Why Britain should join the race to corner the cannabis market

Germany’s government is to legalise cannabis – but Britain risks getting left behind in a growing new industry, says Matthew Lynn.

There was not much in the platform of Germany’s new coalition government, composed of the Social Democrats, Greens and Free Democrats, to re-energise an economy that, for all its formidable strengths, has started to look very 20th century. But there’s one eye-catching pledge – to legalise cannabis, and hence take global leadership in what promises to be a major industry over the next 50 years. The coalition is committed to permitting the sale of cannabis in licensed stores or cafes, much like tobacco. (The drug has been legal since 2017 for medical purposes, and, as in the UK, the police haven’t shown much interest in enforcing prohibition.) 

That no longer sounds as controversial as it once would have, but it is still significant. As the first major country to legalise it (although the US is close to it as well, with state-by-state laws gradually making it legal across the whole nation), Germany will take a huge lead in the legal marijuana industry. And with that business estimated to be worth $90bn globally by the end of the decade, it is a prize well worth having. 

The difference legalising cannabis will make

Legalisation will, obviously, change the business dramatically. An illegal industry, even if the police mainly turn a blind eye to it, inevitably has to operate in secret. People are constantly at risk of arrest. Customers don’t really know who they are dealing with, and don’t have any form of redress when things go wrong. You can’t even have stable distribution channels – the business will inevitably be small-scale, fragmented, and its entrepreneurs mostly worried about staying out of jail rather than improving the way it operates. For all that it will probably be fantastically profitable, of course. After all, there has to be a reward for taking the risks, and the possibility of arrest will deter many people who might otherwise enter the business. And yet even the profits are problematic. The money has to be laundered, instead of being placed in the bank, or reinvested in the business. 

With a licensed, legal product, proper companies will start to emerge, with professional standards of manufacturing, distribution, marketing and financial control. Very quickly cannabis will turn into another standardised consumer good, with a handful of big brands dominating the market, known and trusted by customers. The first major country that legalises cannabis will be the one that creates the giants of the industry. Within a couple of years, two or three major, professionally run German cannabis companies, with powerful, well-designed branding, and expertly run, efficient production, will have emerged. And then, as other countries steadily legalise as well, those companies will move into those markets quickly. They will have the money to invest and will have fine-tuned manufacturing. Legal cannabis will then become a German-dominated industry, much like luxury cars or machine tools. 

Britain should steal a march on Germany

It is surely a huge mistake for the UK to surrender that industry to the Germans. There is no reason why cannabis shouldn’t be a major British industry. The UK has traditionally been very good at creating global businesses out of addictive, mood-boosting substances. The likes of BAT and Imperial Brands in the tobacco industry and Diageo in the drinks industry are proof of that. We have the advertising agencies and brand consultancies that could no doubt come up with a great look for legal products. There is plenty of demand. And, as it happens, we already have a fledgling industry starting to emerge. Only last week, the medical cannabis company Equinox announced plans to float, and there are plenty of others just getting started. 

There is just one problem: medical use aside, it is still technically a banned product in the UK. And so long as that is true, it is impossible for professionally run companies to emerge. It remains in the shadows. As a global legal cannabis industry emerges,
the UK should be a world leader. But right now we risk letting Germany take the lead. The solution is simple: legalise cannabis before any other major country does. It will boost the economy – and might even give the Tories a boost in the polls, especially among young people. 

Recommended

Changpeng Zhao: Binance founder undaunted by the crypto winter
Bitcoin & crypto

Changpeng Zhao: Binance founder undaunted by the crypto winter

Changpeng Zhao, the founder of controversial cryptocurrency exchange Binance, has been severely battered by carnage in the sector. But the future is b…
3 Jul 2022
Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Just how powerful is artificial intelligence becoming?
Tech stocks

Just how powerful is artificial intelligence becoming?

An uncannily human response from an artificial intelligence program sparked a minor panic last month. But just how powerful are machines getting – and…
2 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022

Most Popular

Five dividend stocks to beat inflation
Share tips

Five dividend stocks to beat inflation

During periods of high inflation, dividend stocks tend to do better than the wider market. Here, Rupert Hargreaves pick five dividend stocks for incom…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022
UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022