Cannabis and hemp are part of a family of plants called Cannabis Sativa and Indica that contain more than 120 cannabinoid compounds. The best recognised of these are Tetrahydrocannabinol (‘THC’) and Cannabidiol (‘CBD’), with THC triggering a psychoactive response when consumed. These cannabinoids, on their own or blended in various combinations, have been shown to interact with a network of receptors in the brain and immune system cells called the endocannabinoid system. Cannabinoids are used to help with various conditions such as: seizures; pain; inflammation; nausea; insomnia and anxiety.
For thousands of years the medicinal properties of the cannabis plant have been used to treat a wide variety of ailments in humans and animals. However, global prohibition of cannabis use has previously stifled research and prevented the development of cannabinoid science into a large medicinal and wellness market. But in recent years, driven by both consumer pressure and governmental action in the easing of regulatory frameworks, the ending of prohibition is now well underway. We are witnessing a rapidly growing legal market and a marked increase in historically delayed research into the medicinal properties of the cannabis plant.
In North America, the shift has been most pronounced. Canada fully legalised both medicinal and adult use of cannabis in 2018 and 15 US states have done the same. An additional 20 US states and 40 countries globally have made medicinal cannabis legal and available to patients, including 20 countries in Europe. There now exists a once in a lifetime opportunity for investors to profit from the creation of a new industry not seen since alcohol prohibition was overturned in America in 1933.
Now is the perfect time to invest
The global cannabis industry is a $350 billion a year market, which is currently estimated to be 95 per cent illegal. The ending of global prohibition will transition a large existing market to a legal one that can be regulated, controlled, taxed and, most importantly for investors, capture significant value upside. Cannabinoids are becoming mainstream and included in products across the pharmaceutical, food and beverage, cosmetic, tobacco and nutraceutical markets. This shift is being driven by an increasingly favourable regulatory landscape and focus on the benefits of cannabinoids for human and animal wellness.
Over the next decade the sector is expected to deliver one of the strongest growth trajectories, making it a ‘must invest’ industry. It is at the tipping point of now being investable from an institutional perspective, with high quality businesses and management teams emerging in each sub-sector. Currently, there is only five per cent institutional ownership of cannabis businesses, as opposed to 50 per cent for more established sectors such as technology. Against a backdrop of limited growth capital, which is depressing valuations to highly attractive entry points, this is the perfect time to deploy capital into this high-growth sector which is on course to create US$1 trillion of shareholder value over the next decade as the sector matures.
We believe the best way for family offices and High Net Worth investors to participate in this new asset class at this stage in the cycle, is via an institutional quality fund strategy, rather than via direct investments. Verdite Capital is a Guernsey regulated US$100 million investment fund aiming to capture the significant value creation potential that lies ahead in the medical cannabis sector. We are launching with $75 million of commitments already soft circled, demonstrating the attractiveness of this sector and fund structure for family offices seeking strong returns.
