A study analysing the tension between legal cannabis and the financial industry in California has suggested that for each new cannabis manufacturing or retail license, bank assets and loan capacity grew by tens of thousands of dollars.
The study analysis showed that assets held by financial institutions in counties that legalised cannabis increased from 2015 to 2020 by almost $750m (£554.98m). Loan activity also rose by about $500m.
Despite this, it also underlines the need for evidence-based policy – as misaligned regulations lead to stifling businesses that could otherwise flourish.
The study, carried out by researchers at the University of California, Davis, Ohio State University and University of California Cooperative Extension, analysed data used from bank and credit union calls, as well as interviews with cultivators and bankers.
The study has been published in the journal Agricultural Finance Review.
Legal cannabis benefits the financial industry
The analysis demonstrates how cannabis and finance co-exist in California, where cannabis is legal, and suggests regulatory changes could create new opportunities for both industries.
As a Schedule 1 drug in America under the Controlled Substances Act, working with cannabis-related businesses in the state can be risky business for banks, as it is still a crime at the federal level. And for cannabis businesses in California, this difficulty in finding banking services means a large number of them are forced to work with cash.
This means unlicensed, illegal growing and exporting continues as an enormous cash-based sector of the industry.
The authors highlighted that interviews with financial institutions indicated there has been little appetite among banks to associate with the legal cannabis industry, suggesting that the benefits to financial institutions in California are presumed to be from spillover effects.
Margaret Jodlowski, assistant professor of agricultural, environmental and development economics at Ohio State, commented: “It’s important to remember when talking about loans that it’s not possible to identify whether they were for cannabis operations, and they’re probably not based on what we heard from stakeholders.
“It’s more of a general relationship. The bank is doing better, and they’re able to lend out more in general and earn more interest from loans.”
Lead study author Zoë Plakias, assistant professor of agricultural, environmental and development economics at The Ohio State University highlights that a better understanding of the economics of cannabis is needed so that the impacts of policy choices are intentional.
“If we want to have a more equitable society and allow communities to keep more of the value of this crop, how do we do that? We first need to characterise what happens in communities when you legalise cannabis,” commented Plakias.
“Licensed cannabis businesses need to bank their cash and take out loans to build their businesses, but many banks worry that by doing business with the cannabis industry, they’ll be flouting federal laws,” added Taylor, University of California Cooperative Extension community development specialist.
“Banks that won’t accept legal cannabis cash deposits and don’t provide loans aren’t monetising their deposits. Marginalised cannabis communities are missing out on capital.”
Plakias said: “This suggests that a lot of the economic benefits of legalisation come from other stages of the supply chain – and it’s not a foregone conclusion that farmers benefit from legalisation.
“There’s a need to think about how farmers who are producing cannabis in the legal market, often operating in rural environments with a weaker economic base to start with, can be supported in the context of economic development.”
The need for evidence-based policies
The authors highlighted that bankers reported being hamstrung by ambiguous federal guidelines that pose a real risk to financing cannabis, largely because banks are required to report suspicious transactions to the federal government.
“What’s consistent across all financial institutions is that it’s very costly, and does involve taking on some risk, to be in compliance with all of the guidelines – the risk being that even if you follow all guidelines to the letter, there’s no assurance that you can’t still get in trouble,” Plakias said.
Jodlowski said: “There is a lot of evidence that cash can be better for a local economy because cash tends to stay local – but we are now a credit-based economy.”
“In this day and age it’s incredibly harmful for local economic development to have an entire sector that’s denied access to credit, because so much of developing as a household, or individual, or industry requires credit and requires demonstration of credit-worthiness.
“That’s a fundamental harm of these sorts of restrictions.”
“It’s clear we need policies making cannabis banking and finance more equitable,” Taylor said.
“It’s also clear that ‘Ma and Pa’ enterprises need to associate together in formal organisations so they can achieve economies of scale and harness their political power to endure the transition to legal.”
Jodlowski concluded: “Our findings speak to confusion around existing policies and the need for streamlining, clarifying and having a more unified approach to regulating this industry.”
A vision for cannabis tourism in the UK
Cannabis tourism in the UK could look much like Scotch Whisky tourism, says the All Party Parliamentary Group for CBD.
