Relaxed regulations and successful clinical trials have piqued investor interest in kava. For those looking to gauge the potential of the market, a look back two decades provides a bullish picture.
In January this year, Prime Minister Scott Morrison announced an easing of restrictions on kava imports into Australia. The news was a milestone moment for kava producers throughout the Pacific and a strong indicator of the growing confidence in the industry.
Kava enthusiasts and producers have seen similarly encouraging regulation shifts in both North America and Europe over the past few years, stemming from a string of research milestones.
Kava, a plant native to the Pacific Islands, is used to produce a non-addictive drink with sedative, anesthetic, and euphoriant properties. Its active ingredient is kavalactone, which has been shown to regulate feelings of fear and anxiety similar to pharmaceuticals like valium.
Mr Morrison’s comments on the regulation shift – made during a tour of Pacific nations – emphasised the decision was influenced by the growing demand for kava across global markets.
The news sparked talk of a commercial kava revival in Australia, which prior to regulatory troubles was booming around the turn of the century.
So how big was the kava market?
Export of kava from South Pacific islands reached its highest levels in 1998, with yearly production growing to an estimated value of around US $200 million in the late 1990s.
Sales of the crop sourced from Fiji, Samoa, Vanuatu, Tonga and Hawaii supported a massive spike in demand for kava and it’s offshoot beverage, pharmaceutical and nutraceutical products.
Figures from The Central Bank of Samoa reflect the extent of the spike during the mid to late 1990s. In 1992 the export value of kava (in Samoan tala) skyrocketed from ST$47,000 in 1992 to ST$3.5 million in 1998.
The kava beverage market was mainly centered in the Pacific Islands, with kava drinking ingrained into social and cultural customs across the region.
Kava pharmaceuticals however saw the greatest pickup in Europe, namely in Germany where the plant root had already been subject to decades of pharmacology study.
Categorised as a prescription drug at the time, approximately 6000-7000 tons of green kava was being imported between 1998-2001. This imported kava was used create 1000-1400 tons of dry kava extract, for an estimated 1.3 million registered users.
At this time in the United States, kava saw widespread adoption as a nutraceutical as it was yet to get pharmaceutical approval.
Between 1997 and 1998, kava sales in the US grew 473 percent, with San Francisco based nutraceutical journal Nutrition Business estimating kava sales at around $50 million in 1998.
Data from Nutrition Business also reflects the price rise of fresh kava rootstocks at this time. Farmgate prices for the product in the mid-1980s were estimated at US$1/kg.
Increases in demand over the following decade saw this price jump to US$11-22/kg. At its retail peak, a bottle of kava capsules containing 40 grams of kava sold for around US$10, equating to US$250/kg.
The kava boom continued a bullish run until a wave of regulations came into effect in 2001.
Beginning in Germany and spreading globally, these regulations, based on research that has since been evaluated by independent medical researchers as highly questionable, crushed the industry.
Regulation shifts and new commercial avenues
After a decade and a half of turmoil, the release of new medical research and concentrated efforts by governments of Pacific nations has encouraged a widespread revaluation of these regulations.
Most significantly, a 2013 clinical study published in the Journal of Clinical Psychopharmacology found that kava extracts significantly reduced symptoms in people diagnosed with general anxiety disorder.
Hoping to capitalise on the revitalisation of the market, companies like Fiji Kava (ASX:FIJ) are leading the second charge for kava.
The company’s listing on the ASX in December raised a total of $5.2m, which alongside a multimillion dollar February distribution deal puts the company in good stead to execute its growth strategy.
In addition to launching a range of kava products in the Australian market, Fiji Kava is carrying out clinical research to develop specific strains of kava to treat different ailments.
Viewed in whole the kava market looks set an exciting few years, with early indicators suggesting it may be on the path to regaining (and potentially surpassing) its former glories.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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