December 18th, 2020
Conor O’Brien | Alex Khourdaji
Lawrence Purkiss | George Brown
1. The Impact of COVID-19
The COVID-19 pandemic has had a profound impact on the global economy as lockdown measures, and economic uncertainty caused many companies, including those in the cannabis industry, to downsize and re-evaluate strategies. However, COVID-19 undoubtedly raises opportunities for the cannabis industry at large.
Countries which are seeking to recover financially in the aftermath of the pandemic will be seeking new sources of taxable revenue, which medical and adult-use cannabis could offer. The profile of cannabis as a therapeutic has also been raised in the context of COVID. At least 16 groups are actively researching the use of cannabinoids for fighting COVID-induced symptoms.
The boost to cannabis research provided by these projects will undoubtedly continue into 2021 and even outlast the pandemic. Furthermore, the fact that cannabis dispensaries were deemed essential services in regions like the Netherlands, Illinois and Quebec at the outset of the pandemic further cements the importance of these medicines for patients and users.
CBD consumption increased as many consumers with increased awareness of their health sought help to treat COVID-19 induced anxieties. In 2021 it is expected that purchases for CBD products will increase as consumers take advantage of increasingly accessible CBD products.
As lockdown restrictions continue, many states in the US approved medical cannabis patients to use telemedicine services to consult their doctors regarding their prescriptions. This led to companies including MGC Pharmaceuticals, Pure Global Cannabis and Ehave acquiring telemedicine companies in 2020.
In 2021 one can expect cannabis companies to continue to operate with telemedicine companies as patients seek easier and efficient forms of access to their medicines. Additionally, the lockdown measures had a huge positive impact on the sales of legal adult-use cannabis in North America due to many consumers and non-consumers experimenting with cannabis to deal with boredom, anxiety and stress caused by the pandemic.
This trend is likely to continue in 2021 as many will use legal adult-use cannabis while bars, restaurants and other entertainment services remain closed.
2. The Federal Legalisation Question
The US presidential election in November 2020 was a momentous event for the cannabis industry not only did all cannabis legalisation ballots pass in all five states (Mississippi, South Dakota, New Jersey, Arizona and Montana) but democratic leaders Joe Biden and Senator Kamala Harris were elected into the White House. Both the president and vice president-elect have indicated an interest in tackling federal cannabis reform in the country during their term in office.
During his 2020 campaign, Joe Biden proposed to decriminalise cannabis use and reschedule cannabis from a Schedule I to a Schedule II narcotic. Kamala Harris has a more progressive stance, being a co-sponsor of the MORE Act that seeks to remove cannabis from the Controlled Substances Act and imposes a 5% tax on all cannabis products which will be used to serve communities impacted by the ‘War on Drugs’.
The US House of Representatives passed the MORE Act on 4 December 2020 and the bill now awaits a decision in the Senate but will most likely have to be voted in the House again in next year’s session. Depending on the outcomes of Georgia Senate elections the US has to wait and see if the Republicans will hold the majority power in the Senate.
With a Republican majority, the bill most likely will not pass. Although the issue is politically charged, and there is a strong majority of the US public who support federal legalisation of cannabis. The US is also seeing cannabis legalisation initiatives in states such as New York, Rhode Island, North Carolina and Virginia. In the context of this growing public approval from all parts of the political spectrum supporting some form of federal cannabis legalisation, it can be expected that in 2021 progress of federal reform in the US will be considerable.
3. The Next Wave of CBD Regulation in Europe
Following the European Court of Justice verdict on CBD, we’ve already seen the European Commission take action to realign its position on the substance. This has resulted in the EU recommencing the frozen CBD Novel Food marketing authorisation applications.We now expect EU member states to follow the line of the ECJ decision and regulate CBD as a legitimate product within the relevant industries.
This event also comes in the wake of the UN vote to reschedule cannabis as a whole into a less dangerous category.
Coinciding with GW Pharma’s rollout of the CBD medical product Epidiolex across EU states, it will be interesting to see how the cannabinoid will be regulated simultaneously as both a pharmaceutical product, and an over-the-counter wellness & health product. We expect the industry around CBD to boom in 2021, and we are already seeing significant interest in consultancy projects on this front which reflects this.
4. The Global Medical Cannabis Export Arms Race
The race to supply the growing demand of the European medical cannabis market is well and truly on. Once dominated by Canadian and Dutch exports, in the past year or so we’ve seen Portugal become a major supplier, as well as smaller export successes from the likes of Spain, Australia and Israel. Whether Uruguayan non-GMP exports are a flash in the pan, or a feature of the European cannabis industry going forward is uncertain.
If they remain the South American exports will have a serious impact on the shape of the supply chain, however, we do expect European regulators to restrict imports of this kind at some stage in the future. Regulatory obstacles and quality restrictions pose barriers to would-be suppliers in several countries within Europe, as well as outside.
Next year we expect to see Spanish exports grow substantially, with significant quantities coming from the likes of Israel or Colombia if they can navigate domestic export regulations and the high production standards required by European recipients.
5. Market Streamlining
To date, cannabis companies have been leveraging large investments to power ambitious strategies that would see them dominate the global cannabis markets. This has enabled an overreach of early industry players who have attempted to tap all emerging markets in all geographies at once.
Throughout 2020, we have seen major groups redesigning their global strategies with the most obvious effect being cutbacks of staff, reshuffling of leadership and the closure of facilities. For example, in 2020 Canopy closed cultivation facilities in Africa, South America and all outdoor production in Canada.
