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Getting in on the ground floor of a potentially revolutionary venture before it explodes is one of the best ways for pot stocks to grow. That growth may be all at once, or it may be slow and steady, but if the whole sector begins turning towards one trend or one factor that reliably leads to profit, the companies that established an early position in that factor will see the greatest benefit.

This is why Canadian companies are so well-positioned in the cannabis industry. Early legalization allowed corporations across Canada to become first-movers in a number of key markets.

Now, many of these companies are looking for the next region to offer a first-mover advantage. While Europe has gradually been opening up to cannabis enterprise, yielding growth for some CBD companies, one little-known African nation is suddenly drawing a lot of attention from pot stocks across the sector.

Lesotho Might Be the Best Place in the World to Grow Cannabis

The Kingdom of Lesotho is a landlocked country entirely surrounded by South Africa. With a population that’s just over two million, this former British commonwealth nation is one of the smallest on the African continent but is also one of the best educated.

In December 2017, it became the first African country to legalize the cultivation of marijuana for medicinal purposes. While this brought some initial interest from investors, it’s only in the last year or so that pot stocks have begun to realize what a one-of-a-kind opportunity Lesotho provides.

A combination of low-cost labor, accessibility to Europe, and a climate that’s ideal for cannabis cultivation has led Canadian companies to begin racing to Lesotho. The country is washed in sun—enjoying 300 sunny days a year—but sits at a high altitude, keeping humidity perfect. The soil is also especially fertile, yielding high-quality cannabis. This has led the country to become a hotspot of cultivation to feed Europe’s growing demand for cannabis.

On top of that, Africa itself is a market on the rise. By 2023, legal cannabis sales on the continent could be worth $7.1 billion according to the African Cannabis Report.

The government of Lesotho has even been called “very proactive, very co-operative” to the incoming corporations. After the initial round of cannabis cultivation licenses were granted last year, a second round is fast approaching, meaning that more companies will take advantage of the valuable cultivation space that Lesotho provides.

So which pot stocks have been making moves in this country?

Canopy Growth

Last year, the world’s biggest cannabis corporation, Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), become one of the first to recognize the incredible potential of Lesotho.

In May 2018, Canopy acquired licensed producer Daddy Cann Lesotho for $28.8 million CAD. This move represented the company’s “first step into Africa,” according to Canopy President Mark Zekulin.

The acquisition provided Canopy with two facilities, the first containing 21 million square feet of outdoor cultivation space, and the second containing 322,000 square feet of indoor, outdoor, and greenhouse space combined. At both of these locations, the company is growing CBD-dominant and CBD/THC-balanced cannabis strains.

Supreme Cannabis

Despite its early foot in the door, Canopy was not the first cannabis company to establish its presence in Lesotho. That distinction goes to Supreme Cannabis Company (TSX:FIRE) (OTCQX:SPRWF).

In March 2018, Supreme spent $10 million to acquire approximately 10 percent of Medigrow Lesotho Limited. This deal will see Medigrow produce medicinal cannabis oil in Lesotho, which will then be exported to Canada for distribution by Supreme.

Though the African Kingdom offers unique benefits to companies operating in any corner of the cannabis sector, it’s a particularly good investment to pot stocks looking to capitalize on cannabis oil. Spokesmen for the Lesotho government have gone on record saying that they want their country to become “one of the world’s largest exporters” of cannabis oil for pharmaceutical purposes.

At the end of May 2019, South Africa legalized the sale of CBD products. Seeing as Lesotho is located literally in the middle of South Africa, companies in the region are incredibly well-positioned to provide CBD to the nation’s 57 million residents.

Halo Labs

Halo Labs (OCTQX:AGEEF) is one of the smaller pot stocks investing in Lesotho. Currently trading at $0.32, it’s not a company with a lot of capital to spend on experimental or frivolous ventures. That’s why, with the funds it does have, it followed Supreme and Canopy into southern Africa.

In July 2019, Halo bought a Lesotho-based medicinal cannabis company, Bophelo Bioscience & Wellness, for roughly $18.4 million. This provides Halo with a little more than half a million square feet of cultivation space and made it the first American cannabis company in the country.

