Making a killing on cannabis
This report originally appeared in Courier issue 07. Head here for more information about the magazine.
Rarely does an enormous, totally virgin industry emerge with guaranteed demand, where startups are better placed to capitalise than big corporates. Beyond the ethical debate around legislation of cannabis, it’s this tantalising commercial prospect that’s getting a growing number of people excitedly sizing up opportunities and making business plans in anticipation of a change in law.
Each year, over 1,000 tonnes of cannabis is produced across the UK in secret basements, bedrooms, repurposed sheds and warehouse farms. Another 200 tonnes is imported from places like Morocco and the Netherlands. In short, UK cannabis production is booming.
It’s consumed by a two and a half million strong cross-section of the UK, who finance a lively £6.8bn industry of big and small producers, importers and dealers, all operating outside the law. It begs the question: what would happen if it all became legal?
The modern reference point for a legitimate weed sector is the American state of Colorado, where, since the drug has been fully legalised, several startups have led the way in shaping what has become a dynamic economy.
The Colorado narrative has reinvigorated the debate in the UK, where there’s been a noticeable shift in the mood around the issue. Led by economic arguments and rationalised by medical ones, there appears to be a willingness to untangle cannabis from harder drugs and commercialise it.
There does however remain strong resistance with fears of the potent skunk strains already available, the risks of it being marketed to children and a lack of confidence the sector can be adequately regulated.
Brand new sector
It comes at a time when the UK is actually consuming less cannabis, than ever. A recent report revealed that weed-smoking has halved among 15-to-34-year-olds in the UK over the last 15 years. Yet there’s still a strong push to turn the class B drug into a product people can buy in a shop.
Whatever the likelihood of a change in law in this country, it hasn’t stopped plans being made to exploit the potential of cannabis-based ventures.
Descriptions such as ‘a once-in-a-generation opportunity’ are giddily being employed by evangelists who sense an opportunity to shape the trajectory, size and spirit of an entirely new consumer sector.
Read more: What would a fresh weed brand look like?
American uptake
That kind of talk is already going on across America where the boundaries blur between illegal, medically prescribed and fully integrated into the mainstream economy depending on which state you’re in.
Colorado and Washington paved the way for a fully legal, taxed and regulated consumer cannabis industry in 2012. Oregon and Alaska followed a year later, and around 10 further states, including California, are expected to legalise recreational sales by 2020.
Read more: Cannabis in Colorado
A further 23 states currently permit consumption on medical grounds. Currently worth £1.75bn, the legal American weed industry is on course to hit £7bn in five years time.
The commercialisation of cannabis in America has surprised many, both by its success in reaching demographics beyond the stoner stereotypes, as well as the popularity of cannabis products that can be consumed without smoking.
The phenomenon of the suburban American ‘soccer mom’ confidently sipping on a cannabis drink, along with Uber-style delivery services, have been used to illustrate the commercial potential.
Read more: The women of weed
Bona fide investors
These kind of images have only cranked up the sense of opportunity: if every US state legalised recreational use, it’s estimated the industry could be worth in excess of £25bn, which would make it bigger than organic food in the US.
It’s little surprise then that bona fide American investors and funds have begun ploughing tens of millions into the market, an act that inherently lances some of the stigma around cannabis. For many, this is the greatest vote of confidence in its future prospects.
The most high profile cannabis investment yet was made in January this year, when Paypal founder Peter Thiel’s fund contributed a large chunk to the £50m raised by slick pot business Privateer Holdings.
It is headed by Brendan Kennedy, a former executive of the £15bn Silicon Valley Bank. ‘The next thing I was going to do needed to be big, and cannabis is about as big as it gets,’ he says.
Hydroponic innovation
Those selling the tools to grow cannabis are already legally thriving in the UK. Fuelled by technological advancements in hydroponics and lighting, 80% of the weed consumed in the UK is now grown domestically. A decade ago it was just 20%.
With anyone now able to set up a minifarm in their house, bustling ‘indoor-grow shops’ can be found on high streets and industrial estates across Britain, with an apparently inordinate number of people purchasing £450 bottles of fertiliser to grow tomatoes.
Waiting for change
‘The best thing about legalisation would be the removal of gangsters from our industry,’ one shop owner, who asked not to be named, told Courier. The majority of the customers at his five-year-old business grow cannabis, yet police have never bothered him.
Those currently part of the UK cannabis industry are operating with a degree of subterfuge and risk-mitigation that’s at times comedic and quaint (growers operating from pay phones), and at other times foolhardy (prison terms are still common for raids).
The rush to be one of the first to gain a foothold in a newly legal market will be intensely fought by this group, many of which are intently waiting for a change in the law and the ability to go mainstream.
Legal cannabis culture
Although the size of a legal cannabis industry in the UK is hard to predict, the expectation from analysts is that demand would slightly increase initially, as would prices.
It’s possible the UK would mirror the upswing in sales of edible forms of cannabis that’s occurred in the US, as production and marketing is legalised.
Either way, the UK would form its own distinctive legal consumer cannabis culture, emerging from a very particular history and shaped by the first commercial ventures to charge into a completely unknown industry.
Read the full report in Courier 07.
