Page 28 - DIY Investor Magazine - Issue 27

WHAT EVERY INVESTOR NEEDS TO KNOW ABOUT THE MEDICAL CANNABIS SECTOR IN 2021
Nawan Butt, Portfolio Manager of The Medical Cannabis and Wellness UCITS ETF (CBDX)
2020 was an eventful year for the cannabis industry. After
a strong start to the year, the coronavirus struck. Panicked investors withdrew from equities, especially from young and riskier industries such as cannabis.
This did not deter the medical cannabis from having a great run in 2020 with a return of over 40%1.
Past performance is no guarantee of future performance. This upside has mostly been reflected through the proliferation of cannabis in the United States.
With President Joe Biden now at the helm, there is an improved outlook for the cannabis sector under a Democratic House and Presidency as well as a surprise Blue Senate. Political power
in the US is in Democratic hands and the path is now clear for further cannabis reform in the US. Stock prices have reacted accordingly, rising to year end-highs. Is the cannabis industry now set to flourish?
THE PROMISE OF CANNABIS REFORM BRINGS A NEW CYCLE OF GROWTH TO THE SECTOR
The outcome of the US election provides fertile ground for the further expansion of the medical cannabis sector. As early as November 2020, before it was known that Senate would also be in Democratic hands, five new states in the US decided to legalize a mix of adult use or medical cannabis.
Of particular significance is the legalization of cannabis for adult use in New Jersey which is causing a domino effect in its neighboring states on the densely populated east coast. The majority of Democrats in the House and Senate means that cannabis reforms now have a much better chance of asserting themselves nationwide.
MEDICAL CANNABIS DEEMED ‘ESSENTIAL’
The authorities in Canada and the USA have recognized the importance of the medical cannabis sector and deemed these companies as ‘essential’, so that they could continue their business operations despite lockdowns during the Pandemic. This is the first time that the importance of the sector had been highlighted by the state and clear signal to the market that the industry has developed a long-term raison d’etre.
GROWTH IS PROGRESSING WORLDWIDE
Within Europe and the UK, we are seeing multiple jurisdictions adopt a legalization framework and expect the rate of cannabis reform to accelerate on a global scale as medical cannabis becomes comes more accepted.
The speed of such developments is often influenced by what is happening in the US and again highlights the importance
of the current US election results for the cannabis sector worldwide. We expect that the US will provide regulatory precedence for many countries over the world and there is still a significant addressable market yet to come online.
Germany reached a symbolic milestone in September. Since the start of the medical cannabis program in early 2017, more than 100,000 patients have applied for reimbursement from their insurance companies2.
Although this figure is not all-encompassing, it provides an insight into the growth of the medical cannabis program in Germany, which has grown steadily since its introduction. Total refunds amounted to EUR 36.7 million in the second quarter
of 2020. As a result, Germany achieved sales of around EUR 150 million and an increase in sales of 24% compared to the previous year3.
1 Source: Medical Cannabis and Wellness Equity Index (NTR) 40.41% as of 30.12.2020
2 https://mjbizdaily.com/german-medical-cannabis-applications-for-insurance-reach-100000/
3 Source: https://mjbizdaily.com/insurance-covered-medical-cannabis-falls-for-the-first-time-in-germany/
DIY Investor Magazine | Mar 2021 28