Halo Labs CEO Kiran Sidhu said in an interview that, “Out of all the places we’ve looked in the world—be it Columbia, Cambodia, etc—Lesotho is the best positioned place on the planet right now to grow cannabis cost-effectively, in a perfect climate, with a great regulatory environment.”

It remains to be seen which companies will be the next to hop on the train to Lesotho, but the prospects of this nation becoming the heart of cannabis cultivation and sales to the rest of Africa—and indeed, to Europe and even North America—look incredibly strong. These three pot stocks already have a presence there, and very soon more will be racing to join them.

Is the cannabis industry in the UK a risky business? John Binns, Partner at BCL Solicitors LLP finds out more

Few can have failed by now to spot that cannabis and cannabis derivatives, are increasingly big business, not only in countries like Canada, but also right here in the UK. But the question of how this brave new world fits with the UK’s institutional attitude towards cannabis is an important one and divides into domestic and international issues.

Taking the domestic first, those who grow, sell or do research on cannabis in the UK itself need to register with and obtain licences from a specialist Home Office unit, which is dealing at present with a very large number of applications and enquiries. Businesses that expect an easy ride from the unit, or to be able to deal with it on a commercial basis, can become frustrated with its processes and mind-set, which are – understandably, perhaps – particularly focused on the security aspects of what the law still considers a dangerous drug.

The casual observer could be forgiven for thinking that the position is more nuanced than it is, thanks to eyecatching headlines in autumn last year to the effect that medical cannabis had been legalised (1). In fact, what has happened was that an exception has been made for ‘cannabis-based medicinal products’ (CBMPs), though only where prescribed by a specialist clinician (not just a general practitioner) or granted a marketing authorisation by the Medicines and Healthcare products Regulatory Agency (MHRA) (2). Those restrictions have proved to be strict in practice and the headlines now are about why, despite the legal change, the number of patients who can actually access medicinal cannabis here remains extremely small (3) and patients who are forced to obtain their medicines abroad are still seeing them seized at the border (4).

Another common misconception is that cannabis, or cannabis products, with a THC level below 0.2% are straightforwardly legal in the UK. It arises because the threshold is relevant for various purposes in European Union (EU) legislation and other EU jurisdictions and in the UK plays a role in determining when the specialist licensing unit of the Home Office would be prepared to entertain applications for a cultivation licence (and what fees would be applicable for such licences). But where the question is whether a substance contains THC, so as to make it a controlled drug, it plays no role at all and the better legal view is that if there is any measurable THC content, the prohibition applies (subject, of course, to having a Home Office licence) (5).

That same question has also given rise to widespread confusion about CBD oils and other CBD products in the UK, which are increasingly ubiquitous on the high street. An MHRA statement in 2016 (6), to the effect that it would treat CBD products that had medical purposes (a category that, in practice, largely depends on how they are marketed) as medicines, was widely misunderstood: while those few CBD products that are described in that way will need MHRA authorisation, the statement has no effect on the broader ‘wellness’ market, including food supplements, or on (say) cosmetics, or vaping products. Many who are not well versed in this area may, in fact, be taking the risk of products being seized, premises raided, or personnel arrested.

The international issue, meanwhile, is that businesses planning to invest in cannabis overseas and then bring the proceeds here (or otherwise involve UK-incorporated entities), should also have UK money laundering laws in mind. Under the Proceeds of Crime Act 2002, it is an offence to do virtually anything with the proceeds of ‘criminal conduct’, which is defined to include conduct that is lawful overseas but that would be unlawful if it occurred here.

That does not necessarily mean that a UK investor in a Canadian cannabis company, for instance, is breaking the law by doing so. But there are judgement calls to be made about whether, when and how the investment should be reported to the National Crime Agency, with the aim of obtaining consent. Importantly, they are not made in isolation but alongside similar judgement calls by banks and others in the regulated sector, who have their own responsibilities to consider.

In the background of both sets of issues is the divide between medicinal and recreational use, as various jurisdictions consider where to draw their lines and the growing ‘wellness’ market blurs the divide still further. The UK, it seems, has some considerable way to go before even strictly medicinal cannabis is available to all who need it.

