Could investing in New Zealand cannabis companies be the next green rush?
Andrew Jeffery is a man who’s lived a colourful life: he’s been a Scots Guard, pursued a high-flying international career in finance in London and New York, lived with Tibetan monks, and survived a cancer diagnosis. His latest gig? Being a cheerleader for the flourishing cannabis industry in New Zealand as the founder and director of 1J Capital, a consulting service for global cannabis companies.
While Jeffery’s interest in the cannabis industry begun when he had a brush with cancer, the seed was planted more recently when in 2017, he travelled to see family in the US. While he was there, he had the opportunity to take a closer look at the thriving cannabis industry in California, where households don’t exactly fit into the unmotivated ‘stoner’ stereotype.
In fact, the average household income of cannabis consumers there is US$93,800, while 69 percent are employed full time, 64 percent are parents, and 34 percent have children aged 10 or younger. Most who purchase it for medical or recreational purposes in have said they do it in order to manage anxiety, pain relief or get a better night’s sleep.
In his trip to the Golden State, Jeffery met with everyone involved in the production chain, from dispensary owners, to growers, to manufacturers, to distributors, to branding and creative agents. He was impressed at just how many people were involved in the process, and saw the opportunity.
Now, he says he wants to play a part in the “cheerleading crew” that can build awareness and educate consumers and investors about the cannabis industry here in New Zealand.
“Given my previous experience in financial services, the idea was born to create an investment fund, which seemed well timed given I’m living in New Zealand and there are moves to change the laws around medical cannabis,” Jeffery says.
“I think there’s a lot of misconceptions around it and still a stigma attached to marijuana. Investing in companies is a good way to help with this, as awareness rises, success stories are created and people see the opportunity. It’s an opportunity for people to learn about and invest in and enjoy the benefits of this growing economy.”
But comparing New Zealand’s cannabis industry with that of America’s is a bit like comparing apples with oranges.
Jeffery says while California is known for its liberal attitude towards many things, New Zealand is incredibly conservative.
And while the United States has legalised recreational cannabis in nine states and medical cannabis in 29 states, recreational use of cannabis is illegal in New Zealand, with a referendum on the issue still two years away.
Currently, apart from CBD-based products, the use of medical cannabis products in New Zealand requires Ministerial approval from the Ministry Of Health for individual cases before they can be prescribed, and the products used are manufactured by overseas companies.
To advocates of the cannabis industry in New Zealand, letting these profits head overseas makes no sense. In the US, cannabis is touted as a US$10 billion industry, and is expected to grow to about $24 billion by 2021 and globally to $60 billion by 2027, according to the Arcview Investor Network.
A report by the company also declared that once cannabis was federally legalised in the US, it could become “even more lucrative” than when alcohol prohibition was abolished in 1933.
Jefferys says in terms of lessons New Zealand could learn from overseas markets, this is where the opportunity lies: increasing access to legal medical cannabis products.
“The only pharmaceutically approved product here is particularly expensive and out of reach – the Ministry of Health has found 1 in 20 are using medical cannabis, but they are getting it through the black market,” he says. “In California, patient access is very easy. If someone is not registered and has an illness or a disease, they’d get the ID, go into a dispensary and access it within hours.”
The thought of people missing out on a treatment that would improve their quality of life resonates particularly strongly with Jeffery, who was diagnosed with Hodgkin’s lymphoma cancer in 2001. He says while his chemotherapy treatment was successful, he saw how people’s suffering could be reduced by having access to different medicines.
“When I recall my own experience, it wasn’t as dramatic as a lot of people who go through that sort of thing, but if it had been different, I would’ve wanted to be able to get access to things such as medical cannabis to alleviate problems caused by chemotherapy,” he says.
While no New Zealand companies have attained a license at present and the industry is yet to take off, Jeffery says he’s seen a lot of letters of intent and memorandums of understanding have when licensed are produced and legislation changes take effect, strategic partnerships will start to take form.
Canadian and Australian companies who’ve formed strategic partnerships have expressed interest in New Zealand’s market, he says, but given the early stage of the industry here, it’s not quite on their radar yet.
However, he says the opportunity is there for a local industry, as the cannabis industry could easily follow the path of that of the New Zealand wine industry.
“New Zealand didn’t produce wine until just a very short time ago – it was a market dominated by traditional producers in northern hemispheres, but New Zealand has been able to get amongst that industry and perform particularly well,” Jeffery says.
“While conservative factors might deem marijuana in its first iteration as a medicine or a pharmaceutical grade product, when legislation relaxes a bit, well see New Zealand marijuana producers and brands dominating, and this flower is fast going to become a commodity, meaning that derivatives of the plant are going to be where all of the action’s at.
“It will be a small market for some time – like another example, craft beer – which has been a relatively new phenomenon in New Zealand. But I think New Zealand has an opportunity to create interesting lines of products, which could carve a niche into the global market.”
So, is the opportunity for investors in the New Zealand cannabis industry similar to the one New Zealanders had at the start of the dotcom boom era, where companies in this brand-new tech industry, such as Trade Me, took off?
Potentially. But for those interested in investing in the space, Jeffery says it’s important to take a weighted perspective on the matter. Cannabis is an entirely new industry and requires legitimising something that’s been around for a while, he says, which comes with element of risks from a financial point-of-view.
Jeffery says it’s also challenging in the way that many New Zealanders haven’t had the opportunity to experience companies operating in this space firsthand.
“What I’ve been doing is travelling backwards and forwards between Australia – Australia being close company yet somewhat ahead of New Zealand – as a test for me on where and how to launch a fund. Where I’m at now is I’ve got strong indication in the capital I’d like to raise is ready to deploy through fund management selection, so very soon, New Zealand and Australians will start to have access to an investment vehicle which will expose them to this space for the first time.”
On the other hand, he says there are lots of companies involved with the production of cannabis that don’t even touch the plant, from cultivation, to extraction.
“From my experience from California, there’s a whole ecosystem that’s existing and waiting to explode down here or in other emerging markets. There’s lots of ways to get involved. The New Zealand spirit of innovation will see us participate well in it and take to the global market opportunities that don’t yet exist.”
If all goes to plan, he says the investment fund will be available by 2019. Watch this space.