GLOBAL COMMODITY

CANNABIS CANNABIS CANNABISthe GLOBAL issue W hat will it take for Cannabis to become a global commodity, and what does success imply for the current and future CANNABIS THE GLOBAL COMMODITY CANNABIS CAN

marketplaces that are selling Cannabis in the

U.S. and beyond? I zoomed with Claudia Della Mora, the co-founder and managing partner at Black Legend Capital – an investment and advisory firm based out of Los Angeles and an expert in international Cannabis legalization – to explore what the future holds for the plant, the industry, and our ability to consume Cannabis internationally.

CANNABIS AS A COMMODITY

Traditionally, a commodity is the raw material that makes up finished products like petroleum, sugar or rice that can be traded internationally in large quantities with little restrictions, with pricing based on supply and demand as prices fluctuate. Commodity potential within the Cannabis industry includes THC flower, hemp biomass, THC/CBD distillates or isolates, and crude oil. While these have potential as bulk commodities and to one day be traded on the exchanges, there are three essential pieces to the puzzle that must be made to fit before Cannabis products can be sold as commodities globally.

INTERNATIONAL LEGALIZATION

While most U.S. companies see the future of Cannabis as a commodity coming from federal legalization, the real barrier to global trade is the United Nations Drug Treaty.

“Cannabis needs to get to a point of international legalization to have a commodity status, and that will require a type of standardization and minimum requirements for products to be traded and sold,” said Claudia Della Mora.

“Although everyone looks at the U.S. as the biggest market, it’s only the biggest developed market, but it’s not going to be the biggest manufacturing market. I do believe when everything is federally approved, Cannabis will be cultivated in low labor cost countries like China, Mexico, Columbia – so those countries will be very important while people buy from them.”

CANNABIS SO while the U.S. currently dominates the Cannabis conversation, it is far from the center of the world when it comes to pot’s future as a commodity. And while the U.S. can legalize at the federal level, that doesn’t mean they can export it lawfully. “It has to be the United Nations moving Cannabis to a U.N. Schedule II or III – that would allow countries and investors to create a market is similar to pharmaceuticals in terms of regulations and expectations, and industrial hemp can be used for either industrial applications, pharmaceutical grade medical products, or even recreational use. This is a complex web of overlapping products, and it’s important to understand how each vertical has a different function on a global level. While there are U.S. based companies that have hundreds of employees and millions of dollars in revenues, even the largest U.S. producer/processor is woefully undersized and unprepared for a global Cannabis market. The market conditions that currently exist domestically have created an environment that has made Cannabis a cash CANNABISCANNABIS CAN- CANTHE CURRENT STATE OF GLOBAL LEGALIZATION WORKS IN THE PRODUCER/ PROCESSOR’S FAVOR IN THE U.S., AS DOES A LACK OF FEDERAL LEGALIZATION. for products to be sold legally,” said Della Mora. INDUSTRIAL HEMP & CBD crop in America, but this will not necessarily be “Right now to import and export MMJ, a narcotic Hemp is the only aspect of the three that is the case long term. At the center of this bublicense is necessary and it has to be compliant to today at a commodity level globally, with import bling market is the American idea that Cannabis the 1961 U.N. convention.” and export being legal in the U.S. at under .3% producers have an inherent value that will make THC, or .2% THC in the European Union. As a them ripe for acquisition from multinational STANDARDIZATION For Cannabis to be treated as a commodity, commodity, hemp-derived CBD has crashed in prices globally, and the value continues to fall as companies, or that the products and brands they produce have enough domestic value and 39 there must be universally accepted standards supply outstrips demand and more farms come demand that there will always be a warm market for products. Currently, every state in the U.S. on-line globally to produce industrial hemp and for U.S. companies to sell their products domestihas different standards, as does each country CBD. cally. However, this rose-tinted optimism has new across the globe. For there to be import/export of competition on the horizon. products, standards for quality, testing, ingredi- MEDICAL CANNABIS VS. RECREATIONAL “A small number of companies can already ents and many other factors must be determined. MMJ is a very specific aspect of the commoditi- supply all the commodity input needed to meet There will be different standards for medicinal/ zation of Cannabis because processors use THC global demand for CBD,” explained Della Mora. pharmaceutical grade and recreational Canna- and CBD raw materials that are specialized, not “THC is limited state by state in the U.S., curbis, including cultivation, processing and the end just anything random. They often require specific rently with high demand, but there is no sense in user product. ratios of cannabinoids and for the products to producing Cannabis in expensive countries or in be grown or processed in a specific way, like climates not friendly to cultivation. Small producCANNABISCANNABIS CANNABISSTORY by WES ABNEY @BEARDEDLORAX/LEAF NATION | PHOTO by BLACK LEGEND CAPITAL CAN AMERICAN GROWERS COMPETE? >> PRICE TRANSPARENCY There has to be a benchmark for prices, with differentiation, just like with the oil and gas industry. Once there are standards agreed upon internationally, there can be pricing set for types and grades of products, which would allow the ability for trade on a global commodity scale. “In order to be a commodity, a product must be freely traded and sold,” said Della Mora. “Oil is a benchmark for pricing, but gas is refined from oil and priced locally. One interesting thing is that raw materials are sometimes a minor cost of the cost of the finished goods – sugar costs very little by the pound, while a two-liter bottle of Coke is above two dollars with little added expense.” THE THREE VERTICALS OF THE INDUSTRY While it is easy to think about the Cannabis industry as one giant melting pot, there are actually three distinct divisions that come from the same plant: industrial hemp, medical Cannabis and recreational Cannabis. Recreational Cannabis is like the alcohol or consumer packaging industry with lower regulations, medical Cannabis European Union Good Manufacturing Processes certified. These raw materials are also used for specific types of treatments. When you get down to specifics, the real difference between recreational and MMJ is not the end user, but the standards used to classify what category the Cannabis falls under. Apart from regulations like quality control or specific dosing, the only difference between MMJ and recreational is the label on the jar. GLOBAL DEMAND Although the global pandemic may have caused an up-tick in Cannabis consumption over the past year, the numbers appear to be here to stay. “Americans legally purchased $17.9 billion of legal Cannabis in 2020, not including the black market or states without legal Cannabis,” said Della Mora. “Which is $7.2 billion more than was bought in 2019 – so the pandemic saw a massive increase in sales – with the combined medical/rec market projected to reach $23 billion annually by 2025. Globally, the value is estimated at $130 billion by 2025, with Mexico alone estimated to be a $60 billion market.” ers might want to provide their knowledge, distribution networks and sales relationships to larger companies that will ultimately produce Cannabis in Mexico or elsewhere. That is the primary value that a small cultivator in the U.S. can provide to a large company once Cannabis is legal globally.” In short, the current state of global legalization works in the producer/processor’s favor in the U.S., as does a lack of federal legalization. Even if the U.S. legalizes before the U.N., a national legal market would likely hurt small to medium U.S. producers in the long run, as they try to compete against multi-state operators and the rush of investment from major corporations. “Of course, I don’t want to sound like a downer, and no producer/processor wants to hear this as they continue pouring money into companies, especially when there is domestic demand,” said Della Mora. “But from an entrepreneurial view, you have to understand your clientele before starting a business – and I think a lot of people are not sophisticated enough to make good decisions long term.”

