Is industrial hemp legal in the US
Great disillusionment: The marijuana industry in the USA is in crisis
New York. Stock market crash, lack of money, a wave of bankruptcy looming: In North America's cannabis industry hangover is spreading after the intoxication of the past few years. Despite the boom in the course of legalization in Canada and several US states, the high expectations of many entrepreneurs and investors have not yet been met. There are now even signs of an investment bubble. Is the trend out of the air again?
The hopes were enormous - there were also good reasons for that. In 2018, the most populous US state, California, and then Canada, allowed marijuana to be used as a stimulant. This opened the world's largest markets for the legal cultivation and trade of the drug, which triggered a rush of investors. The prospect of high returns attracted billions in investor money.
Various celebs beat the drum for cannabis companies - from American football legend Joe Montana and Hollywood actors like Whoopi Goldberg and Woody Harrelson to ex-boxing champ Mike Tyson to rapper Snoop Dogg and heirs to reggae icon Bob Marley and Silicon -Valley star investor Peter Thiel. But the past year brought the industry back down to earth with force.
The WEED marijuana stock index, which measures the performance of listed cannabis companies, fell by almost half in 2019. Since April it has even been in the red by well over 60 percent. The six largest corporations have since lost around 25 billion dollars in market value. "This is the 2008 of the cannabis industry," says Kevin Murphy, the head of the industry giant Acreage Holdings - a comparison with the horror year of the financial crisis.
Still banned under federal law
What are the reasons for the crash? In the United States, marijuana is now legal or entirely legal in 33 states for medical purposes, but it is still banned under federal law. As long as this doesn't change, cannabis companies face problems. Banks, insurers and financial services providers steer clear of the industry - loans and even accounts are often difficult to come by. There is another major disadvantage in times of crisis.
Because of the prohibition under federal law, companies cannot apply for creditor protection under bankruptcy law. And the situation already seems precarious. According to financial service Bloomberg, only the strongest companies receive fresh funds on the capital markets. A dozen smaller companies are threatened with bankruptcy in 2020, Bloomberg quotes an anonymous manager from the industry. Some companies could run out of money in the next few weeks.
Even some large corporations are in dire straits. The Californian heavyweight MedMen Enterprises recently announced a radical downsizing and sales of business units and was forced to increase its capital despite unfavorable conditions. In neighboring US Canada, the situation is different, but also critical. Marijuana is allowed nationwide here, but many companies have a hard time. The first bankruptcies have already begun.
In Canada, the hoped-for rush for legal marijuana has simply not been seen. Government polls show that only 28 percent of users obtained marijuana legally in the third quarter. The majority apparently - like in California, by the way - continue to rely on the black market, where the prices are cheaper. Legal trade is difficult to get started, with significantly fewer cannabis shops opening in Canada than expected.
Second wave of legalization in Canada
The young industry hopes that this will change soon. After all, the fact that a second wave of legalization is only just getting underway is causing confidence in Canada. Because so far it has only been about the classic "weed" sale, but a large part of the marijuana business is now made up of "edibles". The umbrella term includes various articles related to the drug - from drinks, oils and biscuits to pills and ointments to sedatives and appetite stimulants.
These products were only allowed in a second step and are now the great bringer of hope for the battered industry. The business consultancy Deloitte anticipates that this “cannabis 2.0” trend will only really develop its market potential. Canada will therefore remain the driving force behind a growth spurt that is likely to increase the global volume of the cannabis market from currently 100 billion to 194 billion US dollars by 2025.
There are certainly optimists in the USA too. Analyst Vivien Azer from the investment house Cowen & Co, for example, sees the impending wave of bankruptcies as a kind of downsizing that will ultimately help the industry. The market must be "cleaned up". At least the at times feared scenario of a strict crackdown on cannabis by the US federal government seems increasingly unlikely. With the departure of Donald Trump's first attorney general, Jeff Sessions ("Good People Don't Smoke Marijuana"), a major risk has disappeared.
And people's approval of legalization has never been higher, so the Trump administration wouldn't do itself a favor with a tough line against cannabis. According to a CBS poll, around 65 percent of adults in the United States were in favor of legal marijuana in 2019 - a high. For the first time, a 56 percent majority of Republican voters are in favor of this. So far, however, there are no indications of nationwide legalization, even if President Trump spoke out in favor of it many years ago. dpa / nd
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