An Australian investment strategist focusing on cannabis says the sector's biggest player isn't even on the scene yet

SuppliedThe Green Fund founder Mark Bernberg

Investment strategist Mark Bernberg, who’s launched an investment consultancy for the cannabis industry, believes that Australia could legalise the drug for recreational use within five years and that the company that will ultimately become the Amazon of cannabis doesn’t exist yet.

Bernberg’s The Green Fund is tracking cannabis companies and revealing the trades in his investment portfolio, which has an international focus and argues that despite recent falls in value, the market is flourishing.

But with legal cannabis sales growing an 15% annually and the sector set to be bigger than the beer industry by 2035, it won’t be long before a major corporate such as Coca-Cola, Novartis or a tobacco company backs a new player that will go on to dominate the sector.

A recent study by Cowen put the cannabis industry’s current value at more than $US7 billion, growing to $25 billion industry by 2025 and nearly $100 billion by 2035.

While still in its infancy, with only 31 US States legalising the drug for medicinal use, plus nine legalising it for recreational use, Bernberg argues that once it’s decriminalised at the federal level, the US market will become the biggest market on the planet, with the recreational side dwarfing the medicinal market.

“Take a look at what has happened in Canada. Recreational marijuana is now fully legalised across one of the globe’s G-7 nations. This is the start of an inevitable movement towards a globally regulated cannabis market,” he said.

“Already, it has been legalised for medicinal use in various states in the USA as well as other global countries such as Australia and Germany.

“The medicinal benefits cannot be overlooked any more with cannabis-based treatments having a significant impact on diseases such as MS and epilepsy, as well as being the hottest topic in pain management — a $650 billion market.”

His take on the sector is bullish.

Bernberg believes that if the US legalises recreational cannabis, Australia will have no choice but to follow, and compares the medicinal cannabis sector’s impact on recreational use to the flow-on effect from Formula 1 to motoring in general.

“Just like developments in the automotive industry are influenced by advances in Formula 1, medicinal will pass down to the recreational market. Most of the companies in The Green Fund have a medicinal focus, with the upside of a recreational business model,” he said.

“Current figures estimate approximately 3-4% of the population will use marijuana for medicinal purposes, however about 25% of the population would use it for recreational purposes.”

He’s also using The Green Fund to look at the ancillary products and services around cannabis industry for investment potential.

“As the legal cannabis industry grows and develops, so too will the industry’s supply chains,” he said.

“There are dozens of potential links to this chain, from software and hardware to machinery, distribution, consultants, logistics, security and of course — pharmaceutical and biotechnology businesses.”

The ancillary sector puts the total economic impact of the cannabis industry in the US at $16 billion in 2016, soaring to $60 billion by 2021.

He’s writing a free weekly newsletter for The Green Fund and you can subscribe here.

Meanwhile, Business Insider asked Mark Bernberg to share his thoughts on where he believes the sector will be in 2023.

Here’s what he said:

Many people ask me where I see the Cannabis Industry in the next five years? It’s a question everyone is looking to answer, but no one can really answer it. The industry is simply moving too fast to know exactly what lies ahead. However, there are trends, and if one follows the breadcrumbs, one can certainly get a glimpse of what the future holds.

1. It’s a commodity
There is going to be so much weed. Everyone is racing to produce. Colorado (which legalised cannabis in 2014 has seen a dramatic decrease in the price of cannabis per kilogram. Once producers scale up, there is going to be a massive oversupply of cannabis and this will put downward pressure on the prices.

Producers that are not differentiated will suffer in the medium term and the small “low cost” growers will struggle to gain a foothold. In Australia there is currently a land grab under way with many small companies looking to establish cultivation businesses. In five year’s time, we see only a handful of Australian cultivators, most of whom will be focusing on production for and distribution to the APAC region.

2. It’s not even grown
Synthesised cannabis — CBD grown in labs and not in greenhouses — could well be the way of the future. Recently the Cronos Group announced an investment in GinkoBio, a company that is pioneering the production of synthesised CBD. This could have a significant impact on the industry, as it would put more pressure on Licensed Producers that have spent an inordinate amount of Capex to establish cultivation centres.

This is an area where Australia could shine. Most of the international companies are investing in Australia with a particular emphasis on R&D licenses and the Development of genetic IP. In five years, we see that with the right focus and international input, Australia has positioned itself at the epicentre of global advances in Cannabis research.

3. The money’s in retail
For the past couple of years, investors have made massive gains investing in the licensed producers (Aphria, Canopy Growth and Aurora to name drop a few). However, now that recreational legalisation has taken place and the retail market is in full swing, it is the retailers that will ultimately capture the lion’s share of the margin.

In Australia we have only seen one dispensary open for the distribution of medicinal marijuana. However it is our prediction that in five years, Australia would have legalised cannabis for recreational use and the dispensary and retail market will be thriving.

4. It’s going to be about brands
And speaking of retail, brands are going to be where the money is made. Consumers will demand high quality brands, with research showing that consumers display great loyalty to their retail outlet and their brand of choice. After all, do you buy beer or do you buy Corona?

In Australia, we see the emergence of “craft growers” delivering high end, premium brands that gain rapid market share. Although the majority of brands will come from the North American markets, Australia has a history of producing premium grade exports (fruit, wine etc.) and we see this history as repeating itself in this new commodity.

5. The biggest cannabis company in the world isn’t around yet
And finally, the biggest difference in 5 years time will be the market’s leaders. It is our belief that the largest cannabis company in the world doesn’t even exist yet.

For now, Canopy Growth leads the pack with a valuation of CAD$10.5 billion (at time of writing), however with Big Pharma, Alcohol and Tobacco actively tracking the industry, it is not inconceivable that Canopy could eventually be dwarfed by the likes of Coca-Cola, Diageo or Novartis.

*This article has been updated since publication.

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