In time, perhaps, the UK may follow the example of Canada and others and adopt a more relaxed approach to cannabis. But for now at least, businesses that want to operate here must temper their enthusiasm by taking a proper look at their plans through a law enforcement lens and making sure they stay on the right side of the law as it is today.

John Binns is a partner in the business crime and corporate regulatory department of BCL Solicitors LLP in London (www.bcl.com), whose expertise includes the UK regulatory aspects of the cannabis industry.

References

1 https://www.gov.uk/government/news/government-announces-that-medicinal-cannabis-is-legal

2 https://www.gov.uk/government/organisations/medicines-and-healthcare-products-regulatory-agency

3 https://www.bbc.co.uk/news/health-47241787

4 https://www.theguardian.com/society/2019/jun/07/mother-of-epileptic-girl-teagan-appleby-has-medicinal-cannabis-seized-for-second-time

5 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/778357/Factsheet_Cannabis_CBD_ and_Cannabinoids_2019.pdf

6 https://www.gov.uk/government/news/mhra-statement-on-products-containing-cannabidiol-cbd

When the U.S. Farm Bill passed last year and made hemp legal it marked a sea change in perceptions on the plant and was a major step for the cannabis industry to capitalize on the meteoric rising popularity of CBD. But the new law also created some unforeseen legal challenges, particularly with police struggling to tell the difference between marijuana and legal hemp.

Each individual state is entitled to come up with their own hemp and CBD laws, and Texas, which notoriously has some of the strictest cannabis laws in the country, legalized hemp in June. However, because law enforcement in the Lone Star state isn’t equipped with the ability to test the difference between pot and hemp it essentially, by accident, decriminalized cannabis altogether.

The key factor in separating the two species — hemp and marijuana — is the level of tetrahydrocannabinol (THC) levels must be below 0.3 per cent for a plant to be classified as hemp. The two plants look and even smell the same, but Texas police do not have the testing equipment to test for THC to verify the difference.

Because of the dilemma, district attorneys across the state haven’t prosecuted minor level marijuana crimes in the last two months. But the Texas Forensics Science Commission is working with federal authorities to come up with a new way to test for THC that could be available to prosecutors by early next year.

The commission, along with the federal Drug Enforcement Agency, is looking at how to best test for THC concentrations, and they came up with a 1 per cent level to identify the difference between legal hemp and marijuana. It determined using the sharp cutoff of 0.3 per cent could pose problems, as Texas allows medical programs where patients can possess CBD oil with up to 0.5 per cent THC concentration.

Considering how most marijuana today has a concentration of 10 per cent THC or higher, the 1 per cent cut the Texas government believes is a suitable cutoff. State authorities will determine if this new method of testing will work before issuing new guidance to crime labs throughout Texas.

Private companies also offer THC testing services

If Texas is not able to get its testing method for legal hemp and marijuana approved by 2020, there are private companies the state could utilize for testing.

Austin-based Ionization Labs has a machine called CannID, which can offer a precise breakdown — even identifying a concentration of THC that’s below 0.3 per cent.

“CannID not only allows us to process materials, oils and flowers, but it allows us to report very accurately the breakdown of all cannabinoids in percentages,” said Chase McMichael, chief science officer at Ionization Labs.

The company has contracts already with businesses in Kentucky, Oregon and several other states to test hemp crops and hemp derived products. It said it already offered to conduct tests for the Texas crime labs, or lease them the equipment.

But the state is aiming to have its own in-house cutting-edge technology, which could be more cost effective strategy.

Given the number of potential hemp and marijuana users in not only Texas but across the country, the need for a reliable and affordable roadside test is still needed anywhere hemp is legal. Otherwise, consumers of legal hemp could still be at risk of being arrested until confirmation can be made of whether the substance they’ve been carrying or using has in fact been hemp or marijuana.

Unless marijuana is legalized in the U.S. federally, which may not happen for years or at all, these issues will likely continue coming up.

All is not well in vapeland. Over the weekend, the Center for Disease Control (CDC) released a health alert with the headline: "Severe Pulmonary Disease Associated with Using E-Cigarette Products."  

