(Reuters) – A handful of small and young Australian companies are trying their luck in Europe despite the region’s diverse markets, in the hopes that a low-capital investment strategy will reduce their risk.
Europe could be a tough market to crack as regulations vary from country to country, but favorable decisions for medical marijuana and potential demand are promising factors. The companies believe that establishing an early base there and working with European partners will help them better negotiate different markets and steal a march on North America’s bigger rivals.
Cann Group and MGC Pharmaceuticals are among many companies that have entered Europe, recently signing partnerships to distribute medical marijuana products and also exploring dual listing in the region.
Europe is much smaller than North America, already struggling with oversupply, but the market is a draw for Australian companies that face an even smaller base.
“With prospects still largely limited to the prescription market (in Australia), exports remain essential for marijuana companies,” said Jo Paterson, Founder and CEO of BOD Australia.
New South Wales-based BOD, valued at just $ 37 million, entered into distribution partnerships in the UK, Italy and the Netherlands last year. Its stock has jumped two-thirds during the period.
There are indications that cannabis regulations will continue to ease in Europe.
A ruling here in November by the highest court in the European Union that cannabidiol – the main ingredient in medicinal marijuana products – is not a narcotic, is crucial to their success in Europe, said businesses.
The vote by the United Nations drug agency weeks later to remove cannabis from the most tightly controlled class of narcotics will also help, they said.
Sales of medical marijuana in Europe are expected to grow 52% by 2025, reaching $ 3.1 billion, according to a report by market researcher Brightfield Group and consultant Hanway Associates.
Chart: European sales of medical marijuana set to increase –
Despite a recent short-lived Reddit-fueled rally in cannabis stocks, many investors see them as long-term bets. The cannabis index has risen 30% in the past 12 months, outpacing the 16% growth of the S&P 500.
Chart: Cannabis stocks rally as new catalysts emerge
Analysts have warned, however, that the European regulatory landscape is complex and could be difficult to navigate.
Even the biggest companies such as Canopy Growth and Aurora Cannabis have struggled to make a profit on the continent and are now cutting back on their investments, although they say Europe remains a big opportunity.
“Policymakers and businesses are tackling issues such as cross-border supply chains, standardization of manufacturing and laboratory practices and prescribing requirements,” said Ibrahim Said Abdeldayem, risk consultant at Arriello.
Some countries, including Germany and the Netherlands, have well-established medical cannabis legislation. In others like Sweden and Belgium, cannabis is strictly prohibited.
Graphic: Framework for the legalization of cannabis in Europe –
Australian companies are tackling diverse markets with a capital-light approach: sticking to partnerships with companies better equipped to manage distribution and rules locally, rather than trying to build factories. transformation.
Cann Group, the first in Australia to receive a license to cultivate medicinal cannabis in 2017, said it would focus on Germany and Britain as those markets are expected to grow rapidly.
Cann, worth around $ 150 million, is partnering with a London-based company to make sure it is well positioned when the market takes off, chief executive Shane Duncan said.
“Hopefully (Australian investments) will be more thoughtful and strategic, with a better understanding of market limits, and that will take time,” said Jamie Schau, analyst at Brightfield.
“The important thing is to do it right in each market and not to treat it as a block.”
Report by Shruti Sonal in Bengaluru; Editing by Sayantani Ghosh and Jacqueline Wong