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Investors see Canadian home-grow opportunity

A Canadian court ruling makes it legal for medical users to grow their own marijuana, while Australia's parliament takes steps towards the creation of a legal medical market.

A Canadian court decision has struck down a law prohibiting medical marijuana patients from growing cannabis in their homes, providing an opportunity for cannabis investors, a market analyst told Agri Investor.

Adam Grossman, an analyst for cannabis-focused private equity firm Phyto Partners told Agri Investor that products for home cultivation of marijuana represent a potentially profitable sub-sector in the growing legal marijuana sector. He said the court decision is likely to spur increased interest in home cultivation among Canadian medical marijuana users. Phyto Partners’ portfolio company Corsica Innovations won recognition at Techcrunch Disrupt 2015 for its automated home growing system for cannabis, called Leaf.

The Vancouver court found that Canada’s Marijuana for Medical Purposes Regulations (MMPR), which limit cannabis production in Canada to licensed producers, violates the country’s constitution. The court suspended enactment of its decision for 6 months in order to allow the federal government to establish new regulatory regime for Canada’s medical marijuana market that complies with the court’s findings.

Grossman said he does not expect home cultivation to threaten large producers. Instead, he sees the practice growing among a dedicated niche market of marijuana users, comparable to home brewers and gardeners.

“People want to know where their food and whatever else they’re putting into their bodies comes from,” he said. “There is a good amount of people [who] like to control their environment.”

For most users though, he said it will still be more convenient to purchase from licensed producers.

“A lot of things that we have in our household we can make. We can grow our own food, but we still choose to go to the grocery store… It’s still work at the end of the day,” he said. “I think the big, licensed producers are going to continue to grow rapidly.”

Grossman said that Canada has the potential to become the world’s most important legal cannabis market, estimating the size of its combined medical and recreational markets at between $5 billion and $7 billion.

The Canadian court ruling came on the same day Australia’s parliament voted to legalise cultivation of marijuana for medical and scientific uses. Grossman said that the decision is an important step in the development of an Australian medical marijuana marketplace, but the country will still have to establish a licensing regime for users and dispensaries. However, he said investors would be wise to begin making inroads in advance of future developments:

“[The decision] is more for medical researchers right now. It’s not a full-blown medical market as of now. It’s definitely on the pathway toward that, but it’s in the preliminary stages,” he said. “It would probably be advantageous for [cannabis] companies to develop relationships, whether it’s with researchers and developers or government officials, in order to get a foot-hold in Australia… I definitely see it as promising news.”

Phyto Partners invests in supporting services and technologies for the legal cannabis sector. It currently has nine portfolio companies and is targeting a $10 million raise for June 2016.