Why Are There So Many Cannabis Companies Being Formed Right Now?

This piece first appeared as a guest post for European Cannabis Week which will be taking place from 23rd – 29th June 2019

For people not living under a rock, it’s becoming increasingly difficult to ignore the fact that cannabis is being talked about constantly in the news. And it’s the medical and economic benefits rather than any criminal issue that’s making the noise. So with cannabis still considered an illegal drug, and less than a percentage point of the world’s population having access to medical cannabis, what has driven this change?

Of course, describing complex political and economic change in one article will naturally oversimplify, but we can take a look into the strongest drivers of this change (and we will also look at the red herrings along the way).

The impetus behind the global shift towards cannabis business is fourfold:

  1. Medical benefits from non-intoxicating cannabidiol (CBD)
  2. The entourage effect belying a pharmaceutical modus operandi
  3. Obama finding the war on drugs ‘unhelpful’
  4. Recreational markets showing huge economic upsides

From a European perspective, CBD is currently the largest legal cannabis market. Although it feels like it appeared overnight, CBD was in fact first tested in treating epilepsy 50 years ago by Raphael Mechoulam. It rose to prominence in 2013 when Charlotte Figi, a five year old girl with epilepsy, garnered widespread media attention in the USA, using it reduced her seizure count from 300 a day to about three per month. In the intervening six years, entrepreneurs have used this ingredient in a variety of products from those designed to be eaten such as oils, capsules or in hummus to topical treatments such as creams and balms or even in the equally novel world of vapes. CBD evangelists speak of multiple benefits from CBD, however, businesses cannot market the medical effects of a product without authorisation. This brings us on to the next issue, the difficulty of proving the medical effects of cannabis products within modern pharmaceutical frameworks.

“With so much potential, this creates a huge incentive for companies to experiment with R&D and this incentive aligns with a changed attitude to cannabis from its historically strongest prohibitionist, the USA.”

The fact that cannabis has medical uses is not new, it appeared in most nations’ pharmacopoeias until political pressures removed them in the middle of the 20th century. The reason that cannabis does not now fit squarely into modern medicine is that it is not a single drug, it is a biological factory of hundreds of compounds. The most famous is tetrahydrocannabinol (THC) which is the primary compound in causing cannabis intoxication or ‘high’. THC has recognised medical properties, and a synthetic version called Marinol has been available for over thirty years.

We can definitively say the medical properties of cannabis are not new discoveries; what is new is the scientific understanding of that which patients had been saying for years: herbal cannabis relieved their symptoms better than Marinol. This is the entourage effect, the phenomenon whereby multiple cannabinoids working in concert have a synergistic effect that is superior to using one of them alone. Described by Ethan Russo in 2011, this explains why when pharmaceutical companies tried to follow their normal way of working, by extracting the single active ingredient (e.g. extract Salicylic acid from willow bark, brand it as Aspirin and sell that on), the process didn’t work for cannabis. With cannabis capable of producing at least 144 cannabinoids, and the six or so that have undergone clinical testing showing medical benefit, there is no feasible way of taking all the different permutations through randomised controlled trials as is normally done with new medicines. With so much potential, this creates a huge incentive for companies to experiment with R&D and this incentive aligns with a changed attitude to cannabis from its historically strongest prohibitionist, the USA.

In 2016, former US President Barack Obama announced that cannabis should be treated ‘as a public-health issue, the same way we do with cigarettes or alcohol’. This highlights what is hopefully the beginning of the end for America’s zeal in criminalising cannabis users. While Obama was not the first president to have consumed cannabis (he may have been the first to inhale), he was the first to acknowledge that Nixon’s war on drugs was not working, his drug czar calling it ‘unhelpful’. In fact, America’s marginalisation of cannabis users predates Nixon and has its roots in political goals rather than medical concerns.

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There are competing theories as to why cannabis was proscribed in this era, some more conspiratorially minded folk point to industrialised nations seeking to criminalise raw inputs for pharmaceuticals so that their cocaine and morphine sales would be stronger. Whatever the reason, the US led the global community into banning cannabis under the Single Convention on Narcotic Drugs in 1961 (although it is interesting to note that other countries, such as Egypt, were even more eager to ban it). The UK actually resisted taking definitive action against cannabis until Nixon’s government pressured them into including it in the misuse of Drugs Act of 1971. Since the Obama era, specifically his second term, world leaders haven’t felt as much pressure from the US to keep cannabis as tightly controlled and one can see that in the rise of countries that allow medicinal cannabis from 2012 to now.

In regions where medical cannabis has been allowed, popular sentiment shifts towards allowing recreational or adult use. People see that the sky hasn’t fallen in, Trudeau-esque arguments to keep cannabis out of the hands of organised crime and children ring true, and most importantly citizens begin to question why they shouldn’t bring a huge black market into the tax base. It is these adult-use sales figures that have politicians, investors and entrepreneurs excited. In Canada, cannabis sales are expected to top $7 billion in 2019. Yes, these figures are high, but when one looks at the market capitalisation of Canadian companies, which has sat over $100 billion for some time, now we see that the market, at least, expects a global profusion of cannabis sales and companies are rising to provide them.

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