GERMAN firm SynBiotic has just completed what it calls the ‘most significant merger in the European cannabis sector’ to date, as it considers how best to position itself to capitalise on the incoming recreational opportunity.
Its ‘buy and build’ strategy, which has now seen its roster grow to 12 companies, has so far seen it prioritise medical, pharmaceutical and direct-to-consumer brands in its native Germany.
Its latest €11.2m acquisition of four brands from industry veteran Daniel Kruse has seen the company position itself for expansion across Europe, while it continues to work on a secondary listing in Canada.
However the announcement that recreational cannabis legalisation is on the horizon in Germany, ‘hoped for’ but not ‘planned for’ by the company, has caused it to reconsider what and where its next investments will be, says its Chief Executive Lars Müller.
New Verticals
While the recreational legalisation in Germany is likely not to come into effect until early 2024, SynBiotic is already considering a number of new verticals in order to capitalise on the opportunity.
“Now of course, we will start to build more lifestyle brands. We look out and talk to different companies that have already built different chains, food chains, or coffee chains or restaurants to be very well prepared when the legalisation comes and when we know what the rules are.”
Mr Müller added that Synbiotic was ‘in a good position right now already’ to take advantage of the nascent recreational market as it already has established supply chains for importing flowers, extracts and Dronabinol to distribute to pharmacies across the country.
Outside of recreational, Synbiotic is also shifting its M&A priorities in existing markets. In a previous interview with BusinessCann, Mr Müller said that he was primarily targeting ‘medical and direct-to-consumer brands’, but his recent acquisition is set to see it alter course.
The acquisition of three additional direct-to-consumer hemp retail brands means Synbiotic is now ‘very well equipped in regards to hemp products, CBD products, extracts and the whole supply chain’.
“We will now start to bring in more companies that have more of a pharmaceutical focus… There’s a lot cooking in the background already.
“So we are good to go with our direct-to-consumers, CBD and hemp stuff. And we will focus heavily now on medical cannabis and pharmaceutical stuff.
“And of course, that leads us to be very well prepared for the recreational stuff that will happen, hopefully in 2024.”
A Changing Market
The recreational decision is already having a tangible impact on the stock market, seeing German cannabis stocks, including Synbiotic’s, enjoy double digit spikes in the days following the announcement.
In turn, this has forced the company to reconsider the direction of its ‘buy and build’ strategy, and look at placing a greater emphasis on growing its own brands rather than buying them up at pace.
“Of course, the legalisation has made all those companies a little bit more expensive. So at the moment, I’m thinking heavily what I can do with the money.
“Spend the multi-millions into building something on my own, or maybe I’ll be able to find the right partner that has a fair price, because legalisation is years ahead.”
Despite his deliberation, Mr Müller says he will continue to focus on M&A moving forward, in large part due to the continued barriers to growing a cannabis brand.
“Of course, we are trying to grow our companies organically, but it’s not that easy. Now, with the Novel Food problem and very slow medical cannabis market growth, it’s hard to grow without a really, really heavy dollar investment in marketing. That leads to negative ROI.”
On the other side of the coin, the recreational announcement has reinvigorated interest in cannabis stocks.
Synbiotic is currently working on a secondary listing in Canada, with the goal of making it easier to raise cash in a more mature market.
However, with legalisation in Europe’s biggest market on the horizon, money has begun to ‘flow into’ the market.
“I think that it’s now way easier to raise money than it was a few weeks ago, when everyone said cannabis is illegal blah, blah, blah.
“And I think when I now want to do another capital increase, I will easily get all the money.
“The legalisation news helps a lot in terms of fundraising, and we will see a lot of money that will flow into different cannabinoid focused companies within the next few years, because everyone wants a piece of the legalisation pie in Germany.”
Synbiotic’s Investment Strategy
Earlier this month Synbiotic announced that it had purchased a 50.1% stake in Hanf Farm, Hempro International, Hemp Factory and MH Medical Hemp.
Its acquisition of three well established direct-to-consumer brands will give Synbiotic a boost in cashflow, seeing it raise its forecast revenues for the full year 2021 to €15m, up from just €5.4m in 2020.
But, according to Synbiotic’s CEO Lars Müller, this move was more about building a solid foundation for expansion into Europe.
“I invest more in people than companies. Of course, companies are super important, don’t get me wrong. But I like the two guys (Mr Kruse and Managing Director of Hanf Farm Rafael Dulon) in the companies behind that. That’s a wonderful combination.”
He explained that in order to fulfil Synbiotic’s ambitions of becoming ‘Europe’s biggest group of companies’ in the cannabis space, he needs ‘a lot of knowledge’ and ‘a lot of network’. Both of which Mr Kruse can provide.
“Daniel knows every big company in Europe. Next year we will roll out to Europe, including Switzerland and the UK. Therefore, it’s really important to have strong partners on board that are able to help me to evaluate new companies, new strategies, new acquisitions.”
The deal is understood to have been in the works ‘for months’, but will also have potentially major implications for SynBiotic’s strategy in light of the recent recreation announcement.
Mr Kruse is credited with playing a significant role in advancing the legal and regulatory framework around cannabis in Germany, and brings with him both connections and knowledge which will be key to the development of the adult-use market.
“That’s one of the good things with Daniel and all the companies we now have onboard, that we will hopefully get a lot of inside information, how to plan, the process and what the rules will be for the recreation part.”