Cannabis Wealth joined Tenacious Labs and the All Party Parliamentary Group (APPG) for CBD Products on a tour of Dewar’s Aberfeldy Distillery in Scotland to find out how cannabis could create a thriving economic sector, and what cannabis tourism could look like in the UK.
As the UK fleshes out its approach to cannabis, the UK’s APPG for CBD is encouraging the government to establish a solid industry sooner rather than later. The group is highlighting that a fully established cannabis industry in the UK could create thousands of jobs and millions for the UK economy as it attempts to bounce back from the economic harms of Brexit and the Covid-19 pandemic.
Nicholas Morland, CEO of Tenacious Labs and Chair of the Secretariat to APPG for CBD, has penned a manifesto, highlighting that the global turnover of the Scotch industry is £69bn as of 2021, and that the UK’s share of this is £5.5bn. It notes that the industry supports around 42,000 permanent high-value jobs, “the vast majority in rural areas and often employing people who prefer not to move away from hometowns or continue into higher education.”
The APPG for CBD has highlighted that, much like the Scotch Whisky industry, the UK could benefit from a home-grown cannabis industry that prides itself on premium products.
Morland states in his manifesto: “The UK is lucky to be in a peculiarly strong position to become the global powerhouse if the political will is there to provide the right framework to introduce clear, balanced, inclusive processes for legislation and regulation regarding updating POCA [Proceeds of Crime Act], consumer protection, quality standards, appropriate definitions and limits, research and development, banking, agriculture, insurance, London Stock Exchange listings and more.”
Cannabis tourism in the UK
The Scotch Whisky Association highlights that 2019 saw 2.2 million visits to Scotch Whisky distilleries, making the industry the third most popular tourist attraction in Scotland. The combination of tours, visitor centres and cafes draws tourists from around the UK and the world, spending an average of £38 per head, and the Association says that many distilleries believe that Brexit has given tourism a boost.
The APPG for CBD says that cannabis has higher economic potential than the Scotch Whisky industry, and that cannabis tourism could similarly reflect its set up. Tours of production sites with visitor centres, cafes and gift shops would generate a large amount of revenue as well as long-term careers as with the Scotch Whisky industry, that can see employees remain in the sector for up to 20 years.
Marika Graham-Woods, executive director of the Cannabis Trades Association and member of the APPG, commented: “By visiting Dewars, we were given the chance to see things from a different perspective and how it might apply to the cannabis industry. This opportunity could outweigh the risks following any overhaul of the outdated Misuse of Drugs Act 1971 and related licensing of hemp growing.
“The legitimate industrial hemp sector is currently impeded by draconian, convoluted, and unsubstantiated laws which are not fit for purpose in today’s society. The history of cannabis and hemp in the UK spans beyond the length of its prohibition.
“By using proven marketing models such as the Scotch whisky and associated distilleries, the development of a regulated cannabis tourism industry would provide a further boost to the British economy.
“Visitor centres, tours, associated shops and in future, dispensaries, at these sites could demonstrate the benefits of cannabis – industrially, environmentally, as a food, and as a medicine are widely known. This could form a part of the historic and educational aspect of visits, increasing awareness to the wider general public, not just to proponents and patients.
“With the high costs involved in production of premium products, this has great potential to set the British Isles as the forerunner of a worldwide cannabis tourism market.”
However, tourism is not the only benefit to such sites. Currently, Jersey has been steaming ahead with establishing cannabis as a budding industry on the island. It recently made changes to its Proceeds of Crime law which will now enable companies to do business in cannabis as long as it is legal in the country where it is taking place. The island has also established a new Cannabis Advisory Board which is working to advise and inform the government.
Charlie Gallichan of the Jersey Farmers Union (also of Trinity Craft), who joined the tour, highlighted that Jersey wants to add cannabis to the island’s cash crops, such as its famous agricultural products – milk and potatoes. Hemp farms could provide a valuable crop for farmers when other crops fail, and a number of farmers in Scotland are already beginning to explore the possibility of adding hemp to their repertoire.
Getting regulation right
In order for the industry to mature and prosper, regulation has to be right, says the APPG.
In a letter to George Freeman MP, Parliamentary Under Secretary of State in the Department for Business, Energy and Industrial Strategy, MP Crispin Blunt, co-chair of the APPG for CBD, alongside Baroness Manzoor, states that the industry is “crying out for clear and practical regulation.”
