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Market balance
While regional pricing inconsistencies exist in many agricultural products, few spreads are as wide as those currently seen in biomass, isolate and distillate. Oregon and Washington remain the cheapest states, while North Dakota and Virginia are amongst the most expensive. This imbalance is driven by the recent and steady trend of state-regulated surplus. Restrictive regulatory structures contrive a distribution system rather than allowing market economics to flourish and, along with disparate investment in parts of the supply chain, lead to supply imbalances. Oversupply is evidenced in Colorado, Washington and Oregon, while supply shortages have been rampant in Nevada and Massachusetts. Expect this trend to continue with California poised to become the next oversupply example. Conversely, expect U.S.-based industrial hemp biomass to fail to meet demand.
Asia
China produces half of the world’s cannabis and holds over half of the world’s cannabis patents. The predominance of these patents indicates the pace of evolution in pharmaceutical science and may offer valuable lessons along the evolutionary path of Western industry. As our acceptance of this plant grows, investors and entrepreneurs alike are well-served to watch this not so sleepy giant. As cannabis traverses the path to global trade, one of the biggest economic winners will be China.
Indian cannabis use has been widely documented and dates back to 2,200 BC, where it was used medicinally and as an offering to Lord Shiva. Cannabis was only banned in 1985 with the passage of the Narcotic Drugs and Psychotropic Substances Act and, with recent approval for legal cannabis cultivation accorded to IIM (Indian Institute of Management), the movement towards legalization is under way.
The Asian cannabis legalization movement was bolstered by the recent passage of medical laws in South Korea and Thailand. Every third human is governed by the laws of these four countries, and at over 2.8 Billion people represents the largest legal cannabis impact on the planet.
We remain optimistic around impending and positive change for the industry through 2019 and beyond. The cannabis sector has quickly emerged as an alternative asset class with low portfolio correlation and high demand inelasticity, and as such will continue to capture its rightful place in any well-diversified, impact-oriented investment portfolio.