Here’s why legal weed could be a bad thing for Aussie pot stocks
Investors in the ASX’s burgeoning cannabis sector might think the Greens plan to legalise dope in Australia is the best news they’ve heard all year.
But legalising recreational pot could smother the local medical marijuana industry just as it’s sparking into existence says a local expert.
LeafCann chief Elisabetta Faenza says the Green’s proposal could drive money out of research and into high-volume production — just when the medical cannabis industry needs cash to get off the ground.
In Canada — which has a much more mature industry and is expected to legalise recreational use this year — licensed producers are sinking huge sums into new growing facilities to cater to anticipated recreational demand.
The Greens say their plan would remove the drug from illegal dealers and place it in the hands of an agency that would be the sole wholesaler of cannabis.
But Ms Faenza says medical and recreational pot are different beasts — as each largely focuses on different elements of the plant.
“A recreational product is usually [to induce] euphoria and that needs high THC and low or no CBD [the non-intoxicating ingredient with potential health benefits].
“Novelty is important in recreational whereas standardisation is important for medical cannabis.”
Industry executives spoken to by Stockhead believe the Greens have a long road ahead.
Peter Crock who heads up ASX-listed cannabis play Cann Group (ASX:CAN) believes legalisation in Australia is five to ten years away.
“It’s a case of having it on the top of the agenda both with the community and politically,” he said.
(Although he also says five years ago he didn’t think he’d be able to get medical cannabis through Parliament by now.)
The Canadian picture
All eyes are on Canada, where recreational cannabis is expected to be legalised in mid-September.
For Australia to follow the Canadian lead, much will depend on the impact on UN drug conventions, how Canada manages people using marijuana for fun, and how it impacts on medical cannabis.
Lana Culley, a director of Canadian cannabis lab tester Anandia Labs, says producers started with facilities 20,000-40,000 square feet and now they’re building facilities in the realm of 1 million square feet.
But she also says recreational use is expected to allow better and easier research into how marijuana affects people.
Ms Culley told Stockhead that Canada now supplies about 3 to 5 per cent of the total expected demand after legalisation.
Early details proposed by the Australian Greens look similar to the model currently going through the Canadian Senate, she said
Canada now has 101 licensed producers. There are about 500 applications in the pipeline and Anandia expects the number of growers to to out around 300.
The industry, worth $5.7 billion now, is expected to grow to $8.7 billion by 2024 and demand is conservatively estimated at 650,000kg.
A new set of licences will be issued and reflect the way alcohol is regulated in Canada.
And testing for pesticides will be mandatory. Ms Culley says most marijuana in Canada is inhaled and little is know how pesticides affect people when it’s ingested that way, compared to ingested on the surface of a strawberry.
Fines of $1 million can be levied for products that don’t comply.
Breaking the law
Once Canada legalises recreational use, they will be in direct contravention of three UN conventions prohibiting the production, possession and consumption of drugs.
At worst it could see countries impose sanctions on Canada, drag it into the International Court of Justice to bring them back in line with other signatories, or cause restrictions on Canadian pot companies trading internationally.
This is a serious consideration for Australia is its medical poppy industry is the biggest legal supplier in the world, accounting for 80 per cent of global supply in 2015.
If Australia was in breach of those treaties it would put not just the nascent cannabis industry at risk, but the established poppy industry as well.