Europe: a gold mine for Canadian companies

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Recently, Europe has been showing an interesting potential
in the Cannabis market. Although the Continent has traditionally been quite
conservative in this respect, if compared to North-America and especially
Canada, in the last few years European Countries have opened their minds and
their wallets to these new big opportunities. With a continental population of
about 740 million people, of which about 500 live under the single-market
regulations, Europe easily outweighs the U.S. and Canada, whose combined population
amounts to about 360 million, less than half.



Curiously, in May 2018, Forbes still described Europe as a
sort of proto-market, whose only considerable reality was represented by the
Netherlands (article
), where everything began as early as 2003. Forbes also
considered the risks for this growing market, linking them to the political
divisions in Europe –companies in America complain about regulatory differences
within the US Federation, let alone the difficulties that businesses may find
between several sovereign Countries. However, according to a new report by United
Kingdom-based analytics firm Prohibition Partners, launched alongside the Davos
World Economic Forum, 2019 will be a fundamental year for Europe’s three main
cannabis markets: the Netherlands, Germany, and Italy. The value of this
emerging market reached 500 million euros in the second half of 2018 and is predicted
to double its size by the end of the new year. The report attributes the main
reason of this outstanding growth to political changes: “Europe is seeing a
fast-paced wave of regulatory and legislative change”. In about a decade,
according to forecasts, the amount could sky-rocket to almost 60 billion euros.



These numbers surely provide good reasons for excitement and
it is not surprising that companies in North-America are currently turning
their interests towards Europe. Medical cannabis is now legal in 22 Countries
in Europe and many others are about to legalize this kind of usage. Not only
may Europe’s early-stage cannabis market represent a great opportunity for emerging
companies looking to break into the industry, but also does it attracts
fully-established companies which wish to expand their scope beyond Canada and
North-America. For Canada is moving some step towards the recreational
legalization of these products; the problem lies in the small demographic of
the Country. The combined markets of Germany and Italy alone would offer much
bigger gains, according to analysts. That’s why many Canadian-born companies
are opening their headquarters in Europe.



Among the many, it is worth mentioning Canopy Growth, Cronos
Group, Aurora Cannabis, Aphria and Tilray – all five are Canadian companies
which have recently started operating in Europe. Founded in 2006, Aurora
Cannabis works through the subsidiary Pedanios GmbH, the EU’s largest
distributor of cannabis according to the volume of product sold and based in
Germany. Through this company, last year in this period Aurora Cannabis managed
to secure a deal with the Italian Government, thus becoming the first private
company to be granted a supply agreement to the Italian market, consisting of
three lots of different cannabinoid profiles for a total amount of 100kg. But
Aurora’s business in the European single-market is not limited to distribution:
in fact, the company owns a 1,000,000 square foot facility under construction
in Odense, Denmark.



Much younger, Canopy Growth was founded in 2013 and is
currently the world’s largest cannabis company, leading the global market. For
what regards the company’s operations in Europe, Canopy Growth has a
partnership agreement in Spain with pharma company Alcaliber S.A., and owns a
medically-focused business: Spectrum Cannabis. This one imports medical
cannabis in Germany, under the name Spektrum Cannabis GmbH, and has a
partnership with Spectrum Cannabis Denmark ApS, a medical cannabis grower.
Recently, on 21st January 2019, Canopy Growth announced the
expansion of Spectrum Cannabis to the United Kingdom and Poland. In Britain,
Canopy formed the Spectrum Biomedical UK, a new company whose main aim is to
provide access to cannabis-based medicinal products to UK patients with severe
unmet clinical need. In Poland, under the name Spectrum Cannabis Polska, the
company managed to import the first lot of medical cannabis after completing a
regulatory process which allowed the product to be assessed and approved for



Moreover, is worth having a look at Cronos Group’s
operations in Europe. Cronos is a vertically integrated marijuana company, which
has seen its stock price rise from about 9 Canadian Dollars in July 2018 to a
peak of 30.57 CAD on February 4th. The company has a 5-year
exclusive distribution agreement with G.Pohl-Boskamp, in Germany, allowing it
to distribute its product to over 12,000 pharmacies in the Country. According
to EPF (European Pharmacy Forum) there are 20,441 pharmacies in Germany: this
means that Cronos Group currently controls the distribution of medical cannabis
product over more than half of the total amount of sellers in the European
leading economy.



Founded in 2014 and listed on the Toronto Stock Exchange and
the New York Stock Exchange, Aphria currently operates in four continents,
making it one of the largest cannabis companies in the world. Since January
2018, this company operates also in Europe, having gained access to the
appealing markets of both Italy and Germany by purchasing Nuuvera, another
Canadian firm, for $826 million. Aphria’s business in these two Countries
concerns cultivation, research and distribution. But there is more, since
Aphria extended its European scope to Malta and to Denmark, where it holds a
strategic partnership with Schroll Medical. The Danish deal accelerates
Aphria’s international expansion: besides the four Countries already mentioned,
this partnership allows Aphria to get access to Luxembourg, Switzerland and
other developing medical cannabis markets. Aphria registered a historical low
on stock prices on 5th December 2018, falling at 5 CAD; now the
company is on a reassuring trend, the stock price is more than doubled by last
December, although it is still far from the about 21 CAD of the highest value
reached in September 2018.



Last but not least, although Tilray’s primary operations are
headquartered in Canada, the company is incorporated in the United States. As
mentioned above, Canada is opening to the possibility of cannabis production
and distribution for recreational use. Tilray intends to exploit this new
opportunity and on June 19th, 2018, the company launched High Park
Company which would operate in the adult recreational cannabis market to
establish unique adult-use brands in Canada upon its legalization. Tilray’s
operations in Europe are located in Portugal and Germany, where the company
owns the following subsidiaries: Tilray Portugal Unipessoal, Lda. and Tilray
Deutschland GmbH respectively. Tilray was the first company to legally export
medical cannabis products from North America to Europe and now is seeking to
expand its business to the UK, Croatia, Czech Republic and Cyprus. Tilray’s
stock price is suffering a slight inflection and has lost some ground over the
past few months: the current price is about $80.



Despite some elements which could prove to be a source of
concerns, especially the whole Brexit situation for those companies, like
Canopy Growth and Tilray, which intend to operate in the UK, Europe confirms
its very appealing potential on the cannabis market. Whereas the EU
single-market represents the key for a huge market, at once it presents the
risk of high regulation and slow bureaucracy to which Switzerland, for example,
is not bound. Nevertheless, the Canadian ‘big five’ can’t resist the call of
Europe and incredible gains might be behind the corner.