Stock

Evaluation: Australian hashish corporations are in full swing on their approach to Europe

© Reuters. FILE PHOTO: Cannabidiol (CBD) oil bottles from the Swedish company DeHolk AB are pictured during the Cannabis Business Europe 2018 congress in Frankfurt

From Shruti Sonal

(Reuters) – A handful of small, young Australian companies, despite the diverse markets in the region, are seizing an opportunity for Europe in the hope that a capitalized investment strategy will reduce their risks.

Europe could be a tough market to crack as regulations differ from country to country, but favorable medical marijuana choices and potential demand are promising factors. The companies believe that establishing a base early and working with European partners will help them better negotiate various markets and conquer larger North American rivals.

Cann Group and MGC Pharmaceuticals are among many companies that have ventured into Europe, recently signed partnerships to distribute medical marijuana products, and are also considering double listing in the region.

Europe is much smaller than North America and is already struggling with oversupply, but the market is a draw for Australian companies struggling with an even smaller home base.

"With the outlook still largely limited to the prescription market (in Australia), exports remain key for marijuana companies," said Jo Paterson, Founder and CEO of BOD Australia.

New South Wales-based BOD, valued at just $ 37 million, signed distribution partnerships in the UK, Italy and the Netherlands last year. The share rose by two thirds in the reporting period.

There are signs that cannabis regulations in Europe will continue to relax.

A decision by the Supreme Court of the European Union in November, https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-11/cp200141en.pdf, that cannabidiol – the main ingredient in medical marijuana products – Failed to enact a narcotic drug in November is critical to its success in Europe, the companies said.

The United Nations Drugs Agency, which votes weeks later to remove cannabis from the most strictly controlled category of narcotics, will also help, they said.

Medical marijuana sales in Europe are projected to increase 52% to $ 3.1 billion by 2025, according to a report by market researcher Brightfield Group and advisor Hanway Associates.

Graphic: Medical marijuana sales in Europe will increase – https://graphics.reuters.com/CANNABIS-EUROPE/jbyprdrjgpe/chart.png

Despite a short-lived, Reddit-fueled rally in cannabis stocks, many investors view these as long-term bets. The cannabis index is up 30% in the past 12 months, outperforming the 16% growth.

Graphic: Cannabis stocks rebound as more catalysts show up – https://graphics.reuters.com/AUSTRALIA-CANNABIS/oakperndavr/chart.png

BIG LIGHT

However, analysts have warned that the regulatory landscape in Europe is complex and could be difficult to navigate.

Even bigger companies like Canopy growth (NASDAQ 🙂 and Aurora Cannabis (NYSE 🙂 have found it difficult to make profits on the continent and are now reducing their investments despite saying Europe remains a great opportunity.

"Policymakers and companies are addressing issues such as cross-border supply chains, standardization of manufacturing and laboratory practices and prescribing requirements," said Ibrahim Said Abdeldayem, risk advisor at Arriello.

Some countries, including Germany and the Netherlands, have well-established medical cannabis legislation. In other countries like Sweden and Belgium, cannabis is strictly prohibited.

Graphic: Framework for the legalization of cannabis in Europe – https://graphics.reuters.com/CANNABIS-EUROPE/xklvyomwbvg/chart.png

Australian companies are approaching the various markets with a capital-efficient approach: they stick to partnerships with companies that are better equipped to deal with local sales and regulations rather than attempting to build processing plants.

Cann Group, the first in Australia to obtain a license to grow medicinal cannabis in 2017, said it will focus on Germany and the UK as these markets are expected to grow rapidly.

Cann, valued at roughly $ 150 million, is working with a London-based company to ensure it is well positioned at the start of the market, said Chief Operating Officer Shane Duncan.

"Hopefully (Australian investments) will be more thoughtful and strategic, with a better understanding of the boundaries of the market and that it will take time," said Jamie Schau, an analyst at Brightfield.

"The important part is getting it right in every market and not treating it as a block."

Related Articles