First-movers in the cannabis space have been predominantly North American, but as regulations shift slowly but surely, Europe or rather Europeans may be the real winners in just a few years’ time. The European cannabis market is already expected to be worth around €123 billion by 2028, and this is with Europe having unfavourable legislation.
Europe to overtake North America by 2024
Canada has made headline after headline since it legalised recreational marijuana use. As it was one of the first countries to take such a bold step, companies based there are now enjoying a quasi-monopoly in the sector.
Canopy Growth Corporation, Aurora Cannabis Inc., Cronos Group Inc., Tilray, Aphria, and Organigram Holdings are all Canadian companies that are also in the top ten of the largest cannabis firms by market cap. Close runner-ups come from the United States, as legalisation and decriminalisation are sweeping the country state by state, with only one company being from Europe.
(Source: Prohibition Partners)
The reason that this lone British firm, GW Pharmaceuticals plc, has found itself among such heavyweights is actually pretty straightforward. It is the only company ‘to have an approved treatment for Dravet syndrome — Epidiolex (US)/Epidyolex (EU) — giving it a monopoly on the market’, according to Prohibition Partners.
Dravet syndrome is a variety of childhood epilepsy which can be treated using cannabis products.
Thus, top companies managed to earn that title simply due to regulatory adjustments in their home country. And in order to continue an upward trend of growth, Canadian companies have begun acquiring other, smaller, firms at home and abroad. Canopy Growth has been making the biggest inroads in this regard.
In 2019 alone, the company bought out a Spanish marijuana manufacturer, a British wellness firm, a German medicinal cannabis company, and one of the larger American cannabis chains.
Not only that but Canadian firms are now eligible for further funding from other groups. Constellation Brands, an alcohol producer behind brands like Corona, invested about €3.6 billion into Canopy Growth and the tobacco company Altria invested roughly €1.6 billion into Cronos Group.
These larger, mainstream firms are taking clear steps to earn exposure to a market that may cut into their primary business. But as the options are limited, most of these steps are taken with Canadian firms.
However, in its Global Cannabis Report, Prohibition Partners predicted that this will soon change. In the report, it says,
‘Although North America is currently the largest medical cannabis market in the world and projected to reach US$37.9 billion [€34.3 billion] in 2024, Europe is forecast to surpass it by reaching US$39.1 billion [about €35.4 billion] in the same year.’
The motor behind this change will be wellness trends as well as the medical adoption of cannabis products for a growing base of patients. For instance, since the German government allowed the use of medical marijuana in Germany in March of 2017, the cannabis market has grown by leaps and bounds. The European country needed to import a total of 2.5 tonnes of cannabis, most of which from Canada, to meet skyrocketing demand.
Legislators are open to working with local suppliers, but, as far as maturity, quality and infrastructure are concerned, few German companies can compete with their North American counterparts.
Germany, like a number of other countries, offers cannabis companies the chance to bid on plots of land to grow cannabis. This year, the German government placed 13 lots up for bid, ten of which went to two Canadian companies. Local businesses complained that Canadian firms will continue to dominate domestic markets until the government establishes a new legal framework. Such a shift may indeed happen during the next federal election in 2021.
Other European states are experiencing similar results as they lean into the rising cannabis trends. Italy launched a tender process similar to that in Germany, the UK, Portugal and Malta have legalised medical marijuana products and France has approved a two year trial period where it will experiment with prescription cannabis.
Luxembourg appears the most ambitious after announcing that it will legalise the recreational use of cannabis by 2021.
These are big steps, but much of the critical infrastructure is still lagging behind. The National Health Service (NHS) in the United Kingdom still refuses many requests for medical marijuana. This is because very few medical professionals in the country feel comfortable prescribing a treatment that they know so little about. Prohibition Partners writes,
‘Europe is suffering from a lack of formal educational programmes for medical cannabis professionals, with physicians often playing catch-up in the wake of regulatory changes to national cannabis policy. The need for extensive and credible education for licensed health professionals is quickly becoming a [priority].’
Luxembourg is tackling this information gap by partnering with Aurora Cannabis and offering health professionals specialist training in how to prescribe cannabis. Similar programmes are still not in place in the UK, forecasting further issues for British patients.
Motors behind market expansion
The details of exactly how Europe will eventually overtake North American cannabis markets are manyfold. As some have already begun to see, the Canadian cannabis behemoths are eager to stake space into Europe. As supply vastly outpaces demand in Canada, prices are dropping and growth opportunities are dwindling. Commentators predict expansion or extinction.
This gives European countries, specifically those that are operating under a tender process like Germany and Italy, a unique advantage. In both countries, patient demand immediately reacted after medical cannabis was legalised. To meet this demand, Candian suppliers were happy to step in and begin cultivating their crops. Until recently, anyway. This may begin to change.
Although Aurora won all three lots that were being offered by the Italian government, it was only granted two in the end. The Defense Minister declared the final lot ‘unnecessary’ despite the more than 20,000 underserved patients. At the same time, the Italian government continues to rely on Holland, specifically the producer Bedrocan, for its supply. And, as the legalisation of medical marijuana sweeps across Europe, cannabis entrepreneurs may begin to wonder why the continent continues to rely on Canadian suppliers.
With a nearly €40 billion predicted by the end of the decade, perhaps European heads of state are temporarily supplying current demand with Canadian cannabis manufacturers.
Once the correct regulations are in place and the floodgates are opened, this need for foreign intervention will finally be quenched. The Netherlands, for instance, is already poised as a market leader due to its long history with marijuana products. Italy, Germany, Portugal, Greece and Denmark are also emerging as leaders in the field of medical cannabis.
When examining the legal status of marijuana, wherever medical cannabis makes headway, recreational cannabis is quick to follow. Already, one can see glimpses of these changes.
Like Luxembourg, the Netherlands will trial a distribution program in which cafes in ten Dutch cities will receive cannabis products for legal vending. The experiment begins in 2021 and will run for four years. According to Prohibition Partners, ‘these trials are aimed at providing a controlled and legalised supply of cannabis, making the industry more transparent as well as assessing the potential impact on crime levels’.
The future of the cannabis market in Europe
So, while 2020 is in less than a month, the cannabis sector in Europe may need to wait until 2021 to see large, regulatory changes. In that year, Luxembourg will legalise recreational cannabis use, Germany will hold its federal elections, which cannabis aficionados should follow closely, and the Netherlands will launch its distribution program.
Each of these three events will be highly informative for other member states, after which leaders can modify legislation accordingly in order to fit their government. For the agile cannabis startup looking to evade both illegal operations and competing with the likes of Aurora, this means moving down-stream from producers. The next best business plan is that which supports the entire industry.
Insofar as Europe having been quickly adopting the use of medical marijuana, the opportunity to educate medical professionals on how to prescribe treatments still exists. Secondly, the legalisation and popularity of CBD products, those that do not possess psychoactive characteristics, have spawned a dizzying array of brands. Coming to grips with such competition will certainly become clearer over time, but making this process easier for a consumer has yet to be executed.
After that, one need not look far for inspiration. The cannabis sector is only just emerging and still in need of product testing, risk management, high-quality marketing, technical developments and so forth. The only question entrepreneurs in Europe should be asking is, ‘why not me?’