CAN AMERICAN GROWERS COMPETE IN A GLOBAL MARKET?

products. ‘Made in America’ could be the stamp when you provide a solution, it’s a good investthat keeps U.S. companies alive – just like the ment of time. Obviously, whoever finds solutions demand seen in the United Kingdom for Austra- in the meantime is going to make a lot of money, lian products that follow the commonwealth trade because it’s going to be a few years at least history of other commodities.” before full commoditization. Eventually, what we In the European Union and most of the devel- would like is for a real commodity situation, for

As noted previously, with commoditization oped world outside the U.S., local governments Cannabis to be traded globally – and whoever is comes standardization, meaning that Cannabis control commodities like minerals and natural first to figure this out will take the market.” in Mexico or Columbia will have to follow the same rules, regulations and standards as Cannabis grown in the U.S. In reality, all Cannabis will be regulated similarly globally, meaning that the same standardized quality will come from counresources, and issue permits to companies to extract, refine and sell these products. From a regulatory standpoint, the less companies involved the better, as it takes fewer resources to regulate and hold accountable a couple massive compa- D espite the challenges facing American companies on a global market, Della Mora is hopeful that the changes in international law will lead to a greater tries with more favorable growing climates and nies than a large number of smaller companies. acceptance of Cannabis as a safe recreational lower production costs, which will make it very This means that globally the market is already drug and medicine, which will continue to create difficult for U.S. domestic producers to compete tilted in favor of huge companies, especially those new opportunities for companies in America and abroad. The biggest hope for U.S. growers will with experience in other industries. around the globe. be local demand, and the potential for the U.S. “In Germany, three companies won the right “My hope is that it will be federally and internaGovernment to impose tariffs or taxes that make to cultivate because it is a no-brainer for the tionally legal, so that everyone can use it recrecompetition easier for U.S. growers producing the government to work with three companies instead ationally,” said Della Mora. “But I really hope same quality of products as those in other parts of of dozens, with less management and risk, and that this plant can be recognized medicinally and the world. everything being provided wellness-wise everywhere, because it really does “I think that there will be consum ers domestically and globally that - “THERE’S ALWAYS easily in big amounts on a silver platter,” explained Della Mora. help. We are discovering that Cannabis consumption might even help or protect against viruses like want to choose ‘Grown in Amer- OPPORTUNITY “So any little company would be COVID, so we need more research and accepica’ products versus those grown in South America or elsewhere,” explained Della Mora. “Not all, WHEN THERE ARE LIMITATIONS, SO I a waste of time for a regulating government.” Nonetheless, Della Mora sees tance. I really hope that people who use Cannabis for medicinal uses can do so without the stigma and ignorance, and that there is going to be but there will be those who choose domestic products if regulations allow disclosure of where the raw ALWAYS ENCOURAGE ENTREPRENEURS opportunity within the complex web of global Cannabis. “There’s always opportunity global information awareness so that people can learn more about this amazing plant – not from the point of view of stoners, but from medical material comes from, like in food/ OR BRIGHT MINDS when there are limitations, so I practitioners working to save lives.” beverages/clothing. If those trends follow, there will be a portion of the consumers that prefer locally-made TO THINK ABOUT SOLUTIONS,” always encourage entrepreneurs or bright minds to think about solutions,” she said. “Because

Listen to Leaf Life Podcast Show #115 Legal Cannabis in Mexico, with guest Claudia. CANNABIS

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