The warning came on the heels of reports that at least 215 people in 25 states have reported lung-related illnesses associated with e-cigarettes or vapes. The first known death was in Illinois, where a patient who reported using E-cigarettes was hospitalized with severe respiratory illness and later died. That state alone has seen the number of cases of people reporting respiratory problems from e-cigarettes or vapes double in the past week. 

On Sunday, The New York Times released a bombshell story that quoted Dr. Melodi Pirzada, chief pediatric pulmonologist at NYU Winthrop Hospital in Mineola, N.Y., as calling the situation "an epidemic." The article went on to say: "Patients, mostly otherwise healthy and in their late teens and 20s, are showing up with severe shortness of breath, often after suffering for several days with vomiting, fever and fatigue. Some have wound up in the intensive care unit or on a ventilator for weeks." 

Not Just a Nicotine Problem

While research remains to be done, some reputable organizations consider vaping to be a safe alternative to tobacco. The Government agency Public Health England has said that vaping is safer than smoking and could lead to the demise of the traditional cigarette. 

However, the CDC warns that E-cigarettes can contain harmful substances, such as nicotine, heavy metals (like lead), volatile organic compounds, and cancer-causing chemicals. They go on to say that some products causing these illnesses may have been acquired from unknown or unauthorized (i.e., “street”) sources; and can be modified, increasing their potential for harm to the user.

But this isn't just a problem for tobacco smokers. According to the CDC, "many patients have reported using e-cigarettes containing cannabinoid products such as THC or CBD."

What Should You Do

While acknowledging that the recent vaping illnesses are part of an ongoing investigation, the CDC offers several recommendations to a public on edge:

Don't buy vapes from an unreputable source

Anyone who uses e-cigarette products should not buy these products off the street (e.g., e-cigarette products with THC, other cannabinoids) and should not modify e-cigarette products or add any substances to these products that are not intended by the manufacturer.

Monitor your symptoms

Regardless of the ongoing investigation, e-cigarette products should not be used by youth, young adults, pregnant women, as well as adults who do not currently use tobacco products. If you use e-cigarette products, monitor yourself for symptoms (e.g., cough, shortness of breath, chest pain) and promptly seek medical attention if you have concerns about your health. CDC and FDA will continue to advise and alert the public as more information becomes available.

Write down this information

If you are concerned about harmful effects from e-cigarette products, call your local poison control center at: 1-800-222-1222. The CDC also encourages the public to submit detailed reports of any unexpected tobacco or e-cigarette-related health or product issues to the FDA via the online Safety Reporting Portal: https://www.safetyreporting.hhs.govexternal icon.

Vaping is generally considered one of the safest forms of consuming cannabis. According to a study by Public Health England 

Reforms to the Netherland’s opaque cannabis laws are finally underway after an agreement was struck on a four-year trial to provide cafes with a legal and regulated supply of the product.

Under existing law, cannabis can be sold over the counter in licensed coffee shops, but it is illegal to produce and supply the drug.

From 2021, 10 areas will acquire a legal supply of top quality cannabis from regulated producers for their cafes, in a bid to reduce black market activity.

Indicating the contentious issue is still not settled, the four largest cities, Amsterdam, Rotterdam, The Hague and Utrecht, are excluded from the trial.

Officials decided it would be too dangerous and onerous to organize if the major cities overnight decided to cut off their existing suppliers. Arnhem, Almere, Breda, Groningen, Heerlen, Hellevoetsluis, Maastricht, Nijmegen, Tilburg and Zaanstad are the towns where a trial will be held.

The Netherland’s liberal drug laws have long split opinion, and cultivations remains a touchy subject as home-growing is outlawed in a country associated with recreational public smoking of the drug.

Amsterdam is a major tourist destination for cannabis enthusiasts but the country has turned a blind eye to the way cafes acquire their stock. Illicit growers supply the market while authorities ignore the transaction.

However, concerns over black market creep and the closure of hundreds of cafes over the last decade has forced the government to pursue a fully regulated market in order to not lose the tens of millions of euros generated annually from cannabis tourism.

Cities were reluctant to become involved in the government trial initially, with concerns any legitimate supply would be more expensive and turn away customers.

