CULTURAL DISRUPTION AS A DRIVER OF INVESTMENT OPPORTUNITY

CULTURAL-DISRUPTION-AS-A-DRIVER-OF-INVESTMENT-OPPORTUNITY

On October 17, 2018, it became legal for a Canadian adult to go online or walk into a retail store and purchase cannabis products for recreational consumption. In doing so, Canada has become only the second country (after Uruguay), and the first major Western economy, to take this momentous step. Europe is catching up on the medicinal side, with the UK becoming the most recent country to initiate legalization for medicinal purposes. But in many peer countries, possession of cannabis remains a serious criminal offence. The number of US citizens in state or federal prison for cannabis-related criminal offences remains high despite the fact that nine US states have legalized recreational consumption of cannabis and 31 have legalized it for medicinal purposes.

There can be no doubt that we are witnessing one of the most significant cultural shifts in the West since the US adopted Prohibition and then abolished it. These developments have happened so rapidly that political change has leapfrogged public perception in many parts of the world. This creates a moral dilemma for state and national governments. How can one government deny its citizens access to a potentially life-changing pharmaceutical product when others do not?

Multiple studies have shown that cannabis – in the right form and the right dose – can have significant and demonstrable success in the treatment of various illnesses, their symptoms and side effects. Its medical uses include: acute pain relief, appetite stimulation for chemotherapy patients, treatment of sleep disorders, decreasing spasms in nervous system disorders and reducing seizures in intractable epilepsy, to name a few. There are also clinical trials underway that, at a preliminary stage, show activity against cancer cells.

More studies must be, and are being, undertaken including research into any harmful side effects. But there is no reason yet to suggest that that the two major active ingredients of the cannabis plant – Tetrahydrocannabinol (THC) and Cannabidiol (CBD) – if taken in the right doses and formulations, are inherently more dangerous than any other pharmaceutical product. We’ve all heard the extensive verbal disclaimers on US commercials about possible side effects of pharmaceutical products “…which may include death”. The evidence for cannabis, if anything, points the other way. Notably, as a replacement for highly addictive opioid-based painkillers, cannabis products may actually reduce drug dependency crimes and deaths.

Underlying these advances is the wider recognition that the cannabis plant is a complex biological system comprising over 100 cannabinoids, of which one – THC – is principally responsible for psychoactive effects when consumed at a high enough level. Medicinal cannabis strains and derivative formulations have low levels of THC. With that understanding, the stigma attached to cannabis in wider society, especially among the more conservative elements, dissipates.

It is this kind of cultural change that creates significant opportunities for investors. Canadian cannabis entrepreneurs, and investors in particular, have created enormous wealth in 2017 and 2018. They are on track to generate significant tax dollars and they are creating employment in an entirely new industry. They also remind us that not all modern-day entrepreneurship need be technological. Technology is not the only disruptive factor in a modern economy. Cultural factors are as important.

We see cultural disruption at work in many sectors. The food and beverage sector is an obvious example from the last few decades, with new acceptances of taste, diet, eating out and home delivery having a significant impact on the F&B economy. Other less obvious but increasingly important sectors relate to how society accepts and engages with its ageing population.

Eldercare: At one time, it was unthinkable that children would not support their ailing and aged parents at home. Now that is the norm, and a vast industry has grown off the back of that revolution in societal morality.

Mental Health: There has also been changing public perceptions around dementia and mental health in general. The treatment of mental health is already a societal challenge and governments cannot afford to cover the cost of the necessary expansion in treatment and care that our demographic data predicts. The private sector will need to step in.

End-of-life care: Long reliant on philanthropic donations, this sector deserves new business models that entrepreneurship and investment can provide. And as euthanasia and assisted dying become more widely accepted in society and under the law, future investment opportunities must surely be created where stigma exists today.

We also see significant growth in longevity medicines more generally. To date, the alternative medicine movement has sought ownership of the broader wellness and longevity narrative. But, here again, attitudes are changing. The global nutraceutical industry has an annual growth rate of around 7% as the public becomes more open to treatments from naturally occurring products. The future we see for this domain is in sifting through the various natural remedies available and applying the Western scientific method of clinical studies to uncover solutions that satisfy both perspectives. Who is to say that the major advances in human longevity will not come from rainforests rather than synthetic molecules?

As a firm, we have chosen to focus exclusively on sub-sectors within the broader healthcare space that reflect changing attitudes, as well as advances in science and technology. We include nutraceuticals because we foresee more plants and natural substances, like cannabis, being the impetus for major medical breakthroughs.

We focus on specialized human care for dementia and other mental illness, because there is inadequate provision currently and because it has been unfashionable for investors to focus on these diseases. We see significant room for growth and investment opportunity. Similarly, we see a critical need and opportunity for business solutions for end-of-life care. These are tough sectors because, ultimately, they rely on the provision of human care by humans, with all of the attendant brick and mortar and human resource challenges that go with them.

Many of these sectors can be enhanced by scientific and technological advances, but all are being shaped by advances in cultural norms. Our role is to support private sector solutions for the changing healthcare landscape. We have placed investments in the business of human care at the heart of our mandate.

By Tom Speechley
INSIGHTS