Written for Business of Cannabis by Andrew Pepper, Partner at business restructuring and consultancy firm ReSolve Advisory.
In January 2021, Kanabo, a producer of cannabis vaporisers, announced that it would be the first medicinal cannabis business to list on the London stock market, with its shares doubling once listed on the back of high investor demand. The wider sector then doubled in size in the first half of 2021, which included the £5.6bn sale of GW Pharmaceuticals to the US group Jazz Pharmaceuticals and a £16.5m fundraise for Oxford Cannabinoid Technologies.
This success has not been sustainable and the sector has since taken a well-publicised downturn. Many listed businesses have suffered significant devaluation since the heady days of 2021 with share price drops of over 90% not uncommon, as evidenced by the likes of Oxford Cannabinoid. And even though cannabis imports in the UK in 2023 were three times the size of those seen in 2021, demand levels did not keep pace and the whole industry suffered as a result.
It is not all doom and gloom, however, as the UK remains the second largest European cannabis market after Germany and the first few months of 2024 have seen a number of green shoots emerge. In January 2024, Kanabo announced that it had signed a partnership with City Dock Pharmacy in London to launch a first of its kind walk-in pain clinic, with medicinal cannabis as an available treatment. On a longer-term view, the UK medical cannabis market is forecast to grow to as much as £453m by 2026 and it is not surprising to learn that an estimated 1.8 million people in the UK are thought to be using black market cannabis to treat a diagnosed medical condition.
A difficult regulatory environment
The scope for a thriving UK cannabis industry was initially realised by 2018 legislative reforms overseen by then-Home Secretary Savid Javid, which legalised cannabis for medicinal use. However, in the years that followed, Government licenses for growing cannabis were notoriously slow to roll out, which stifled the creation of UK-based jobs for the industry. Furthermore, despite significant prescriptions through the private sector at the time, very few prescriptions came through the NHS, inhibiting the development of what one might see as a “proper sector”. Indeed, in February 2021, only three prescriptions had been made through the national health provider.
In January 2021, the UK Government commissioned the Advisory Council on the Misuse of Drugs to provide recommendations for hemp and cannabinoids that could help boost the sector. These recommendations, which were provided in December 2021, included new guidance for the total dose of the active ingredient THC. These changes were not accepted by the UK Government until October 2023. Questions therefore need to be asked about the extent to which those involved were able to flourish in the sector’s early years, given the UK regulatory environment.
The issue of infrastructure
Another area of concern that may have inhibited the sector’s growth is that of infrastructure, or lack thereof. Although the likes of Tilray have developed its UK presence in cannabis production and cultivation, this still lags behind Germany, which has a far wider array of large, international companies deploying the necessary infrastructure to sustain a robust and successful cannabis sector.
While there is no panacea, one potential area for advancement is vertical farming infrastructure. The UK currently benefits from some highly advanced vertical farms growing amongst other things salad leaves, plants and herbs. This has the potential to be readily extended to the medicinal cannabis market. However, the UK’s investment per capita in agriculture technology currently lags behind that of Ireland and France and hugely differs in scale to that of the United States, where vertical farming has long been a common feature of the cannabis cultivation process. With significant up-front costs and concerns surrounding the practicalities of vertical farming, it will likely be some time before the UK reaps the benefits.
An evolving outlook
Despite these challenges, the continued expansion of the UK cannabis industry on the back of growing consumer demand, improving stabilisation and a changing regulatory environment looks assured. It is also becoming clear that in order to survive and thrive in the next period of growth, market participants need to embrace regulation and professionalisation in order to obtain a premium price for their product. Those at the lower unregulated and recreational end of the market will likely face a race to the bottom with low prices and poor returns.
