users and professionals within the medical marijuana industry allege that the two strains distinctly vary in the types of primary effects and symptom relief they offer a user. Indica strains, it's commonly accepted, tend to induce physically sedating, relaxing, and full-body calming effects, while Sativa strains are thought to produce an uplifting, energetic and cerebral reaction.

In general, patients managing chronic pain, muscle spasms, multiple sclerosis, nausea and fibromyalgia prefer the full-body effects of indica. Sativa's uplifting effects are often a better option for patients experiencing fatigue, ADHD, depression, or other types of mood disorders.

Bottom line – there is a market for both, especially when referring to medicinal marijuana.

Medicinal Marijuana

When people speak about medical marijuana, they're talking about using the whole unprocessed plant or the chemicals contained within it to alleviate the symptoms of certain conditions or diseases. And it's all about the Cannabinoids (pronounced canna-bi-noids)

Cannabinoids (referred to as CBD)are chemical compounds found in the cannabis sativa plant. Cannabinoids actively bind to special receptors on your cells located on what is known as your endocannabinoid system.

Basically, this is a huge network of cell receptor proteins that have a vast array of functions. Some receptors are found within your central nervous system, whereas others are found in other places, such as your reproductive organs, skin and digestive tract.

This endocannabinoid system is responsible for controlling your mood, appetite, sleep, immune response, movement and importantly how your body regulates pain. What is known is CBD seems to stop the breaking down, in the brain, of a chemical that affects mental function, mood and pain.

Recreational marijuana is marijuana that is used without medical justification. Recreational marijuana usually has a high tetrahydrocannabinol (THC) content as this is what provides users with their "high."  It should be noted however that THC to has great medicinal benefit.

This is the biggest market for marijuana in the world. Whereas it is shown that approximately 3-4% of the population will use marijuana for medicinal purposes, it is estimated that about 25% of the population would use it for recreational purposes.  Adult Access they call it.

 The Human Endocannabinoid System. The Human Endocannabinoid System.

What is medical marijuana used for?

Medicinal marijuana has been shown to treat, and have an impact on, following conditions:

  • Appetite loss
  • Alzheimer's disease
  • Crohn's disease
  • Cancer
  • Eating disorders
  • Mental health conditions
  • Glaucoma
  • Muscle spasms
  • Multiple sclerosis
  • Pain, and
  • Nausea

Although it's currently not yet proven to help some of these conditions, marijuana is known to reduce chronic pain, vomiting and nausea as a result of chemotherapy. Medicinal marijuana is what will drive the global acceptance and legalisation of cannabis. This is, without doubt, the medicinal find of our generation (think Penicillin for a previous generation). The stigma will dissipate with more efficacy based results.

GW Pharmaceuticals (listed in the NYSE) and in The Green Fund) will hear in late June this year whether the FDA approve their epilepsy drug – Epidiolex – and with it grant them a 7-year global patent period (Orphan status).

A massive first step for the industry. Look for big Pharma to enter soon after. Either organically or through acquisition – and yes, GW Pharmaceuticals would be a massive target. With a current market cap of only $3.5bn, this would be a drop in the ocean for the likes of GSK ($220bn) and Novartis ($200bn).

This is the Green Fund's focus – the medicinal industry. Just as developments and innovation in Formula 1 eventually make their way to the road car industry, so medicinal will pass down to the recreational market. Most of the companies in our fund have a medicinal focus, with the upside of a recreational business model.

And that's it for Part 1. In Part 2 I go through the size of the global market. You have no idea how big this is going to be.

And they told you money doesn't grow on trees.

This could be one of the best investing opportunities of 2020

Legislative changes are blowing through the US, and with it, an ever-increasing number of states legalising cannabis for recreational use.

With the success seen in Illinois, which legalised for adult-use on January 1 and saw products moving off the shelf at an unprecedented rate, this company is primed to take advantage of the booming US recreational market.

They have secured partnerships with the biggest cannabis companies in the US, and their portfolio is second to none.

And with the sector-wide pullback of 2019, this company is now at a bargain-basement price.

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Mark Bernberg
Mark Bernberg

Mark Bernberg is a long-time cannabis investing enthusiast and founder of The Green Fund, Asia Pacific's preeminent media house, positioned at the forefront of the global cannabis industry.