Why Canadian Cannabis Companies Need to Invest in the EU Cannabis Market Now

EU Cannabis Market

Canadian cannabis companies make long-term shift toward American and EU Cannabis Markets

Last week, Tilray Inc. (NASDAQ:TLRY) beat its quarterly estimates yet swelled its losses, causing the stock to jump and then fall back just as quickly. However, what the company said on its earnings call may have a more profound impact on the industry as a whole.

The Canadian cannabis producer stated it is beginning to focus its attention abroad as Canadian supply assets are currently “overpriced.” Tilray’s Chief Executive Brendan Kennedy went on to say that demand from markets in the U.S. and Europe are “orders of magnitude larger” than those from Canada, and that the company is planning to focus its acquisitions on US and EU cannabis markets.

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Part of Tilray’s pivot to the US is what it says is the $22bn opportunity of the US hemp CBD market, which some analysts call a risky gamble. Many Canadian producers are happy to take that bet though—last week for instance, Canopy Growth Corp. (NYSE:CGC) bought hemp company AgriNextUSA to speed up its CBD expansion in the US. While the CBD craze could still turn out to be a fad, Tilray was quoting Brightfield Group in its estimate that the market should reach $22bn by 2022.

Regardless of the fate of the CBD market, we are probably seeing a more long-term shift away from the home market by Canadian players such as Tilray. This is punctuated by developments in the US, where state legalization efforts have continued to accelerate. Last week, two state legislatures in New Jersey approved a new cannabis bill to legalize recreational marijuana, although the final vote was adjourned this week. Senators in Pennsylvania also released details of a new marijuana legalization bill last week, which would legalize cannabis for adult use. And finally, Florida recently ended a ban on smokable cannabis, and the ball is now in the regulators’ court to hammer out the finer details.

All told, recreational cannabis is now legal in 10 states, with a handful of states poised to follow their lead in 2019, including New York, New Jersey, and Illinois. In the meantime, medical marijuana is legal in a majority of states. The combined GDP of the regions in which recreational marijuana is legal may soon make up half of the US economy, and although weed still can’t cross state lines, many of these states are sizeable markets in their own right.

For the major Canadian players though, the cannabis market with the greatest long-term potential is Europe, which could well become the world’s largest in the next decade. Germany, the Netherlands, and Italy have all legalized marijuana to an extent, while France, the UK, and Spain are now moving towards medical legalization. These six countries make up a bulk of Europe’s economy, and roughly equal the United States and Canada in population.

That’s why Canadian companies are now leading the charge into the EU cannabis market. As mentioned, Tilray is quite active in Europe with an operation based in Portugal that’s focused on supplying the global medical market, as well as a foothold in Germany. Meanwhile, Canopy Growth plans to spend over 100 million euros to expand in the EU over the next two years, while Aurora Cannabis Inc. (TSE:ACB) is currently active in Denmark, Germany, Italy, and Poland. Cronos Group Inc. (TSE:CRON) is also involved in production and sales in the German medical market, while Aphria Inc. (TSE:APHA) is now developing a major Greek cannabis production plant.

>> The EU voted on advancing medical marijuana in February, 2019

The brass ring, however, is the recreational industry. Due to the European Union’s open borders, it will likely take a leading economy such as Germany to legalize first before other nations can or will safely follow. Fortunately, Germany looks closest to full legalization, which could come in the next few years. After this, Germany’s weight and influence alone should cause a domino effect across the Continent. Once this happens, companies with sizeable shares in the medical market will likely dominate the recreational industry going forward.

Featured Image: Depositphotos © PromesaStudio