Growing cannabis legally in the UK is hard, but far from impossible

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Editor’s Note: George McBride is the co-founder and CEO of Hanway Associates, a London-based strategic consultancy specialising in cannabis research, new market entry, commercial diligence and M&A strategy. Here he writes about the developing legal cannabis market in the UK and the creation of CROP17, a collaboration between Hanway Associates, Savills and CambridgeHOK focused on providing turnkey solutions for building cannabis growing facilities.

The UK government legalised medical cannabis in November 2018. A wave of other European countries including France, Germany and Italy have continued to liberalise their medical cannabis laws to improve patient access. Medical cannabis is being prescribed for a range of different conditions in countries around the world, some with strong evidence of beneficial impact including neuropathic pain, chemotherapy-induced nausea and vomiting, epilepsy and multiple sclerosis. UK private patients are currently accessing cannabis-based medicinal products for a range of conditions. 

The recent changes to the medical cannabis laws in the UK have created a great deal of interest in the business opportunities for UK farmers and experts in controlled-environment agriculture, not least to capitalise on the attractive margins on offer from cannabis crops, which are more lucrative per gram for British farmers than strawberries.

BDS Analytics has forecast that the worldwide legal cannabis industry generated revenues in the region of £11.5 billion in 2019 and is expected to grow to around £35 billion by 2024. Alongside this phenomenal rate of growth, the UK agriculture sector is embarking upon a period of unprecedented change. A phasing out of subsidies, a new dawn for trade, adapting to meet climate change targets and huge growth in agtech presents the industry with huge challenges and opportunities. For the forward-thinking and innovative farmer and grower, adapting to new markets is a key priority.

Cannabis cultivation and controlled environment agriculture go hand-in-hand and medical cannabis cultivation could be the key to unlocking the potential for controlled-environment agriculture in the UK. 

Due to the illegality of cannabis cultivation, it was forced out of the light and into the shadows. As a result, despite the cost, cannabis has been grown indoors under lights for decades. Many of the familiar modern cannabis cultivars are best suited to being grown indoors. By cultivating high margin crops like cannabis, sophisticated operators can build profitable businesses which will in turn help to drive down the cost of building and operating modern glasshouses and indoor facilities. Furthermore, having a popular crop grown indoors helped drive forward a number of the innovations which are also helping make indoor cultivation cost-competitive with outdoor cultivation in some parts of the world. It’s also making the space more accessible to newcomers to the cannabis industry, but also indoor growing more generally.

In 2017, the UK was the globe’s largest legal producer of cannabis – 258 tonnes vs Canada’s 130 tonnes. Just over 400 tonnes were recorded in all, so the UK accounted for 64% of all 2017 legal cannabis production. This is because the UK is home to GW Pharmaceuticals, which has launched two pharmaceutical drugs derived from cannabis grown in the UK. NB: because cannabis is still technically illegal at the federal level, US volumes were not included in these figures, but are no doubt a lot larger. 

The UK is an ideal place for investors looking for security of tenure, low political risk, high manufacturing standards and a highly skilled workforce all of which will assist businesses on the path to exporting to other highly regulated markets such as Germany and supplying the burgeoning UK market. The total number of medical cannabis prescriptions issued in the UK could surge from a few hundred in 2019 to more than 185,000 by the end of 2023 if the country follows a similar path to Australia, whose medical cannabis programme has grown rapidly since the government relaxed restrictions in 2018.

However, a complex and opaque licensing regime has made it more difficult to enter the market than many were expecting. Extensive barriers to entry guard the nascent medical cannabis industry. 

Would-be medical cannabis cultivators must ensure a compliant supply chain for their products, secure the facility, comply with pharmaceutical regulations, obtain a number of licences, ensure they remain cost-competitive through low energy prices, intelligent build designs and securing an ideal site. Those are just a few of the steps on the path to building a successful commercial cannabis cultivation operation.

Savills, one of Europe’s largest housing and agricultural land property companies, wants to capitalise on the growth potential of the UK’s cannabis market and has partnered with our strategic consultancy for the industry Hanway Associates and CambridgeHOK, an innovative glass-house builder that has already converted a number of agricultural sites into cannabis cultivation facilities. We hope the partnership — CROP17 — will vastly improve the feasibility of businesses looking to become medicinal cannabis cultivators in the UK.

When considering setting up a cannabis cultivation facility, prospective market entrants need to think about securing a cheap source of heat, power and CO2 as well as a highly-skilled labour force, a secure site, established licensed partners in the industry and a well-designed facility that minimises both the capital expenditure and operating expenses of the project. 

Cannabis legalisation in the UK might be a slow burner compared to some of the reforms in North American jurisdictions. Only 20 high-THC cannabis cultivation active licences were issued to companies between October 2018 and 2019. However, the global tidal wave of reform seems to have unstoppable inertia and business opportunities for sophisticated operators in the UK are on the horizon.

Developing more effective cannabis-based medicinal products and improving patient access to these products presents both a challenge and a substantial commercial opportunity. The UK is well placed to take advantage of this opportunity with a highly professional and well regulated agricultural and life sciences sector. 

Read Original Report Here By Ag Funder News

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