Canopy Growth's International Expansion Plans: Marijuana In Germany, Australia, Brazil And Chile

Cannabis is a hyper-local business in the United States, mainly because marijuana isn't allowed to cross state lines. However, this isn't the case for other countries, where weed is federally legal for either recreational or medical purposes. In this context, Canadian companies are racing to establish a strong international footprint.

Back in March, Benzinga shared a look at Cronos Group Inc MJN PRMCF’s incursion into the German market; and in June, we talked with Maricann Group Inc. MARI, which is also allocating resources to build up its production capacity in the European country – which recently legalized medical cannabis. However, we left out the largest player in the legal marijuana space: Canopy Growth Corp WEED TWMJF.

In order to paint a more complete picture of the current situation, Benzinga reached out to Canopy Growth’s Director of Communications and Media Jordan Sinclair and to discuss existing projects and future expansion plans.

The Criteria

Canopy Growth applies a certain criteria every time it decides to go into a certain market. There are numerous countries where cannabis is legal on a federal level, but the regulatory frameworks and size of the patient base varies considerably.

“The first thing that we look at when we are considering an international market is whether or not there is a federal framework that allows you to be operating in that jurisdiction,” Sinclair told Benzinga. This basically means that the company sticks to “markets where there is a clear federal framework (…) For now, that precludes us from operating in the United States.”

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Currently, the list of countries that fit this description is limited, including Germany, Australia, Chile and Brazil. Beyond these, Canopy is considering other markets that could emerge soon, but the work is very preliminary.

“There isn’t a market with a federal framework that’s off the table for us. We want to be a global company,” he said.

Step By Step

The way Canopy Growth approaches each market is pretty different. However, the company tends to start by exporting marijuana from Canada. This is the case in Germany, where Spectrum Cannabis, a subsidiary of the firm, distributes the cannabis it gets from the North American business.

The company has also closed agreements to export to Brazil and Chile, and the first batches are expected within the next year.

“As the markets get sufficiently large to justify investing the tens of millions of dollars that it takes to run a production facility, we’ll do that,” Sinclair said, pointing out that this is a double-sided endeavor of looking at the market’s progress while also driving the market, focusing on certain issues that impede the market’s growth like physicians’ willingness to prescribe cannabis as medicine.

Having said this, there is one exception to Canopy’s export-first model. In Australia, the company has an agreement with a local producer, Auscann Group Holdings Ltd AC ACNNF, where the former provides only intellectual property related to cultivation techniques and operating procedures in exchange for a 10 percent stake in the latter’s business.

Why Germany?

So what made Germany special enough for Canopy Growth to select it as its first export destination?

“The market is fantastic,” Sinclair said, pointing out that the demographic similarities with Canada led the company to believe that the percentage of people that might chose cannabis as a therapeutic option could be comparable. Notwithstanding, with a population of more than 80 million people, Germany is more than double the size of America’s hat; thus, so is the potential.

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Another element that made the German market particularly attractive is the pace at which it is evolving. “There is a small amount of demand and legal supply flowing into the country right now, but it’s not showing any signs of slowing down,” he added.

“We think we can duplicate the success we’ve had in capturing market share in Canada in the German market,” Sinclair continued. “We have an incredible amount of expertise when it comes to multi-site management.”

The Poignant Question

Even though Canopy Growth is the largest cannabis producer in the world, having sold $40 million in marijuana during the last fiscal year, it still lost $16.7 million, or 14 cents per share. When does the company expect to go into the black?

“We are operating at a loss right now." Sinclair said. "However, I think that ‘loss’ is an accounting term; in almost any sentence you can replace that word with ‘investment.’ We are investing in the future of the business and we are not focused on short-term profit; we are focused on the long-term growing platform that will put us in the best position to give our investors a good return on their investment.

"We think that if we get a lead, and we get market share now, it will be much more difficult for other people to take it away from us in the future. In fact, we are already seeing that, as we invest, we get greater returns on these investments in the form of yields and customers.”