The medical cannabis industry is luring major players and legal recreational use could bring sky high returns for investors

To listen to some of the predictions about the future of the cannabis industry, you would think financial analysts had been partaking heavily of the product.

The European cannabis market will be worth €123 billion (£106 billion) by 2028, according to London-based analysis firm Prohibition Partners. That is more than twice the revenues that Apple reported in the region last year and larger than the annual economic output of Ukraine.

Some of the more fanciful forecasts suggest that the world is witnessing the birth of an industry which could be worth from $500 billion to $1 trillion.

As hallucinatory as that sounds, there’s no denying that legal weed, particularly for medicinal purposes, ended last year as one of the world’s hottest investment prospects.

A flood of established stockbrokers have begun pumping out research on the industry and, as of the beginning of 2018, there were already a dozen cannabis companies with a stock market value of more than $1 billion.

Last week, the largest of them, Canada’s Canopy Growth, announced a partnership with TV chef and multimillionaire domestic goddess Martha Stewart to promote CBD, a medicinal component of cannabis (as opposed to the THC bit known for getting people high).

Stewart is about as wholesome a brand ambassador as the U.S. has to offer – apart from her conviction over a stock trading case. It indicates that cannabis products are infiltrating respectable American households.

The partnership puts her on the same team as a rather less wholesome figure, hip-hop superstar Snoop Dogg, who promotes Canopy’s recreational weed subsidiary Tweed. Commercial tie-ups like these are just the latest in a rapidly expanding roster of landmark weed deals.

Altria, the company behind Marlboro cigarettes, paid $1.8 billion for 45 per cent of Canopy’s competitor and compatriot Cronos in December. The beer giant ABInBev, owner of America’s pervasive Budweiser brand, has put $50 million into a joint venture with the cannabis company Tilray to research weed-infused beverages, a plan Coca-Cola has also toyed with. These are not half-baked Californian startups but international heavyweights betting that the future is green.

Cronos, Canopy and one of the sector’s other big beasts, Aurora, are all based in Canada, where recreational use achieved legal status in 2018, 17 years after medicinal use. They are well placed to capitalize on the relaxation of the law in the U.S., particularly via the 2018 farm bill, which did away with one of the major roadblocks – a long-standing federal prohibition on hemp cultivation.

As other countries follow suit, there is more than enough space in the market for new entrants. Among them is Alexandra Chong, chief executive of Jacana, a medicinal cannabis company that grows on a farm in Jamaica, where she grew up. The firm recently raised $20 million from venture capitalists, including some that had made returns on her last major venture, the dating app Lulu.

Jacana has already exported two shipments to Canada and has its eye on leveraging the cultural cachet of Jamaican origin to export to the rest of the world, including the United Kingdom.

Chong said the industry’s growth potential was rooted in very simple economics. There is far more demand for cannabis and its derivative products, particularly for medical use, than there is supply. That’s true even in Canada, where there has never been a shortage of unlicensed and hobbyist growers serving casual pot smokers.

“Black market cannabis cannot enter the legal market,” Chong said. “The medicinal cannabis tracking systems go all the way from seed to sale and the regulation on this industry right now is very tight. If I need to cull a plant, the regulator has to come and watch me cut it down.”

Restrictive legal frameworks in existing markets such as the U.S. and Canada are one reason why supply is lagging behind demand.

“Patients are in need of this product and there’s a huge supply shortage,” said Chong. “It’s taken Canada 10 years and they still can’t supply their own market, which is 30 million people. There are 48 countries today that have legalised medicinal cannabis and we’re a very long way away from being able to fill the demand. Legalisation is happening very quickly and production can’t keep up.”

Legalisation of medicinal marijuana in the U.K. took effect in December, long after many of the world’s most developed countries had already taken the plunge, but only after an arduous campaign fought by persistent activists.

The fight was led by the families of two children, Billy Caldwell and Alfie Dingley, both of whom have severe epilepsy. A wave of sympathy for their cases helped turn the tide of public opinion and, crucially, the view of the home secretary, Sajid Javid. While Jacana and the larger Canadian players are leading the way, the first green shoots of a domestic cannabis industry are starting to emerge. London hosted last year’s Cannabis Invest conference, where the industry’s bigwigs tapped up investors for fresh funds