The Business Of Cannabis
Pot Night - The Book, Channel 4 Television, 1995
Tim Hodlin
In 1983, 13,734.6 kilograms (30,279 lb) of herbal cannabis were seized by Customs & Excise, along with 6,816.5 kilograms (15,028 lb) of resin. By 1993 the respective annual amounts were 11,975.6 kilograms (26,401 lb) and 41,530 kilograms (91,556 lb) - an enormous increase in the quantity of resin compared to that of herbal cannabis, which actually dropped.
In the same period, the seizure of growing cannabis plants in Britain went up from 15,714 kg (34,643 lb) to 71,255 kg (157,088 lb), signifying a revolution in domestic marijuana and the decline of foreign imports of grass. The advent of very specialised seed and growing equipment has permitted the expansion of a highly effective home market which has competed extremely well witht the foreign products. The laws of the market affect cannabis as much as they do anything else. Imported herbal cannabis has been undercut by a more specialised home product, which obviates the need for expensive imports - a Tory chancellor's dream and perhaps one unforseen result of 15 years of free-market exhortations.
In the same period, the street price of cannabis resin has reflected the general pattern of the economy and, in many ways, has done better. Prices of resin have remained fairly stable for the past five years, unlike other Third World commodities, and represent a safe if unspectacular investment in an ever-growing market. On the down side, investors in resin do face severe penalties if caught importing the untaxed commodity, but given that HM Customs & Excise estimate that they seize only about 10 per cent of what is imported, it is not suprising that resin has kept a consistent price in a well-supplied market. Significant seizures of cannabis resin would, as you might expect in a free market, result in a fluctuating price, but this has not happened, so the future looks solid for the next few years for a product that is illegal but increasingly popular.
Middle-aged potheads
Recent research shows that the use of cannabis as a recreational drug on a par with alcohol is favoured largely by the social classes A and B and by those in early and middle age. The 'double E' generation (Evian and Ecstasy) consist of young people in their 20s, and the lowest social classes are more inclined to take amphetamines, crack and heroin, but for reasons other than recreational.
There is a very clear distinction, both socially and economically (and ultimately politically), between different classes of drugs. While not actually acting legally, cannabis users are not now likely to receive more than a caution from the police should they be found to possess only small quantities of the drug. Cannabis is no longer regarded as a dangerous drug in the same class as cocaine (and its derivative crack), heroin and amphetamines.
The widespread use of cannabis among the British population is reflected in the current debate about its possible legalisaiton. Statistically a significant percentage of our politicians, judiciary and church leaders must have, at some time or other, smoked or ingested cannabis with no ill effects, which may explain the general grudging acceptance that perhaps something needs to be done to distinguish use of cannabis from that of more provably dangerous drugs.
Enormous potential
If legalisation comes, the business potential is enormous. The Sensi Seed Bank in Holland has a turnover of millions, and as we have seen, small British entrepeneurs are beginning to tap into the home-grown market,
For years, it has been accepted folk wisdom that the big tobacco companies have plans to take over the business of cannabis should it be legalised. Detailed marketing strategies, advertising and brand names are allegedly under lock and key, ready for the day when HMG decides to legalise what is already being practised. Milton Friedman, high priest of monetarism and the free market, has already indicated the theoretical soundness of a free market in cannabis, particularly as a valuable source of income for the government, which now spends a considerable amount of money trying to stem a developing market.
Luxury 'highs'
For Channel 4's Pot Night, Adam Faith Enterprises plc looked at the market and realised the possibilities for a thriving business. With his advisers Baker Tilly, Faith investigated the likelihood of a niche in the market in the face of competition from big tobacco firms. Given that modern machinery can produce 14,000 cigarettes a minute, it seemed pointless to try and take on any of the established tobacco companies with their enormous investment potential. In addition, the increase in home-grown herbal cannabis for smoking would be a threat to both the big companies and the small entrepreneur. Why produce a cigarette, however well-packaged, for a market already served by increasingly sophisticated resident retailers with a product as strong as anything grown in plantations abroad? There was also the fact that the number of herbal cannabis smokers was declining because of well-founded fears of inhaling the smoke of any leaf, be it tobacco or cannabis. Recent research has shown that the outer leaves of the cannabis plant are 20 per cent higher in tars than tobacco, leaving only the buds (the most active constituents) relatively safe to smoke.
Faith's company looked to historical precedent and found that ingesting the drug in food or drink was the most effective way of achieving the 'high' sought by users. After consulting an expert home-grower, who gave them estimates for a warehouse filled with 'gro-lights', the company prepared a business plan with Baker Tilly. Even a small area of land could, with careful husbanding of plants, produce a regular ten-week cycle of concentrated buds to be turned into a food. Under supervision from government chemists, the levels of active constituents could be carefully measured to comply with all the appropraite Ministry of Agriculture regulations, and the cannabis buds could be sold in the form of a luxury chocolate range.
With advice from a venture capitalist in the City, it was decided that the amount required to set up the business under the Enterprise Investment Scheme (1994) could be raised by an issue of ordinary shares from an unquoted trading company. The advantage of this scheme is that it entitles an investor of five years' duration to claim 20 per cent initial tax relief on an investment of up to £100,000, with no capital gains tax on first disposal; there is also relief if the investment fails.
This one would only be likely to fail if the product were to be taxed out of existence by the imposition of the same sort of tax that it levied on tobacco. As the pharmaceutical industry would also be anxious to utilise cannabis and its products, the executives at Faith Enterprises reckoned that it would be unlikely that the government would levy a punitive tax. The chocolate product would remain a luxury item but, as an investment, would recoup its initial expenditure within a year.
Marketing experts GLK then sampled members of the population and found a positive response to the idea of cannabis chocolates. As a novelty they would appeal to precisely the surveyed percentage of the population that was already sympathetic to cannabis as a legitimate recreational drug, and which was also conscious of the dangers of smoking.
At the moment, the government loses out on all fronts and spends a considerable amount of revenue tracking down illegal shipments of the drug, while an increasingly expert domestic market supplies the commodity, suffering only limited penalties. By decriminilising cannabis and allowing companies such as Adam Faith Enterprises to flourish and supply an ever-growing market, the government would, for the first time, raise revenue rather than throw it away.