The cannabis industry: Lending a hand to impact investors
Are hemp-based products the future of ESG?
In recent years, both impact investing and the cannabis industry have attracted investors’ interest. Since 2007, impact investing has grown rapidly to a total of $502bn of assets under management in 2018.
This same year, US President Donald Trump signed the 2018 US farm bill which de-scheduled hemp and opened up an industry estimated to reach $200bn by 2025 to further investments. The Global Impact Investing Network (GIIN) definition for impact investing is the intention of generating measurable beneficial social or environmental impact alongside financial return and cannabis (hemp) can fall within this definition.
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According to the US National Institute on Drug Abuse, more than 130 Americans die on daily average from opioid overdose and nearly 2.5 million struggle with opioid addiction. Notwithstanding the terrible social impact, the opioid crisis costs the US economy over $78.5bn a year. Because these figures are increasing each year, the US National Institute has categorised the opioid addiction as a public health crisis.
A growing number of research bodies are suggesting that hemp derived CBD may mitigate this crisis - especially for those most vulnerable to opioid abuse: patients with chronic or severe pain. Keeping the GIINs' definition in mind, the US could be able to measure the beneficial impact of substituting opioid treatment with CBD while an investor correctly exposed to this market would also generate positive returns.
CBD has other medical benefits, but the most common conditions and symptoms patients combat are epilepsy and seizure disorders, pain and inflammation, PTSD and anxiety, Crohn's disease and multiple sclerosis.
Cannabis also has environmental benefits as the production of hemp is inherently environmentally sustainable. Hemp is considered to be a carbon-negative raw material, which means it absorbs more carbon than it produces. Hemp crops also require very few pesticides and no herbicides. Its industrial applications vary from textiles and fashion, plastics and paper to construction materials.
Hemp leaves can be transformed into cement, or even substitute fiberglass. The fashion industry is one of the most polluting industries in the world and hemp stalk could be an interesting alternative to cotton. Though only 2.4% of the world's agriculture land is planted with cotton, it consumes 10% of all agricultural chemicals and 25% of pesticides.
On average, 20,000 litres of water is necessary to grow 1kg of cotton while hemp needs 50% of that amount for the same results. One can only look at satellite images of the Aral Sea to witness the water required for cotton farming. In this case, growing cannabis for the fashion industry instead of cotton would effectively reduce water consumption and phreatic zone pollution.
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Hemp is slowly decoupling itself from cannabis and a growing amount of countries; even some conservative countries such as Thailand are considering the plant for its agricultural and industrial benefits. The diversified applications of hemp can substitute or complement current industries that are environmentally or socially nefarious and some segments of the cannabis industry could fit in the impact investing trend.
According to data analytics firm New Frontier Data, US industrial hemp sales including textiles accounted for 30% of all hemp sales in 2018. This market is expected to be worth $1.72bn globally in 2020, but there is a lack of hemp-processing facilities due to limited education following four decades of amalgam between marijuana and hemp.
This also causes limited availability for investors to gain this type of exposure via publicly listed firms despite opportunities existing in the private space.
Industrial hemp remains at earlier stages than medical or recreational cannabis, but we expect hemp-based products to capture a growing market of environmentally and socially conscious consumers.
Joseph Casanova is an analyst at Dolfin