Investors are increasingly wary of blue-sky thinking in the groups they support and are now asking for clear strategies with a roadmap to short to mid-term profits. 2021 will see a continuation of this trend, with companies refocusing their market positions in order to maximise revenues in the more immediately lucrative markets of North America.
6. Dronabinol Markets On The Rise
The European dronabinol industry continues to attract the attention of major players in global cannabis. Once dominated by subsidiaries of Canopy Growth; 2020 saw Breath of Life Pharma, Cantourage, Tilray and now Echo Pharmaceuticals entering the fray.
In 2021 we expect to see the dynamics of the market for dronabinol shift in Europe, with prices driven down by competition. Many up-and-coming players focused on extraction have included dronabinol in their prospective product portfolios, so next year could see even more new players vying to supply the rising market, focused in Germany, Austria, Denmark and Switzerland. The increasingly competitive landscape for dronabinol in Europe is not limited to dronabinol.
Many companies have now overcome regulatory hurdles in producing medical cannabis for the EU. Competition now dictates that those companies with focused strategies for tapping the existing markets e.g. via specialisation or through local contacts and sales relationships will be key in deciding who prevails in the mid to long term.
7. An Opportunity in Brexit?
While some are occupied with the implications of fishing rights and competition rules, many in the cannabis industry hope for a greener UK. In 2020 the EU was still deliberating whether to classify CBD as a narcotic, pausing all Novel Food applications for CBD companies.
In the same year the UK’s Food Standards Agency classified CBD as a novel food granting UK CBD companies a head start compared to their European competitors. Despite the considerable uncertainties which will arise from the new trade relations with Europe; the UK also has an opportunity to develop their own line on the regulation of cannabis and CBD.
This advantage gives the UK the time to develop a strong cannabinoid market with potential world-leading companies. We may also see fewer restrictions on medical cannabis trade deals between cannabis cultivators and producers in North/South America’s and the UK. As of September 2020, the UK’s Financial Conduct Authority permitted international and national medical cannabis companies to list on the London Stock Exchange.
Given this, we expect more medical cannabis companies to enter and list in the UK market and drive the industry further in 2021. The success of GW Pharmaceuticals’s Epidiolex in earning $100’s of millions from exports stands as a shining example to the potential for medical cannabis companies in the UK.
8. The Rise of Minor Cannabinoids
As countries slowly begin to legalise adult-use and medical cannabis, research on phytocannabinoids and the endocannabinoid system has seen a significant rise. The majority of the research solely focuses on the two phytocannabinoids THC and CBD however there has been a growing interest in the other minor cannabinoids that can be found in cannabis.
Currently, it is estimated that there are over 120 cannabinoids and more than 150 terpenes in cannabis with many experts believing there are more to be found. CBN and CBG are two of the minor cannabinoids that have gained popularity recently as researchers have found them to have potential therapeutic properties.
Early evidence shows CBN may have properties including appetite stimulation, anti-convulsant, antibiotic, cancer-fighting, sedative, pain reliever and anti-inflammatory effects. CBG is also known as the stem cell cannabinoid, is suggested to exhibit anti-inflammatory, antimicrobial, neuroprotective and antibiotic effects.
The suggested therapeutic effects of minor cannabinoids have caused CBD producers and brands to include minor cannabinoids into their product portfolio in a way of standing out from the crowd. As research on minor cannabinoid develops it is predicted that this will be a growing trend in 2021 as product differentiation and innovation becomes more important in a highly competitive market.
9. Momentum in Latin American
Latin American cannabis and hemp markets are going to be in the spotlight in 2021. While Brazil is expecting Congress to vote on law PL399 in early 2021, which if approved would represent a new major cultivation player, Mexico will vote a law to potentially become the largest adult-use market this decade.
Peru and Ecuador, receiving foreign investment, will develop supply chains looking to enter the market in 2022 while access to patients improves. In Argentina, law 27.350, recently approved, should be regulated and the industry could bring much needed economic fuel.
The Paraguayan hemp industry is set for expansion with strong government support, while the region pioneers Uruguay and Colombia are expected to gain more GMPs and achieve more record exportations, gaining international momentum. Across Latin America, with a focus in Brazil and Colombia, we will see patients number growth exponentially, helped by the increasing role that patient associations and specialized clinics are playing.
10. Cannabis Legalisation Marching On
Many regions outside of North America and Western Europe are now participating in the global march towards legalisation. In the Balkans, North Macedonia’s government is considering legalising adult-use cannabis to boost tourism to stimulate the economy. The government of Barbados is also including cannabis legalisation as part of their plan to accelerate the financial recovery of the country.
Considering the current state of affairs, countries such as Barbados and those in the Balkans desperately need additional sources of income to drive their economies. The UN’s decision to reschedule cannabis late in 2020 is certainly helping the cause. Further afield, more and more African countries (Zimbabwe, Malawi, Zambia, Ghana) have started cultivating medical cannabis and industrial hemp. Since profits have been healthy so far, and demand is high, it is possible we may see even more countries in Africa developing their own cannabis industries in 2021.
What Do You Want to See in 2021?
Our team has been busy planning an industry-leading content schedule for 2021 and we’re excited to deliver another set of reports which will help the cannabis industry move forward and develop over the next 12 months.
However, we’re eager to understand what you are most interested in seeing from our team next year.
We would like to invite you to fill out this short form, telling us what you would like us to work on in 2021 and be in with the opportunity to win a free version of The Pharmaceutical Cannabis Report (RRP £825).
