This is probably a question that will come up in your board meeting if you are a cannabis producer in Canada or the US.
Every company will make a decision about where their beachhead market is now AND in the future. If you haven’t experienced this already, envision your board or stakeholders asking “where do we go next?” Is it the US, Canada, South America, Asia, Europe or another untapped geography? Certainly you see anecdotal evidence in your social media feeds: a fan of your company from Colombia mentions how much they love your products, or a medical customer asks when your latest strain will come to Munich.
The fact of the matter is that it takes time to enter - and have an impact on - a new market. As the old adage goes, “Rome wasn’t built in a day”, but I'm not sure how your board would react if that was your answer to 'what's next'?
So is there a good argument for Europe? As a service provider to the cannabis industry, it’s certainly something we, at Elevated Signals, need to consider, and in terms of preparation, we’re making our software GMP ready. For producers, a good place to start is by looking at how the regulatory landscape may evolve over time.
Estimates from Berkshire Hathaway highlight Europe’s cannabis market is set to reach a capitalization of ~$37B USD by 2027, it is probably worth more than a water-cooler chat. When you consider that the US market is set to have a $41B USD market cap by 2025, there is not that much difference. The subtle note here is that these numbers are based on both medical + adult use consumption. Meaning the expectation from large hedge funds is that cannabis will become more accepted for recreational use over time - a trend we are certainly seeing in North America. That being said, humans can’t ever predict the weather that well, so what else could you consider when you are looking to branch out of your core consumer market?
Medical trends and regulation
In August 2020, GW Pharmaceuticals won FDA approval for its cannabidiol based oral solution - Epidiolex - to treat seizures associated with Tuberous Sclerosis Complex caused by Dravat Syndrome. This was a landmark inflection point for the medical industry as it was the first FDA approved cannabis derived pharmaceutical. This sets a precedent for future research and commercialization potential for cannabis based chemical compounds across the globe.
Furthermore, in December 2020, the UN voted to delete cannabis and cannabis resin from Schedule IV of the 1961 Convention which effectively loosens controls and stigma against the use of cannabis for medical purposes.
Close to the middle of 2019, one of the largest acquisitions in the cannabis industry took place when Canopy purchased C3 Cannabinoid Compound Co for €226M from Germany based Bionorica. In December 2020, Tilray and Aprhia announced a merger to create the world’s largest producer of cannabis. Earlier this year, Hexo Group purchased Zenabis Global Inc for $235M USD with a focus on accelerating entry into Europe through its partners in the region. Given consolidation of large cannabis organizations is a well documented industry and market entry strategy to gather human, intellectual, and capital resources, producers can use these examples to visualize how they too can enter into an emerging cannabis economy.
Global trends in legislation
As of today, Argentina, Australia, Brazil, Canada, Colombia, Germany, Ireland, the Netherlands, New Zealand, Peru, Poland, the United Kingdom, and Zimbabwe make up approximately 30% of the countries that have legalized cannabis for medical use.
While many countries have adopted the policy of decriminalization, the use of cannabis for recreational purposes is only currently legal in a handful of countries. Having said that, the 2020 US presidential election was a momentous event for the industry, with legalization ballots passing in five states (it’s now legal in 15 states). Previously both the President and Vice President have indicated an interest in federal reform.
With the US having a major influence on global policies, public support for legislation increasing every day, and more use cases becoming available, we could see European markets open up for recreational use over the next decade. And this would present a huge opportunity for producers on our side of the pond.
This leaves producers in North America in a precarious situation. Do you focus energy and effort in entering Europe and risk losing traction locally? Or do you focus locally to dominate and risk the opportunity to enter a nascent industry in Cannabis? There are certainly markers to suggest Europe market entry should be in the sights of every large producer, but who can predict with a high degree of confidence what is the better option? I think a better approach is one suggested by Howard Marks “We can’t predict, but we can prepare.”