IT’S still early days but after a faltering start by its North American neighbours US cannabis companies are now taking tentative steps into Europe.
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This year has witnessed some significant moves with major US player Curaleaf leading the way and others such as GenCanna, and Texas entrepreneur Lorne Abony embracing opportunities in the UK.
Total deal values have soared well past the $600m mark – albeit boosted by the Curaleaf $407m purchase of EMMAC – with the spike in activity seemingly a sign of things to come.
Speaking to BusinessCann last month Curaleaf International’s Chief Executive Antonio Costanzo said the EMMAC deal was an important moment for both companies, setting ‘the foundation for expansion of the group beyond the US in Europe’.
So what is driving the uptick in transatlantic transactional traffic?
Two things stands out – Europe’s instinctive default to regulating markets and its pace of progress towards adult-use cannabis.
Higher Entry Barriers To US Market
The first point was picked up by Luis Merchan, President and CEO, of Miami-based Flora Growth. Earlier this year it said it was launching a medical cannabis trial in partnership with the UK’s Manchester University.
Flora Growth’s European ambitions are being supported by its recent $22m share-based purchase of Swiss company Koch & Gsell, and its Heimat brand of hemp and tobacco cigarettes. It has also taken a 20% stake in European-focused Hoshi International.
Mr Merchan summed the current situation up succinctly: “For investors, the US has very high levels of entry. It is a very complex market.
“We see the major opportunities for rapidly developing our revenues in regulated markets. In this regard we are seeing some most dramatic pieces of regulation and law changes coming out of Europe.
“While we believe the cannabis trade will be a global one, with the European market being the early adopters of a more streamline regulatory environment we have invested in Hoshi and Koch & Gsell.
“The fact we are now here is great news. We are very encouraged by developments so far and the recent moves in Germany towards recreational cannabis are very meaningful.”
Germany Moving Fast
Mr Costanzo also elaborated on the moves towards adult-use cannabis in Europe saying: “We think that we are on the verge of seeing the next big inflection point, which is some countries legalising the access to recreational cannabis, we think that is going to happen in the course of 2022 to early 2023.
“We are close to the political stakeholders that are driving this conversation in some way, in some of the key jurisdictions. We see a lot of traction around those discussions.”
Mr Costanzo highlighted pilot projects to introduce recreational cannabis in the Netherlands and Switzerland the imminent legalisation in Malta and the developments in Germany which have been extensively reported by BusinessCann.
Mr Merchan is hopeful of change in the US but with cannabis businesses restricted by an inability to trade across state borders and financial transactions hampered by banking restrictions, he believes Europe is set to pull ahead.
No Meaningful Change In US
He said: “If Germany implements this in a streamlined and organised way we expect rest of Europe to follow suit.
“That would make Hoshi and Koch & Gsell very attractive investments that will rapidly scale revenues. The opportunity is tremendous opportunity with the regulatory framework heading in the right direction.
“The regulations in the in the US are further behind say Colombia, Mexico and Germany, these three are all are making meaningful developments toward to economic growth of the industry.
“While we believe the US will be massive – with growth of 50% on last year – there are more closed doors; there is no free trade.
“Until we see reforms such as the SAFE banking act we will not see meaningful expansion and so for that reason we will continue to focus on international markets – in particular Mexico, Colombia, Germany, Malta, Italy, Portugal and the UK
“The investor community is interested in companies that take a global perspective and they understand that Europe provides a shorter path to revenue and EBITDA. Investors are looking at companies in European markets.”
US CBD Giant Doubles Up In UK
In March this year Kentucky-based GenCanna signalled its intent in Europe with the purchase of UK CBD player Taylor Mammon
Speaking to BusinessCann at the time Taylor Mammon MD and Co-founder Nathan Wogman said: “I cannot think of any examples of North American or Canadian companies identifying and buying a CBD-specific manufacturer in the UK, and, on the back of recent cannabis IPOs this feels like a watershed moment for the industry.
“There seems to be a lot of conversations going on, and this could see the start of a domino effect. The change is coming. CBD is being regulated in a way that has not happened before.
