Selling real estate to tax refugees, offering a world-wide home to online gaming, selling Schengen passports to the needy: Malta has never been squeamish about earning good money for its citizens and its wily, profiteering businesses.

In March it opened a new line of business, legalising the farming and manufacture of marijuana – the first European country to do so. Malta Enterprise, the government’s agency for Foreign Direct Investment, has so far licensed five foreign operators to manufacture cannabis and cannabis-related products – three Canadian, one Israeli and one Australian – for a total initial investment of €30 million.

Some of the companies putting up tent in Malta are minnows, not much more than a bright idea, like ‘MGC Pharma’, which has set eyes on 4000m2 of farmland in Żejtun – very much to the anger of local crofters who used to farm on government-owned land and who were evicted to make space for marijuana-growing greenhouses in the Bulebel area.

MGC, set up only recently, had a modest, rather symbolic turnover of €120,000 in 2017, mainly representing start-up costs like “useful expenditure”, I would assume. Its main success so far seems to be a distribution agreement with Slovenia (If you think this sounds very much like the half-assed businessmen awarded University and hospital contracts in our country, you may be right; but then, to grow pot does probably not need much expertise, or entrepreneurial skills).

Others active in Malta, like the Canadian company Aphria Inc., are multibillion-dollar enterprises now in the centre of a worldwide investment frenzy.

Investing in these companies, which were all listed on the Toronto Stock Exchange over the last couple of years, some even on New York’s NASDAQ and the NYSE, has proven highly profitable. Gains of many hundred per cent within a year or two were the rule.

The Canadian grower Cronos Group, one of the least volatile of the cannabis stocks, for instance has gained 490 per cent within 12 months. This makes the past successes of bitcoin look almost pedestrian, with the difference that these companies are not just a digital chimera without tangible value like cryptocurrencies: they have sizeable capital investments, income, profits and solid business plans. They are GMP certified like big pharma, they are licensed by food safety agencies like the FDA in the US and even permitted to trade by the US Drug Enforcement Agency.

Big hashish-growing countries like Lebanon are flabbergasted. The Americans have forced them year after year to burn their crop and to dismantle their trade (not entirely successful). And now this. In the Beqaa valley hemp never needed greenhouses like Canada!

What suddenly made all the difference is that it’s now ‘medical’. Cannabis, cultivated for millennia, has many properties. Besides the psychedelic substance THC the plant, for instance, contains Cannabidiol (CBD) which has proven to be beneficial in treating various illnesses like epilepsy, multiple sclerosis, arthritis and post-traumatic stress syndrome.

For years sufferers of such ailments were forced to illegally smuggle cannabis products from Canada when in need of effective treatment. European drug regulators have now gradually eased restrictions and many countries like Germany are issuing distribution licences.

The flower buds of course cannot specialise as well as legislators might have wished for. Hemp species producing plentiful of CBD are also premier strains for a good high.

Legislators in many countries now factor this in and have started to legalise dope for recreational purposes. Smoking pot is now legal in nine US states, such as California, Colorado, Massachusetts and Washington DC. In Canada, smoking pot will become legal as at October 17, 2018 and it is expected that marijuana consumption will soon be legal all over the US, with European countries perhaps soon following suit. In Malta ‘medical’ marijuana was legalised on March 26, 2018.

The expected, worldwide triumphant progress in legalising pot is far from certain
 

What catapulted weed growers to the premier league of listed stock companies, with some of them now sporting a market capitalisation higher than most airlines or even oil companies, was of course not only promising medical applications but the prospect of a pot-smoking consumer-market worth hundreds of billions of dollars worldwide.

This potential is keenly observed by consumer brands, sprit companies, big tobacco and the soft-drinks industry. Aurora Cannabis Inc., a Vancouver-based company with a current production of 570 tons of cannabis per year (small competitors were gobbled up in the last 12 months), was contacted among others by Coca-Cola to talk about how to develop a cannabis-based soft drink.

Aurora, which sports a drug distribution contract with Germany and which also sells grower’s equipment and greenhouse engineering, was jolted forward by these first, tentative talks with the soft-drinks giant. It now has a market cap exceeding US$10 billion.

Canopy Growth, the Ontario-based company which has set up distributional operations in Spain, Germany, Denmark, Chile, Brazil, the Czech Republic, Australia and, yes, Jamaica – listed on the NYSE with the ticker code “weed” – in August received a capital injection of CAN$5 billion (US$3.9 billion) from Constellation Brands, the company behind Corona beer, which is now a 38 per cent shareholder of Canopy. They plan to open retail outlets in Canada and the US and to explore possible brand cooperation, product development and cannabis branding.

On the back of investor excitement, weed companies act increasingly reckless – and seem to get away with it. When Aphria Inc. most recently bought “Nuuvera” for almost half a billion, Aphria’s share price didn’t even flinch. And this despite the fact that Nuuvera had no experience in cannabis production, no turnover in 2017 and no assets. Its sole claim to fame was a victorious tender to supply German pharmacies and a monopoly import licence for Italy. This brings me back to Malta.

It was ‘Nuuvera Malta Ltd’ which this year acquired – as a first remuneration package for lobbyist and businessman Paul Apap Bologna – his and his partners’ ‘ASG Pharma Ltd’; with the intention to be the first in Europe to legally grow pot, medical or otherwise.

Helped by Keith Schembri and Konrad Mizzi, the sedulous duo promoting so vigorously Malta’s version of public-private partnerships, it was nevertheless made clear that the rapid legal process putting Malta on the forefront of marijuana farming was coincidental.

From a business standpoint I can appreciate the initiative. Even if it sounds seedy and Mafia-like, legal cannabis has a promising future. It pays off to be among the first. I just hope that Malta’s rural land will not be transformed into one gigantic greenhouse. Nature, rural and cultural heritage are the essential support for a booming tourism industry. Greenhouses, like windmills, no matter how important, are detrimental to sought-after vistas and the joys of atmospheric holidays.

For us retail investors not yet invested in this latest super-growth story it is important to understand that the expected, worldwide triumphant progress in legalising pot is far from certain. There’s a risk of class action lawsuits too, as smoking weed is even more harmful than tobacco. Medical applications, as promising as they may be, have a much more limited market when compared to millions of jangled consumers.

The consolidation process in the cannabis sector still has a long way to go, and mergers and acquisitions will stress some corporations to breaking point. All companies are in their infancy and it is not clear how savvy their founder-managers will act. Stocks are worryingly volatile – ups and downs of 50 per cent can be expected.

For those of us who have not gained a few hundred per cent already, which sadly includes me, it probably pays to wait and see. Consider investing into Coca-Cola or Corona beer instead.

Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.

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