Blunt stated: “Getting CBD product regulation right is an opportunity to create thousands of jobs, draw in millions of pounds of investment and build on our international bioscience reputation, whilst simultaneously creating a safe consumer market which enables consumer choice.”
On the Dewar’s tour, Adrian Clarke, chief commercial officer at Tenacious Labs, highlights that regulations, such as those similar to units on alcohol products, should be introduced in order to move forward with regulation and bolster consumer safety.
Clarke commented: “Cannabis is going through the same process as post-prohibition alcohol. We already have the template for balancing legitimate consumer choice within the parameters set by essential consumer protection.
“Given the UK has an immediate opportunity to set the inevitable new standards, we also have the opportunity to define the premium space. The political decision is between prohibition and economic benefits, and then all the relevant parties, including the medical world, can finally be allowed to provide the right parameters.
“The result being that consumers will reliably be able to regulate their own consumption and will become increasingly discerning over time – challenging us to come up with ever more premium quality products.”
This vision for cannabis tourism in the UK could manifest at a rapid rate if the correct regulations are implemented. A number of countries in Europe are beginning to take a progressive approach to cannabis regulation, and whilst the UK is currently leading the pack in the regulation of CBD products, current regulatory processes such as Novel Foods applications are, in some industry members’ views, potentially quashing the industry before it can flourish.
Morland states in the manifesto: “In short, this is the time for government to actively drive a new cycle of growth, investment and jobs with some simple, immediate and informed decisions. Yet the route legislation is currently taking outlaws all cannabis production, except isolate.
“Bluntly this would be a short-sighted mistake that doesn’t consider what is clearly the single most important economic opportunity available to post-Brexit UK, to legislate for and build a framework to enable a well-regulated home-grown Cannabis Industry.”
And goes on to say: “With a proper process established, post-Brexit UK has an excellent chance of becoming the leading force in the premium segment of the Cannabis Industry, generating massive economic benefits just like Scottish Whisky. Or it’s too hard, we don’t bother, and watch others doing it instead. It’s as simple as that.”
Cannabis cultivators “pessimistic” about industry, report finds
Cannabis and hemp cultivators across Europe are feeling pessimistic about the industry, according to a new report from Canxchange.
The trading platform Canxchange has released a new report including current pricing data and in-depth market analysis of the medical cannabis space.
The Q2 Benchmark Report is part of Canxchange’s strategy to encourage a more transparent and efficient market for hemp, CBD and medical cannabis. The report aims to support farmers, producers, extractors, manufacturers and other industry stakeholders by providing market insight and standardisation for a more productive market, the organisation says.
Pessimism amongst European cannabis cultivators
As part of the report, Canxchange researchers spent weeks surveying more than 100 hemp farms in Europe to gain an understanding of the current outlook for cultivation activity across the continent.
The company measured five key factors that include surfaces planted compared to the previous season, increase/decrease of production investments, stock levels, sales confidence and cultivation yields.
The survey results were analysed and translated into an index number – the Canxchange Farmers Sentiment Index (CFSI) – to gauge the health of the market and participants’ perception of the industry. 100 represents neutral confidence while extremes of 75 and 125 represent a highly pessimistic and highly optimistic perspective respectively.
This quarter, the CFSI remains below 100 at 96.5, continuing on a downward trajectory from March 2022. Although the decline in confidence is slowing, the overall sentiment remains “bearish” especially amongst bigger producers, the research team says.
For the first time since Canxchange launched the farmer sentiment index, big producers have fallen into the “pessimistic territory”. 500-1000 hectares production units scored 93 while those with more than 1000 hectares had an average CFSI of 94.3.
“Looking into the details, large operators have dramatically changed their views on the outlook of the market for 2022,” the report states. “Several factors could explain this market sentiment.”
Canxchange identified three primary factors that are causing cultivator’s pessimism, including uncertain economic conditions, the impact of high inflation on production costs and a lack of visibility for the coming months.
Seed supply in Europe “exhausted”
The Canxchange report found that seed supply in Europe has been “exhausted” with prices expected to surge over the coming months as demand continues to rise.
“We have seen a last attempt from food producers to source as much as possible but supply is drained,” the report states. “Our members are attempting to contract large amounts of seeds from the new harvest so expect the demand to surge further next year.
