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Is there value in being a first mover in the European cannabis market?

Home » Is there value in being a first mover in the European cannabis market?

Cannabis Europa 2022 discussed the value of being early to the market in Europe as countries across the continent begin to update cannabis legislation.

2021 saw countries across Europe announce that they would be taking a more progressive approach to cannabis policy. Malta was the first country to legalise cannabis, and Germany has now begun talks on how it will be updating its policy after its incoming coalition government announced it would be legalising recreational cannabis.

Europe has an addressable market of 750 million people, with Germany already pinned as the world’s largest medical market in the world. To add to this, Switzerland, Luxembourg, France and Spain have also begun revising their approach to cannabis with the introduction of medical pilots, as well as legislation to allow home grows and recreational consumption on private premises.

Panelists Chris Walsh, CEO at MJ Biz, and Will Muecke, co-founding managing member of Artemis Growth Partners, which focuses on ESG and impact investing in the global cannabis industry, discussed whether being a first mover in Europe is advantageous. 

Read more: What do investors look for when analysing cannabis investment opportunities?

“We are probably more excited about Europe now than ever,” said Muecke. “It’s not just the promise of Germany. It’s really how we see Europe evolving from a cultural and regulatory standpoint. 

“We are large investors in the US, we believe in the US is more of a CPG market with adult use driving a lot of opportunities state to state. But we also see the US as being complicated by Federal legality.”

First movers in the US took on big risks, says Walsh, having to come up with a blueprint of how to operate in states that regulated the industry completely differently in a brand new market that no one knew. 

“Canadian companies were leading the charge from overseas to invest here and help the industry grow,” said Walsh. “Then they had to retreat in a lot of cases because they suffered at home and things didn’t play out the way they thought.”

Muecke added: “You can be there early and suffer all the problems of a market that is not accelerating as you want it to. The money that you put in can either be dead money or lost money. 

“What’s amazing to me about Europe is just how quickly things have evolved in the last few years. If you look at the leaders in Germany right now, many of those companies were started during the pandemic – 2019 to 2020. 

“So, we, coming into the market in 2018 looked like old dogs at this point in time. I think it gave us an advantage because, for some of these medical regulations, the process to get – especially on the manufacturing side – to a licensed entity and ultimately, commercial sales, that timescale really doesn’t evaporate. It doesn’t get reduced by being early or late to that market.

“So, in an important market where regulatory hurdles aren’t clear, putting in time early on makes sense.

“If the market isn’t there when you’re ready to go, you’re going to be sitting waiting for the market – which means there’s still time for your competitors or collaborators to catch up. If you’re an entrepreneur or an investor, you’re not too late to market at all.”

One of the lessons learned in Europe, says Walsh, is to prepare for delays. 

“You might have invested a lot of money in your idea and you are expecting to the markets began six months later,” he said. “However, two years later, the government is still going back and forth on regulations. So, you have to have a capital runway or investment patience, to be flexible.”

A vital element of being successful in a nascent market is having the right investors to support the business through such delays, says Muecke. 

“The critical piece, though, isn’t capital,” Muecke commented. “It’s really the team – having a team that’s resilient. As investors, we really invest in human capital. That’s where we spend most of our time and diligence. I think that’s first and foremost. 

“As an entrepreneur, capital is important, but also having the sensibilities to be an advisory board member that supports the team through ups and downs.”

Businesses should also be wary of setting unrealistic expectations in new markets, according to Walsh, who highlights that five years ago businesses were providing unreal projections that cannabis was going to be a $5bn market, with business plans made around those numbers. 

“The market is a small fraction of that. So, it’s not only the delays and how long it takes in order to get off the ground,” said Walsh. “It’s also the market reaching its momentum. You can’t compare any of the markets here to the US or Canada. They’re completely different.”

Muecke added: “You need to have a business model that has risks and doesn’t bring too much of the future opportunity for the evaluation, because most investors that are worth their salt will walk away. As an entrepreneur, you don’t want to get hung up on the high valuation of limited capital.

“When we look at the European markets, we still are planning this as an all-medical field despite Germany announcing that they are going to go for sales. We’re looking at how these medical businesses ultimately interact. We invested heavily on the tech side in the US and then we’re also big believers in ancillary support, whether that’s in the supply chain, distribution or sales.”

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