“The Novel Food regulations are giving the bigger players the confidence to enter a well-regulated market. North American firms see the UK as a beachhead into Europe and beyond.”
GenCanna quickly followed this up with the purchase of fellow UK from CBD Capital.
Also in the CBD space UK marketplace mellow was bought in a $13.5m share-based transaction by US firm Thought Leaders with Mark Singleton, Thought Leader’s CEO, saying “mellow is a key component of its global growth strategy’.
Medical Cannabis Moves
In 2020 California-based Halo Collective purchased Kent-based Canmart – one of the UK’s first medical cannabis suppliers – and this year it packaged that up with its Bophelo African cultivation operations to launch a new UK-based venture Akanda with this now being prepped for a market listing.
Elsewhere, in a share-based transaction Virtual Medical acquired UK business ECO Equity – and its Zimbabwean cultivation facility – for $130m saying that as a ‘manufacturer of high-quality products on a large scale this deal provides access to European and global markets outside of the USA’.
In Germany, Curaleaf’s Executive Chairman Boris Jordan’s investment business Measure 8 Venture Partners has been active as lead investors into German cannabis company the Bloomwell Group’s successful $10m seed round.
US rapper Snoop Dog’s Casa Verde’s investment company took its first transatlantic stake in Oxford Cannabinoid Technologies (OCT) back in 2018 and this year made further investments in German company The Sanity Group and $15m Portuguese cultivator Ace Cann.
Casa Verde’s OCT investment was around the time US North American neighbours Canada were making their first forays into Europe.
These have been met with varying levels of success with Tilray’s Portuguese and German cultivation facilities now delivering revenues but in a cost-cutting measure Aurora has offloaded it Danish facility to Little Green Pharma.
Stephen Murphy, CEO and Co-Founder of Prohibition Partners, says there definitely signs of increased US interest following the first Canadian wave which met with mixed fortunes.
He said: “US companies understand the complexities of working across multiple jurisdictions with different frameworks, the challenges around lack of proper banking and changing legislation.
“They are ultimately better prepared when tackling international opportunities and are bringing with them proven businesses and teams. Europe might still be early, when compared to North America, but the infrastructure for growth is being built now and those who want to be future leaders have a very timely opportunity to capitalize on it.”
This was supported by Tristan Gervais, Head of Cannabis Advisory at UK firm Chrystal Capital, who said: “Leading US multi-state operators are enjoying record revenue and EBITDA.
“This is leading them to consider international expansion, led by Curaleaf’s $407m Q1 acquisition of our client, EMMAC Life Sciences. US MSOs are likely to learn from some of their Canadian competitors’ mistakes of over-paying and, or, using too much cash in acquisitions.
“As the path to federal legalisation strengthens, US MSOs will be embolden to execute cross-Atlantic M&A. North American CBD specialists, such as Yooma and GenCanna, are also closing European acquisitions as they seek to scale-up and globalise their operations.”
Investors Looking For Certainty
Back in the UK one of the country’s first CBD businesses Vitality CBD was recently by high-profile US-based entrepreneur Lorne Abony’s Yooma – a CBD and wellness consolidator.
Vitality is one of the UK’s most prominent High Street brands with a presence in Tesco, Boots, Lloyds Pharmacies, Ocado and Amazon.
Speaking to BusinessCann Vitality founder Phil Glyn said it had had a number of potential suitors but chose Yooma due to its market experience and track record of delivering growth.
“They liked the fact that we are one of the UK’s most visible brands, which opens up the opportunity for speedy distribution for the rest of their portfolio
“We are also a company that is profit-making and conscientious. We are an entrepreneurial company, that puts the bottom line first.”
In the US the Food and Drugs Administration has still not come up with a workable solution for the CBD industry with many companies regularly falling foul of its rules around advertising and labelling and, in Europe, its Novel Food process has stalled and may now be under threat from the INCB’s ‘Cannabis Initiative’.
Mr Glyn continued: “In the UK CBD industry is highly regulated. The other markets are grey, and so the UK offers a much more attractive, and clear landscape, to forge ahead.
“Once the uncertainty disappears then investors are interested. Investors want certainty and rest of Europe does not have the flexibility and clear path to growth we are seeing in the UK.”
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