May 21, 2019
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Earlier this month, the Cannabiz Media team attended MJBizDaily’s two-day European Cannabis Symposium in Copenhagen, Denmark. During the event, I had the opportunity to attend several insightful presentations covering topics like clinical research, cross-border trade, regulations, and investing.
With the conference being held in Europe, much of the discussions held during the seminars, at the Cannabiz Media expo booth, and at networking events focused on European cannabis markets. In fact, two presentations in particular provided a wealth of information on the European cannabis market.
Alfredo Pascual, Marijuana Business Daily’s international analyst, discussed a big picture overview of the European market, and Olivier Dufourmantelle, Chief Operating Officer for Canopy Rivers, shared investing opportunities and trends in Europe.
Through each of these presentations, it became clear that Europe’s cannabis market is poised for significant growth. Here, are three key takeaways:
During his presentation, Olivier Dufourmantelle introduced the five distinct waves that he believes the European cannabis market will take. Today, the market is only at the beginning stages of wave two.
The first wave of the cannabis industry evolution is the Green Rush where cultivation is the stepping stone. At this stage, Olivier explains that value is derived from scarcity. He also points out that the winners of the first wave will be the first movers to achieve economies of scale and expand into international markets.
The second wave (where the European market is today) is when the ancillary market starts to grow. Olivier notes that the cannabis industry’s “picks and shovels” businesses will ultimately be worth three-times the size of cultivation. During this wave, regulations relax, 99% of businesses are privately owned, and technological innovation prevails.
In the third wave, businesses must compete at the brand level to survive. “Cannabis is only an ingredient amongst many,” says Olivier. “Brands will dominate the landscape.” The winners will secure distribution channels, product differentiation, and promotional opportunities, and success will depend on mind share and distribution.
In the fourth wave, “Big pharma will commercialize the cannabinoid compound for both rec and medical use,” says Olivier. They’ll build a wall of intellectual property that is already happening in Canada. In addition, the importance of artificial intelligence and big data to provide highly personalized customer experiences will dominate.
The fifth and final wave is the maturity phase where Olivier predicts a small number of market leaders will make the rules. Here, he quotes the Boston Consulting Group’s Rule of Three or Four, which says, “A stable competitive market never has more than three significant competitors. The largest has no more than four times the market share of the smallest.”
Only time will tell which competitors will rise to the top as the cannabis market matures.
When it comes to investing in cannabis businesses, Olivier says investors must be willing to play the “long game.”
He predicts that the U.S. will legalize cannabis at the federal level within two to five years. At that time, large institutional investors will enter and competition and valuations in the market will increase.
He also expects Europe to implement uniform regulations within two to three years. At that time, the market will open up and brands will determine the future of the industry.
Alfredo Pascual provided some interesting statistics that paint a clear picture of the current cannabis market in Europe. In terms of market size, 4,165 kilograms of medical cannabis flower were sold in Europe in 2018. The vast majority of it was sold in Germany (68%). Italy ranked second at 16% followed by The Netherlands at 13% and all other countries at just 3%.
Putting those numbers in perspective, approximately €75 million of medical cannabis flower was sold in Europe in 2018 with Germany responsible for €57m, Italy responsible for €12m, The Netherlands responsible for €3m, and all other countries in Europe responsible for €2m.
Germany is the biggest market by far in terms of sales, but it’s not the largest producing country in Europe. That title goes to The Netherlands where 61% of the medical cannabis flower sold in Europe during 2018 was produced. Canada is the second biggest producer of medical cannabis flower to Europe, supplying 35% in 2018. Italy comes in third with 4% of overall production.
Interestingly, although Germany has the largest cannabis market in Europe, it won’t have a domestic harvest until 2020. Therefore, the country will have to continue importing cannabis flower until that time.
There is significant opportunity for growth in the European cannabis market, and if Olivier’s prediction that Europe will implement uniform rules in the next two to three years is accurate, the market could grow a lot faster in the not so distant future.
Watch the Cannabiz Media blog for next week’s article which will look more closely inside the European cannabis market.
And if you’d like to see what kind of information you can access about international cannabis and hemp license holders for your sales and marketing needs, contact us to schedule a free demo of the Cannabiz Media License Database.
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