Is marijuana a medicine, a vice, or a good investment?

By Larissa Fernand |  30-08-19 | 

Illinois recently became the 11th state in the U.S. to legalise marijuana for recreational use. This has made it quite a subject in investing circles.

Kristoffer Inton, director of equity research - basic materials, for Morningstar, believes that the size of the current global medicinal cannabis market (excluding the U.S. and Canada) is at $3.7 billion. He forecasts total market potential of nearly $43 billion by 2030.

He also believes that most of the growth in the industry will be from the recreational side, not medicinal. “I think that the number of addressable users, the potential people that would potentially consume recreational cannabis is far larger than the medical population that would consider using cannabis. And so, I think that even though that your typical recreational user probably consumes cannabis with less intensity than a medical consumer would, there's just far, far more people in the recreational market,” he said in a recent interaction.

Which brings the ethical issue into play. No longer is it just “the business of business is business”, to quote Milton Friedman. Many investors will not invest in cannabis due to a mismatch with personal values. After all, the industry is built around a drug with a cloudy net societal benefit at best, after all.

On the one hand, it is beneficial as it is used to treat a range of conditions from epilepsy to migraine. It’s use for pain relief is especially helpful to cancer patients. The counterview is that it's a vice similar to alcohol or tobacco. Having said that, do note that with tobacco there’s a lot of consensus that tobacco is not safe in any amount.

Inton believes that neither view can be disregarded, and the answer probably is somewhere in-between.

Andrew Willis at Morningstar Canada tackled the question: Is cannabis an ESG-friendly holding?

Far from the stereotypically simple “weed”, “grass”, or “pot” label, this plant has a potential treasure trove of biological benefits beneath the microscope. “There are 100 to 120 cannabinoids in a given plant, all working together,” Susan Murch, a professor at the University of British Columbia and federally designated Canada Research Chair, says.

There are positive ways plant chemistry affects human health, Murch says, citing plant-derived melatonin and St John’s wort and their effects she’s observed on sleep, circadian rhythms, and neurological disorders. In fact, there around 30,000 distinct chemicals found in plants, making up 78%-90% of modern medicines.

Following the removal of regulatory hurdles around cannabis research, Murch is applying more than 25 years of experience researching plant chemistry and its effects on human health towards the discovery of “poly-molecular drugs” that could supplement or be a substitute for relatively simple single-molecule drugs currently on offer.

Teaming up with Pacific Rim Brands to investigate the development of cannabis-infused beverages, she’s seeking what she believes is the necessary responsible route to cannabinoid consumables.

“It needs to be consistent and stable,” says Murch, unsatisfied with the crude, unpredictable, and unproven concoctions of cannabis edibles and drinks currently on offer. Mulling the idea of a new medicine that makes the most of the plant’s potential, she states that, “This is going to require some really solid science—and will require significant resources and time [up to two years],” to get right.

Murch had been approached by many companies to help formulate a dependable dosing of cannabis consumables, but she appreciated Pacific Rim’s patient and careful approach, as well as its commitment to safety.

Kevin Letun, chief executive at Pacific Rim Brands, says consumer trust is paramount when it comes to cannabis consumables. “We’re taking a bottom-up approach—limited marketing, branding and advertising until we get the dosage and safety right.”

“Cannabis has a data problem,” says Letun, and someone needs to validate the loosely applied claims of benefits on cannabis product packaging to date. He echoes Murch’s optimism around the potential societal benefits of the plant, citing that it’s not hard to highlight the relative safety of cannabis in comparison to alcohol from a recreational perspective.

From a medicinal perspective, both Letun and Murch remain optimistic about the prospects of complex cannabis offering improved treatment of ailments from pain to neurological disorders.

“Companies have made a lot of money, but have they solved the problems of patients?” asks Murch, “The long-term use of opioids [to treat pain] present issues and they become less effective over time.” She adds that doctors are more comfortable with absolutes, and although the drugs currently on offer come from only 100-150 years of research around western medicine, they’re simple and standardized enough to garner physician confidence.

In Comes CBD

Synthesise it if you want the near-term confidence of the medical community, says Eden Rahim, portfolio manager of the Next Edge Bio-Tech Plus Fund at Next Edge Capital. He adds, don’t be fooled by the major cannabis companies dabbling in extracts in the hope of a medical application, saying, “There are just a lot of farmers out there.”

According to Rahim, there are already decades of research around the medical efficacy of non-psychoactive cannabinoid CBD or cannabidiol, and trials happening now for the treatment of ailments from pain to muscle spasticity.

“Health Canada prefers pure compounds,” says Rahim. “The minute you reach 10 [parts per million] of THC [the psychoactive cannabinoid tetrahydrocannabinol], you get a black box warning on your product.” Responsible investors may want to avoid the dreaded black box.

From an ESG investment perspective, Rahim is more comfortable investing in Canadian CBD “pioneers and scientists” with extensive biosynthesis and clinical experience under their belts to ensure purity and efficacy.

Rahim also points out that if you’re using an ESG-oriented approach to investment, you might want to consider the carbon footprint of organically derived cannabis compounds versus synthetic compounds. “What’s the carbon footprint of all these fields?”

Rahim says investors should be ready for a “total disruption” from CBD in the biopharma space as investment ramps up and clinical research results begin to flow following a major head start. He sees game-changing commercial clinical applications for THC coming much later.


Mark Noble, senior vice president, ETF Strategy at Horizons ETFs, known for its wide-reaching portfolio of cannabis exchange-traded fund products, says that “nobody knows the impact that the industry is going to have on the environment, social, and governance practices.” Among the ailments that cannabinoid researchers hope to treat, the public health benefit, demand, and opioid crisis make pain relief a priority and potentially massive ESG-compatible profit driver. It remains “the holy grail” for the medical marijuana industry, says Noble.

Noble suggests investors focused on environmental, social, and governance practices should evaluate opportunities on a “case by case” basis and use a screen for stocks that goes beyond minimum thresholds for responsible corporate behaviour.

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