Activity in European Markets Point to a Green 2022 for Cannabis

M&A worldwide

By Oliver Bennett, Special Contributor to New Frontier Data

With such a tailwind in the European cannabis sector, it is no wonder that investors are sizing up the continent. After a winter of optimism, fuelled by Germany’s plan to legalize adult-use cannabis, and Malta becoming the first European nation to legalize the plant, the prognosis for 2022 is strong and investor interest is high. 

As New Frontier Data’s recent Cultivating Capital report details, the potential of investment in Europe in 2022 along with capital activity spread out from the established North American markets finds a “growing list of countries… [with] mid- and long-term growth opportunities for companies establishing themselves in legal regulated markets.”

The analysis notes that capital has begun to flow into the cannabis space at unprecedented levels – indeed, the first half of 2021 saw an unprecedented $7.9 billion in new cannabis capital into the industry, including all segments and its supply chain, from production facilities to intellectual property.

New Frontier Data reports how M&A activity has inexorably spread from North America to Europe – most notably Germany – and notes that the large Canadian companies which secured licences and sought partnerships in Europe “now stand to benefit greatly from legalization and the new access to large existing consumer bases in those markets.” The early adopters will likely have the richest pickings with largely affluent and health-conscious European consumers, and stand at the forefront, initiating 6x more transactions outside North America than their U.S. counterparts, driven in part by the push factor of the saturated domestic market. 

From Cultivating Capital: “The large and well-capitalized companies (specifically Canadian LPs) that sowed early seeds in Germany and other progressive countries by securing licenses and signing local partnership agreements now stand to benefit greatly from legalization and the new access to large existing consumer bases in those markets.” Indeed, they could anticipate “strong medium-term returns due to the high spending nature of European consumers relative to consumers in the legal markets of Latin America or Africa.”

For example, Canadian cannabis giant Tilray, aware of a disappointing and oversupplied cannabis market in its home country, is one such company to seize the day in Europe as legislation on the continent inexorably changes. In the last quarter of 2021, Tilray grew international sales after merging with Aphria, and has now forged ahead with a new name, Tilray Brands. It has been suggested that Tilray expects to see $1 billion in revenue from Europe, with Germany at the forefront.

As Tilray’s CFO Carl Merton has said, the company has been laying the groundwork to leverage changing laws in Europe. With growing space in Portugal and Germany – Tilray remains the only company supplying Germany medical system with domestically grown cannabis – its size alone makes it one of the best-placed companies to gain market share. 

There are, of course, others. Curaleaf Holdings has announced that it has set up a new division to target the European cannabis market. The high-rolling founder and chair of Curaleaf, Boris Jordan, has long been interested in the European cannabis space, and now sits on the board of the German cannabis company Bloomwell Group, which in October secured $10M investment – the largest public seed funding received in the European cannabis market. The lead investor was U.S. capital provider Measure 8 Venture Partners, specialists in cannabis industry investments.

Curaleaf’s subsidiary EMMAC Life Sciences Group has now been renamed to operate as Curaleaf International and explore those European opportunities. In a shareholders’ statement, its CEO Antonio Costanzo, said that the company is expecting to see Europe follow a similar trajectory to the cannabis industry’s growth in the U.S. and Canada: “The landscape in Europe is changing and we can see similar clear patterns to the progress in North America for adult-use cannabis.”

The company has expressed plans to have a different complexion from the U.S., weighted more towards the medical rather than recreational markets – along with the wellness market, which lies between the two.

As Bloomwell’s CEO Niklas Kouparanis has shared, “Our portfolio companies will radically focus on a consumer-centric approach along the entire value chain of medical cannabis, with the exception of cultivation. The era of natural-based medicine begins now and Bloomwell is taking the lead.” Within the past year Bloomwell has grown to 160 employees.

Thus, the likelihood is that European investment activity will first be concentrated toward medical cannabis, without taking its eye off the ball per the recreational segment. The Los Angeles-based venture capital firm Casa Verde, famously run by rapper Snoop Dogg, has invested $3.5m in Berlin-based cannabis firm Sanity Group – which is itself said to have raised  $76.5 million, the highest level of funding attained by any European cannabis start-up – and it is the company’s first investment in Germany.

Finn Hänsel, founder and MD of Sanity Group, said the commitment shows “evidence of growing momentum in the European market as more countries move to initiate pilot projects to legalize and improve access to medical cannabis programs.” 

While much of Europe’s medical cannabis production will be produced offshore, Lisbon-based medical cannabis company AceCann has announced a $15M round of seed financing led by Casa Verde alongside Portuguese venture capital firm, Lince Capital, to develop an integrated medical-cannabis production plant. As work began in September, AceCann CEO Pedro Gomes said that the company aimed “to create the gold standard in medical cannabis… with IP ownership at every step in the value chain.” The company anticipates legalisation sweeping across Europe.

But following the green rushes in both the U.S. and Canada, should investors be cautious that Europe will become overheated? Possibly, says Richard Tonthat of Greencare Capital, who has urged caution when investing in European cannabis and CBD, saying “… you should never take things at face value. Stress-testing assumptions also needs to be done…. Revenue growth and cash generation are important. That’s something which the industry is lacking.”

As Ken Shea, Bloomberg LP’s lead cannabis analyst, shared in Cultivating Capital, he harbours a similar sense that a feeding frenzy may ensue: “It’s all about top-line growth at this point,” he explained. “Everybody is scrambling for market share.” Pending a shakeout, investors would be advised not to expect huge gains in the short term.

Neither should all speculative eggs be placed in Germany’s basket. As New Frontier Data has detailed, several other European countries are viable spaces for investment, including Denmark, Germany, Greece, Ireland, Slovenia, Spain, Switzerland, and the U.K.

Indeed, perhaps the most optimistic aspect of Europe’s cannabis space is its capacity to encompass a wider ecosystem. As Greencare Capital notes, there are 12 countries with established medical cannabis legislation, with 16 more engaged in earlier stages of adoption in Europe – leaving 15 countries on the continent where the drug is strictly illegal in any form.

Thus, well beyond the plans of Germany and Malta, Europe offers plenty of other dominos to topple.