The obstacle course that lies ahead of the fledgling cannabis retail industry

The teething problems of finally bringing this ancient commodity to market are unlikely to stop it happening eventually

Our exposure to cannabis is, for lack of a better phrase, getting higher. With past squeamishness dissipating and an increasing number of countries deciding to decriminalise it, cannabis is now showing up in beverages, body lotions, sweets and pain relief gels. There’s a faintly faddish similarity to the craze for product developers in the early 20th century to include radium in practically any existing product, from chocolate to water to suppositories, after its discovery by Marie and Pierre Curie in 1898. Much of this was down to purveyors of quack medicine hawking its supposed curative properties, when they were anything but…

But unlike radium, cannabis doesn’t poison you, and has been used medicinally and recreationally for centuries. People have been smoking and baking with it – even Queen Victoria used it as a painkiller. However, as it’s been a controlled substance for most of the last century, what we know about its chemistry and physiological effects is mostly anecdotal, as researchers and pharmaceutical companies have until recently refrained from getting involved with it.

The early adopter advantage for countries legalising recreational use

You may be forgiven for thinking that countries that have already taken the jump to legalise the recreational use of marijuana (the psychoactive strain of cannabis) are the most likely to become frontrunners in all subsectors of the market. But these pioneering markets – such as the Netherlands, Canada and an increasing number of US states – have a slew of regulatory and supply-related hurdles in front of them that they need to jump before their markets can mature, enabling them to truly capitalise on their economic and social risk-taking.

The Netherlands, for example – famous for its “coffee shops” and libertarian attitude to cannabis for the past 50 years – can’t jump onto the global cannabis growers’ bandwagon as it’s hamstrung by the fact that, although smoking pot is decriminalised in the country, supplying it is not. Therefore, unless coffee shops go out of their way to buy from private growers whose stock doesn’t exceed five plants, they will need to source their offerings elsewhere – such as the black economy.

In Canada, where cannabis for recreational use was legalised in 2019, an initial “green” rush was halted by the double whammy of sluggish supply and a lack of demand at the premium prices of the legal market. As a result, contrary to legislators’ intentions, almost half of customers stuck with the well-oiled black market.

In the United States, the country best posed to lead the charge for recreational cannabis, retail marijuana sales are expected to reach $8.7 billion (£6.2 billion) in 2021. However, business in the 17 states where marijuana is already legalised is held back by federal law under which the use and sale of cannabis of over 0.3 THC content is illegal – as well as by a degree of resultant, and understandable, consumer hesitancy.

The thriving UK cannabidiol market

This brings us to the two most important compounds of the cannabis sativa plant, or cannabinoids: virtuous CBD or cannabidiol, and dubious THC (Tetrahydrocannabinol), the psychoactive component that makes you high.

Britain may not be a frontrunner in the recreational cannabis market, but it is certainly a leader of the pack in products which harness the supposedly beneficial abilities of cannabidiol to ease symptoms of cancer, anxiety and depression and relieve inflammation and pain.

The CBD-infused beverages market in the UK is said to have the potential to take on the £1.2 billion energy drink sector. Moreover, the pandemic has seen CDB products soar as customers increasingly sought out healthy purchasing options.

To crack down on proliferating poor quality products with THC content exceeding the UK watershed (0.2 per cent), or not delivering on the CBD percentage promised on the label, edible products containing cannabidiol were classified in January 2019 as novel food (anything that wasn’t consumed to a significant degree in the UK before the classification was introduced by the Food Standards Agency on 15 May, 1997).

Another factor that has necessitated rigorous quality control is cannabis’s propensity to absorb detrimental substances from the soil, such as pesticides and other contaminants. This has given rise to a flourishing global cannabis testing market serving food and beverage, medicinal and recreational cannabis markets alike.

The deadline for CBD businesses to submit valid novel food applications to permit the continued sale of CBD products in the UK was 31 March 2021.

However, influential retail publication The Grocer found that on 19 April, the list of products with validated novel food applications were owned by only three brands. As an act of generosity as well as pragmatism, the FSA decided to allow products with submitted but not-yet-validated applications to stay on the shelves with the presumption that they will in due course be granted status.

Although strict regulations, such as the FSA’s for CBD products, are often seen as underhand efforts to thwart a booming business, they should bring consolidation and increased credibility to the market and the players that survive. Besides, the cannabis industry, following the legalisation of CBDs and medicinal cannabis in several countries and recreational in a few, is most probably beyond the point of no return. 

Zita Goldman

Zita Goldman

Zita Goldman covers digital transformation with a focus on demystifying digital technologies and showing how they fit into a broader sectoral, macroeconomic, legislative and societal context. She has a passion for connecting the dots of current business and financial news and explaining inconsistencies, for giving hype a reality check and looking behind buzzwords for fresh meaning.

© Business Reporter 2021

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