The trial will run at 79 coffee shops, which will report back the success of being supplied by legal growers between 2021 and 2025. Should the trial result in a positive change, the Dutch government will attempt to extend it nationwide and roll out a fully legal supply of marijuana for every cafe in the country.

In announcing the decision, Justice Minister Ferdinand Grapperhaus and health minister Bruno Bruins said consumer protection was the main priority. The pair believe the plan could end the “illogical and inconsistent” policy that puts cafes in hock to illegal suppliers.

Licensed growers have costly export contracts and there is currently no indication of prices they will offer the cafes, who have already warned that if the cost of buying is not maintained, cannabis users will simply go directly to the black market.

Claudia Gracia pushes her daughter Paulina in a wheelchair through the aisles of an exposition centre in search of the latest innovations in cannabis at the annual ExpoWeed gathering in Mexico's capital.

Paulina has lived with convulsions and shooting pains since birth 32 years ago, when her brain was deprived of oxygen and she suffered cerebral paralysis. Her body tenses with spasms and her fists clinch as her mother explains how cannabis has changed their lives by easing her pain and convulsions, though its use is illegal in Mexico.

"She has taken very strong painkillers and what has worked best is cannabis," said Gracia, who has been administering cannabis concentrate to her daughter for the past year. In that time, she says, her daughter's convulsions have diminished noticeably.

"I love cannabis now," the mother said, placing a reassuring hand on her daughter's quivering shoulder.

Gracia plans to seek a pardon from the Mexican court system so her daughter can consume cannabis legally.

The Mexican Supreme Court in August ordered the Health Ministry to publish guidelines for medicinal cannabis use within 180 days.

Last October, the court also ruled that the prohibition of personal use, possession and private cultivation of cannabis is unconstitutional because it violates "the fundamental right to the free development of the personality." In Mexico, such rulings do not automatically extend to everyone, though they often prod Congress to change laws.

And cannabis advocates now have hopes that Mexican legislators will decriminalize marijuana before the end of 2019.

Users have been lobbying for more than a decade to decriminalize consumption of marijuana and its derivatives. The government has at times put obstacles in their way, but that dynamic is expected to change under President Andres Manuel Lopez Obrador, who took office Dec. 1. His interior minister has called for decriminalization and regulation of illicit drugs so as to take away power from the cartels and stop punishing users.

"The security strategy needs to be reoriented toward crimes that really have victims," such as killings and other violent acts, said Lisa Sanchez, director of Mexicans United Against Crime, a group that has campaigned to decriminalize drugs.

Mexican President Lazaro Cardenas decriminalized use of marijuana and opioids in 1940, but quickly reversed course under pressure from the United States. Capos such as Joaquin"El Chapo" Guzman got rich smuggling marijuana into the U.S. in recent decades, although the cartels' marijuana proceeds have begun to dwindle as several U.S. states have legalized pot.

The civic group Mexico SOS says Mexico is the second-biggest producer of cannabis in the world, with the plant grown across 16,500 hectares (40,772 acres). Mexico's climate and cheap labour allow cultivation year-round.

Sen. Cora Cecilia Pinedo Alonso says the Mexican market for decriminalized or legalized cannabis could be worth $12 billion by 2029 -- about half that of the current Canadian market.

Entrepreneurs are preparing for the change.

At ExpoWeed, which has been held in Mexico City the past four years, Brenda Hernandez set up a stall over the weekend to sell vapes, pipes and other items as well as to evangelize about the benefits of marijuana, which she said she smokes almost every night just before going to bed.

"I grew up with a lot of prejudices -- I even looked down on people who smoked a lot (of marijuana)," said the 33-year-old mother and founder of Chicks Vs Stigma, a group that encourages women to consume cannabis without shame.

She said her prejudices melted three years ago after her mother turned to marijuana for relief from severe chronic back pain. "She had a crisis of pain for which not even morphine helped," Hernandez said.

A 2018 survey by Mexico's Center for Social Studies and Public Opinion said half of Mexicans polled oppose legalization of marijuana and seven out of 10 disapprove of its recreational use. However, when asked specifically about legal use for medicinal purposes, nearly 90% said that was acceptable.

