The Right Way to Start A European Cannabis Business

By Michael Sassano, CEO of Somai Pharmaceuticals

As the cannabis wave envelopes Europe, so too are entrepreneurs rushing to capitalize on the next biggest market in the world. The European Union industry is tiny right now, with 35 licensed EU producers and 100+ distributors, mainly in Germany. Simultaneously, the United States has over 30,000+ license sets across 50 states, so there is a long way to go before Europe reaches its potential as the second-largest cannabis market. The EU needs entrepreneurs to build the infrastructure necessary to support future market demand. But as intelligent as you are and as effective a businessperson as you think you are, there are a few big mistakes you can avoid in starting your cannabis business in the EU. Cultivators, manufacturers and even, to some extent, distributors all have different yet significant hurdles they must consider. 

Whichever side of the fence you are on, it is important to stage your staffing according to your development timelines. Most EU future operators start with a huge c-suite and nearly complete production team. Not only will you drain your money at an unnecessary burn rate, but people will also spend their first year developing lazy habits because there simply isn’t enough work to stay busy. Accordingly, when you get to your opening, they will need incredible support staff because they are used to doing little. You only need a small team while going through construction: CEO, CFO (bookkeeper), QP, architect and a good construction GMP consultant will get you over the line in the most minimum and cost-effective manner. As you get closer to completion, you can start layering in your production staff. Build up your c-suites lightly with a COO. Only much later should you layer in your sales and distribution staff. Whatever you do, don’t form from a large c-suite immediately, or you will have a top-heavy structure with no money for the workers who make a facility run and lazy execs who don’t produce the goods that need selling.

Your budget needs to be realistic for the EU cannabis industry. And they need to span till your break-even point. Most European startups have run out of money before, at or slightly after opening the facility. Raising funds for operational costs puts your employees at risk and is not generally what investors want to see. At a minimum, investors want to see revenue after the first round of investments is completed alongside a clear vision regarding how additional money will improve those revenue lines. To protect yourself from running out of cash too early, double your timeline to complete your construction and operational targets, double your expenses and half your revenue projects. This leeway will be an excellent start to being over budget only slightly instead of massively. It’s always best to have actual pricing, but without going through the cannabis startup process a few times, you will need to make estimates based on your best guess and leave room for overages.

Europe is a longer game, so don’t expect to make money on day one of operations after building the facility. Your first hurdle will be GMP post-harvest validation. You will need three validation harvests, so give yourself some time to break in your facility and get a stable genetic that has gone through 3 to 6 months of stability. Anticipate you will also need some time to get your facility certificate after the inspection. If you’re lucky, this process could take a year, but 18 months is more likely before you are ready to sell. 

Additionally, being certified in your country doesn’t mean you are ready to sell everywhere; you must still get your product approved in the country in which you are selling. Do NOT build a GACP facility in Europe and expect the road will be rosy. Spend the money on GMP post-harvest or you will be wasting time and money because you cannot be profitable under EU regulations catering to countries like Australia and Israel that will take your GACP flower below production costs. The only difference between growing and manufacturing is that you can start producing your actual products earlier, but getting market authorization is longer. You still can rely on one year to 18 months before your first dollar. Regarding distribution companies, your biggest hurdle isn’t product development but rather getting new products not on the market and making it through the door to sell those products. 

Build your name and reputation. Most EU startups wait till they have a product to sell, wasting energy trying to sell something that doesn’t exist or just trying to learn. Many startups will never be because they just aren’t funded. Distributors, growers, and producers are looking at how they can make money today. If you want to be taken seriously now and when your product is ready, you must create excitement and present that your company will exist with products soon. Open yourself up to tours of your facility even while under construction to show progress. It’s called the “imagination tour:” imagine here will be the mother rooms; imagine here are our 1o flower bays, etc. Keep your social media alive and get some assets about your company in print. Go to conferences, listen to the speeches and talk to the people at booths. They are all there to teach you, so learn and make personal connections. Finally, you don’t have any secrets worth anything — the industry is wide open now, and anyone can walk into a dispensary in the U.S. and reverse-engineer any product or find any genetics. Plus, there is enough data with companies like BDS analytics to know what is selling well.

Scaled-in hiring, proper budgeting with a large enough cap stack to get you there, realistic timelines and getting your name out there will help you get through the startup phase so everyone will have a chance to learn what a great entrepreneur you are. If you never become or run out of money at a critical point, you will be a cautionary tale. Europe needs a massive infrastructure to reach the U.S. numbers, which savvy entrepreneurs and investors understand and are making the EU market hum with excitement now.