Investment Opportunities In Europe's Emerging Cannabis Market

By Bill Griffin, Special Contributor to New Frontier Data

Though the North American cannabis industry rode out a turbulent market in 2019, Europe was generally spared the respective swings of the green rush. While investors in Canada and the United States were stifled by oversupply and regulatory uncertainties, a smoother path seems likely for markets in the European Union (EU) and Switzerland.

Adult Use

For now, plant-touching business opportunities remain prohibited throughout most of Europe (with limited options existing in countries including German, Italy, and the Netherlands).

In 2019, the Netherlands saw an estimated 520 coffeehouses distributing cannabis tolerated in a legally grey area, though not legalized. Cannabis cultivation remains strictly prohibited, with rigorous enforcement. That figure is down from an estimated 1,500 to 2,000 coffeeshops in the mid-1990s. Though the number of distribution outlets has been reduced, the demand has not, meaning that a cultivation license could be very lucrative: For now, 10 cultivation licenses are up for grabs to supply 79 coffeeshops in 10 municipalities.

"Based on the sum of the parts, including extra cash needed if bank finance does not improve, we estimate that between [€10 million to €15M] is required in single investments to be a serious contender for the Dutch Weed Experiment," said Michael Kraland of Plethora Partners, a Dutch consultancy firm specialising in finance and science for the cannabis industry. "Given that a maximum of 10 growers will be selected, we could be looking at a minimum of €100M of required investments."

The "Dutch Weed Experiment" is due to commence in 2021. However, the application process for tenders is not yet open.

Participating markets are in small cities, with but a few coffeeshops in each. The jewel of the Dutch recreational market is Amsterdam, with about 250 coffeeshops. Should the experiment prove successful and the scheme be broadened to encompass other cities, early investment in cultivation and processing facilities there could offer great potential.

Regarding who would be likely to invest in such facilities, Kraland — who also heads up the annual Amsterdam-based cannabis investment event, Cannabis Capital Convention —  clarifies that "the major (Canadian) listed companies are demonstrating a retreating movement in Europe; for example, Aurora Cannabis recently suspended construction of a huge facility in Denmark. We expect private equity funds (some of them already active in Europe) to step in."

Medical Use

Medical cannabis has long offered entrance to the European market. A successful pilot in Denmark is already underway. A somewhat scaled back, but pilot nonetheless, is due to commence in France. Germany, the Netherlands, and Italy all have established medical cannabis programmes.

Other European countries also have programmes in place or are announcing plans to do so. Even the U.K., whose medical cannabis programme stalled due to a reported lack of clinical evidence from the British medical establishment, has announced plans for a major cannabinoid research conference that will include high level policy makers alongside the world's top cannabis scientists.

It remains clear that there is money to be made in Europe's medical cannabis segment.

As North American firms are scaling back, other options for large cash injections are required. The launch of the first European medical cannabis Exchange Traded Fund (The Medical Cannabis and Wellness UCITS ETF) could help. It will enable Europeans to invest directly in the European medical cannabis sector through their usual investment channels. Until now, European investors have experienced restricted access to the cannabis market. With the launch of the ETF, investors looking to dabble in the European medical cannabis industry can do so via a fund without having to research each individual company.

Wellness Market

Despite lacking regulatory clarity, CBD in the wellness market is thriving in Europe. The U.K., in stark contrast to its medical cannabis market, has a booming CBD economy. The U.K. CBD market is currently estimated to stand at around £320 million per year, increasing by 16% annually.

"The U.K. is definitely one of the key markets in Europe, as demonstrated by the market-size and growth forecasts," said Shomi Malik, director for the Association for the Cannabinoid Industry. "A lack of regulatory guidelines is not stopping the flood of companies hoping to capitalise on its popularity. We expect the number of newcomers to taper off as regulators clamp down on bad actors, thus raising the price of entry to the market."

It's no wonder that North American firms with deep pockets are looking to the U.K. to snap up some of the more established CBD brands. World High Life recently announced completing acquisition of Love Hemp Ltd, a leading supplier of CBD and hemp and investments to ramp up as the market matures. Engagement in the European market avoids some of the limitations found in the U.S., where building a national brand will be problematic until federal reform allows for products to be transported across state lines.

Want to learn more about cannabis investments in Europe? Apply to the InterCannAlliance Europe Symposium to connect with executives, government officials and other early shapers in the region.

The post Investment Opportunities in Europe's Emerging Cannabis Market appeared first on New Frontier Data.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Image Sourced from Pixabay