- The marijuana law has been approved in the lower house of Parliament; next steps are upper house and King's approval
- Long term, industrial marijuana exports could make a material contribution to exports and fiscal revenues
- Short term, this exposes a split in the largest parliamentary party (the Islamist PJD) prior to elections in September
Morocco's lower house of Parliament has passed a law to legalise the use of marijuana for medical use and the production of marijuana on an industrial scale. Recreational use in Morocco is still illegal.
In the long term, industrial exports could possibly grow to over half of the much-lauded automobile export sector and materially alleviate current account and fiscal deficits, although there are barriers, such as accessing EU markets like Germany and, obviously, the capex required to establish industrial-scale processing.
Near term, the marijuana issue may have created divisions within the moderate Islamist party, which notionally leads the government, with the next parliamentary election due in September.
The Bloomberg Global Cannabis equity index, made up of US and Canada-listed companies, is up c50% in the past year and 12% ytd.
According to the UNODC:
Morocco is the world's largest producer of cannabis resin (Paraguay is likely the largest producer of herbal cannabis); and
"Morocco, with 47,500 hectares reported to be under cannabis cultivation in 2018, continues to be the most frequently mentioned source country for cannabis resin worldwide".
Marijuana cultivation in Morocco is concentrated in the northern Rif region, where GDP per capita is around half the US$3,400 national average.
Medical marijuana export and tax opportunity
The global addressable market was valued at US$21bn in 2020 and forecast to grow at c30% CAGR to 2028 to cUS$90bn by 2026, with the fastest growth likely in Europe, according to a February 2021 report from Research and Markets. The US market alone was valued at US$9bn in 2020, according to Grand View Research.
If Morocco captured 5% of the global market in 2026, that would imply US$4.5bn of gross revenue.
Assuming a deduction of 20% tax (ie US$900mn), this implies fiscal revenue and export revenue of US$3.6bn.
This export value and fiscal revenue would equate to 2.2% and 0.5% of GDP, respectively, in 2026 (using the IMF forecast of US$162bn).
In this scenario, the scale of the industrial marijuana sector would be close to 70% the size of the much-lauded automobile and aerospace export sector in 2019 (US$5.3bn) or around one-quarter of the tourism sector.
Nevertheless, such success would materially alleviate the twin deficits forecast by the IMF in 2026; 3.7% current account deficit and 3.4% fiscal deficit.
The barriers to penetrating the market are the following:
Many of the countries that have legalised marijuana are also producers, eg the US;
Marijuana a thorny issue in Morocco politics
Morocco's lower house of Parliament has passed a law to legalise the production of medical marijuana. This follows a similar move in Lebanon in April 2020.
In Morocco, the law was passed with a majority of 71%, although merely 42% of the MPs voted and the leadership of the minority, ruling, moderate Islamist PJD (Justice and Development), which has 32% of seats, voiced their opposition. This suggests that this issue may have created division within the PJD.
In an echo of Lebanon, some politicians have likely voted in favour of legalisation, despite the public stance of their party, in order to win popularity in relatively disenfranchised, economically underdeveloped regions where there is distrust of central government; respectively, the PJD and the Rif region in Morocco and Hezbollah and the Bekaa Valley in Lebanon.
Morocco's next parliamentary election is due on 8 September. While the PJD has been the largest party since 2011, no political party dominates politics (eg the current governing coalition consists of parties spanning moderate Islamists, independents, monarchists and socialists) or veers too far from the agenda of the King and the Royal Court.
Although post-Arab Spring constitutional reform in 2011 ceded some power to Parliament, with the largest party able to nominate the prime minister, and to the judiciary, which was granted more independence from the King, the King and the Royal Court remain dominant. Constitutionally, the King:
Appoints the prime minister from largest parliamentary party;
Can dissolve Parliament;
Chairs the Council of State (which endorses all laws prior to parliamentary debate);
Controls national security and foreign policy; and
Is the pre-eminent religious authority.
Equities still attractive for locals
Morocco is 32.6% and 12.7% of the MSCI Africa ex-SA and MSCI FM indices, respectively.
Measured by the local Moroccan All Shares index (MASI), equities are up c40% in the past year and 9% ytd.
Trailing price/book is 2.6x (for merely 8.3% ROE). This PB is on par with the five-year median. Peak ROE in the past five years is 13.6% in 2017: ie Morocco looks expensive on an absolute basis even if there is a return to peak profitability.
But local investors dominate trading activity (over 90%) and, for them, the more relevant metric is likely the difference between the consensus forward dividend yield on equities (4.1%) and the real interest rate (0.1%), which remains sufficiently attractive.
Morocco rejoins AU but still very tied to EU, January 2017
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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...