“Next year’s prices are naturally going to be higher due to increased fuel and fertiliser prices.”
Meanwhile, isolate extract prices have remained stable over the past few months at just over €300, the report found. Canxchange expects that this is the lowest prices will go before hitting highs of just under €400 within the next six months.
Renewed demand for industrial hemp
In the industrial hemp sector, Canxchange has seen fresh demand globally for hemp hurd (also known as shives), industrial hemp stalks used for building materials.
South Africa has been actively sourcing shives from the EU for hempcrete and hemp blocks, the report found while fibre demand has remained stable among insulation producers. However, some EU suppliers have had buyers cancel orders and contracts due to the impact of inflationary pressures.
Canxchange is a B2B market infrastructure that facilitates industrial hemp, CBD and medical cannabis transactions. Canxchange is a B2B marketplace and electronic platform that connects businesses, helping them to transact in a secure, fast and transparent environment.
Founded in 2019, the London-based company operates globally with over 400 members.
Trichome Pharma forms partnership with Little Green Pharma
Trichome Pharma has announced it is forming a partnership with Labiana and Little Green Pharma that will see the Australian-based company enter the Spanish cannabis market.
Spanish pharma start-up specialised in medicinal cannabis and consumer healthcare, Trichome Pharma, has welcomed Labiana Pharmaceuticals and Little Green Pharma as investors and strategic partners.
The company is forging partnerships in order to fulfil its ambition of becoming the first distributor of medicinal cannabis in Spain. The development follows Trichome’s recent announcement that it has received a medicinal cannabis cultivation license from the Spanish Agency of Medicines and Medical Devices (AEMPS) for R&D.
CEO of Trichome Pharma and managing director of Trichome Capital, Nicholas Balk, commented: “Labiana and LGP are both highly respected leaders in their relevant niches. Naturally, we’re very excited to welcome them both as shareholders and strategic partners. We thank them for their support and trust in our vision.
“Our partnership with Labiana makes perfect sense, given their expertise in third-party EU-GMP manufacturing of specialised medicines, including psychotropics, as well as their strengths in pharmaceutical distribution. Likewise, LGP has some of the highest quality medical cannabis products available and a successful commercial track record in complex regulatory environments.
“LGP’s range of flowers and oil based preparations will perfectly complement what we aim to produce locally here in Spain and allow us to achieve our goal of being first to market.”
Labiana’s investment in Trichome Pharma is a vote of confidence from the traditional pharmaceutical industry in the potential of cannabis as a regulated therapeutic in Spain.
Trichome Pharma’s director of consumer healthcare, Daniel Krupp, commented: “The medicinal cannabis sector needs to be taken seriously on issues of quality and safety, especially by prescribers and their patients. On the other hand, no one knows cannabis better than those that work with the plant directly.
“Both big pharma and the cannabis sector stand to benefit from closer collaboration and a transfer of knowledge.
“The unique part of our offer is that we’re bringing experts from different fields together to build a platform of open innovation. This serves to deliver only the best possible outcomes for patients and consumers.”
Labiana’s president and CEO, Manuel Ramos, added: “This commitment to the medical cannabis business is part of the company’s strategic innovation plan, which seeks to stay one step ahead in order to respond to all market needs.
“And in this case, at Labiana, we are authorized and experienced in the production of psychotropic and narcotic products, and it is clear that the medicinal use of cannabis is already, as we can see, a reality that is increasingly regulated by governments around the world, with a lot of potential for growth.”
Trichome Pharma’s collaboration with Little Green Pharma began after Balk and Fleta Solomon, CEO of LGP, met at a conference in German.
Solomon said: “Spain is the next major market in Europe to legalise medicinal cannabis. We’re very excited to anticipate a change in regulation and develop this partnership with Trichome Pharma, in a market that should be comparable in size to France or Italy at maturity.”
Labiana and LGP’s entry into the Spanish medicinal cannabis market comes at a major inflection point as it is expected that in the coming days, the Health Commission will vote on a proposal recently put forward by a special government subcommittee on medicinal cannabis regulation.
On June 21 the subcommittee agreed on and presented a long-awaited report which contemplates the prescription of medicinal cannabis for a limited number of illnesses.
Trichome Pharma has stated that the proceeds from their recent capital raise will be allocated to investments that are aligned with this thinking long-term and plans to raise additional capital towards the end of the year.