Business

Cannabis industry can reach US$300 million in Jamaica

BY ALEXIS MONTEITH
Observer Business Writer

Wednesday, September 18, 2019

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Raj Khanna, chief investment officer of SSL Growth Equity Limited, the parent company of Stocks and Securities Limited (SSL) in Jamaica, believes that investors can benefit from what he says is a US$300-million local cannabis industry.

Khanna made the disclosure at a series of educational sessions which was recently staged by Jamaican cannabis- based company Itopia Life, in partnership with SSL, targeting potential investors and educating them on the advantages of investing in the cannabis business.

According to the chief investment officer, the attractive value of the Jamaican cannabis industry actually pales in comparison to the wider global industry where Canada's industry, for example, will be valued at US$12 billion in the next five to 10 years and the value of the industry in the United States will reach US$50 billion over the same time period.

“This market is a global movement where the data is showing that 15 to 20 per cent of any population is, in some shape or form, open to or using cannabis,” Khanna said.

“And in the Caribbean, by the way, the statistics are even higher, being closer to 40 to 42 per cent. That is a massive market. “There is space in the local industry for three to five prominent, well-run companies to really be market leaders,” he added, noting that this was often the case in other industries in Jamaica.

Despite the lucrative appeal of the cannabis business, Khanna acknowledged that there are psychological barriers to investment that need to be removed. “I think there are two concerns,” he said.

“One is the stigma and one is US banking relationships. Because it is still federally illegal in the US but it is legal at the state level in a majority of states in the US now, a lot of folks worry about what that means for them travelling to the US or what does it mean for them having US banking relationships.”

On a global level Khanna informed that cases such as the story behind Charlotte's Web, the strain of cannabis that was named after a young girl who used it to reduce epileptic seizures, and the experience of Billy Caldwell, an epileptic child whose plight led to the legalisation of cannabis in the United Kingdom, have helped to remove the stigma around cannabis as more people become informed of its benefits. Regarding banking concerns, the SSL Growth Equity Limited executive assured that “there is no implication from a banking perspective”.

“Investing in a local Jamaican company has no implications in the US, so people need to hear these things and then make up their own minds,” he said. Khanna explained that Itopia Life's intention of growing the local market makes it an attractive target for investment. While some investors are interested in companies that are planning to export, the chief investment officer warned that even when export laws finally come into place in Jamaica, companies will have to meet the operating standards of the importing country.

“In every country, the way to invest is to invest in companies that are growing the local market first and foremost — because it will take three to five years to sort out the movement of the product in some reasonable shape or form across countries and across regulatory jurisdictions,” he advised.

He also added that data show that certain foreign markets, such as Canada, may become oversupplied in the coming years, causing the price of cannabis to go down. Regarding growth of the market in foreign countries he also warned that while a lot of the stigma surrounding cannabis has been removed, the battle is still ongoing even fifty years after the United States made it a schedule one drug in the same category as heroin.

“So when you are making an investment you have to make an investment in what is real, and what is real is the local market,” Khanna asserted, once again emphasising the openness of the local market to cannabis. Another advantage of the local industry shared with potential investors at the educational sessions is that “Jamaica is probably the only country in the world where you can actually build a brand” in the cannabis business. According to Khanna, this is not possible in many countries.

“In Jamaica I can sponsor a musical event, I can sponsor something else,” he explained. “In Canada today you cannot do that, because the Canadian industry is federally legal but you can barely market the product. You can't build a brand in Canada; In Jamaica you can build a brand. Itopia Life can be a true brand — and that brand is going to have value and Jamaican roots.” Khanna stated that Itopia Life is valued at US$8 million, and he divulged that what makes cannabis companies so attractive at the moment is that they are being valued like technology companies.

“What I mean by that is if you look at Canopy Growth, which is the biggest company in this industry, it is valued at 30 times revenue — and that's sales not profit,” he underlined.

“They are being valued like high-growth technology companies because the data is showing that the potential is that high.” The chief investment officer congratulated the Cannabis Licensing Authority (CLA) on making sure that there is Jamaican ownership of the industry by requiring that registered companies be at least 51 per cent Jamaican-owned.

This, he said, will provide opportunities for Jamaicans. However, he believes that this regulation should be removed after Jamaicans have entered at the ground level, so that the industry can be opened up to grow globally.

“Internationally they can lift themselves into an IPO and grow themselves and become true global brands,” he explained.

The educational sessions held by Itopia Life and SSL targeted small to medium investors. The cannabis company had already held discussions with high net worth individuals and families but is also aiming to be inclusive by pitching the advantages of investing in the cannabis business to as wide an audience as possible.

The chief investment officer believes now is the time to invest in cannabis, and he offered some guidance.

“Only invest the money you don't need for the next two to three years,” he counsels. “Keep it very conservative, because it is going to take that time between the regulations, the company's growing, and the actual IPOs. Don't expect there to be an IPO in six months.”


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