Hernandez worries her pot use could be helping bankroll violent drug-trafficking networks. She would much rather be able to purchase high-quality marijuana from regulated vendors. She says she spends anywhere from 30 pesos ($1.50) to 400 pesos ($20) per gram on the street.

Nearby, a dreadlocked dub musician who goes by the name Booba Roots said he got involved with pot as a teenager "in a very criminal way -- on the street." Now 40, and consuming cannabis three times a day, he says it's time for legalization.

"A plant, as well as the consumers, has been criminalized, when it's something very natural," he said.

North American companies are wading into the German market at a rapid pace as its medical cannabis program blossoms.

Germany’s cannabis has been imported from mainly Holland and Canada, but a competitive tendering exercise has now selected three companies to create a domestic supply. Aphria and Aurora from Canada and Demecan from Germany, successfully bid to win the licences, say Prohibition Partners in its recent ‘Cannabis Legal Report’. 

Three Winners In German Growing Contest

The London-based analysts say the overall contract is for 10,400 kilograms, with Aphria and Aurora each winning five of the 13 lots, and Demecan the remaining three. While there are no official figures on the number of medical cannabis patients German cannabis firm Cannamedical Pharma, estimates 30,000 patients were served in 2018, and imports totaled 22,000 kilograms. 

A well as Aurora and Aphria, Canopy Growth has also also bought into the market with the purchase of the continent’s largest cannabinoid-based pharmaceutical company, Germany’s C3 Cannabinoid, for 27.1 million euros. Cresco Labs launched on the Frankfurt Stock Exchange (FSE) earlier this month with its CEO Charlie Bachtell saying in a press release that it ‘will allow European institutional and retail investors to pursue an investment’ in the firm.

German Market Listings De Rigueur

In the same week Vancouver-based testing company XPhyto Therapeutics announced its FSE listing, with CEO Hugh Rogers saying that given its  ‘German cannabis licence and its commitment to building import and distribution capability in the country, a Frankfurt listing was a logical choice’.

Canadian cannabis licensed producer Pasha Brands listed on the FSE in July as did U.S. firm Columbia Care saying it will help company break into the European market. Prohibition Partners estimates that Europe’s total cannabis market will reach a size of 123 billion euros within 10 years.

And, in its ‘Cannabis Legal Report’ report launched earlier this month it elaborates on the attraction of Germany for North American firms, saying its ‘medicinal market alone promises to be larger than Canada’s medicinal and recreational markets combined, making it an essential outpost for ambitious firms’. 

One of the added attractions of Germany for North American cannabis firms is its advanced insurance regime, and, while Southern European countries may become the leaders in production due to their warmer climates, Northern European countries such as Germany and the U.K. are stronger in research and development.

California’s cannabis regulations are the most business-friendly in the nation, according to an analysis conducted by the legal firm Thompson Coburn LLP.

The firm recently produced a “holistic state-by-state ranking guide that breaks down how favorable each state’s cannabis regulations are to businesses,” that put California at the top of the list of all 50 states plus Washington, D.C., according to a statement released on behalf of the firm.

The ranking gauged states on eight metrics, including legality and availability of recreational and medical cannabis, availability of commercial cannabis licenses and business opportunities.

“Overall, California’s attitude toward cannabis legalization and regulation is welcoming when compared to other states,” the report found. “With a robust supply chain for both medical and adult use emerging throughout the state, California leads the nation in its regulation of commercial cannabis activity and cannabis use.”

Though California got top marks, the report pointed out that there are several problem areas for marijuana companies looking to do business in the Golden State.

The report pointed out that a majority of municipalities prohibit commercial cannabis activities, creating a patchwork of legal statuses for marijuana businesses across the state.

“While some municipalities impose further restrictions or prohibit adult use, there are many that see legalization as an economic opportunity to be capitalized on,” the report found.

California took No. 1, ahead of Nevada, Colorado, Massachusetts and Oregon.

Rounding out the bottom five, rated least favorable for doing business in the cannabis industry, were the states of South Carolina (No. 46), Tennessee (No. 47), North Carolina (No. 48), South Dakota (No. 49), Idaho (No. 50) and Nebraska (No. 51).