Overview of the European Cannabis Market

Cannabis is increasingly becoming legalized for a wide variety of uses in several forms. While most consumers are aware of smoking marijuana, they may not be familiar with hemp products, medical uses for cannabis or CBD oil and its uses. The cannabis market is growing rapidly around the world, most notably the recent legalization of medical and recreational cannabis in Canada. However, the European Cannabis Market is forecast to have the world's largest legal and medical cannabis markets by 2023.

Highlights of European Cannabis Consumption

In the European Union (EU) and Norway, 23 million people, nearly 7 percent of all 15-64 year-olds, used cannabis in the past year. The French are the biggest consumers of cannabis in all of Europe. Over 700,000 French use cannabis daily; around 41 percent of French adults have used cannabis at least once. EUR2.3 trillion is the total spent on healthcare each year in Europe. Predictions are now showing that the potential for cannabis sales in Europe will total EUR123 market value by 2028 for medicinal and recreational cannabis. By 2028, the European recreational market will be worth an estimated EUR65 billion.

Key Trends in the European Cannabis Market

1. The European cannabis industry grew more in 2018 than it did in the prior six years combined

2. The visibility and public acceptance of cannabis continues to expand as new scientific discoveries increase the public’s understanding of potential social and commercial benefits from cannabis

3. New legislation in six countries is setting the stage for continued adoption of medical cannabis in Europe

4. More than EUR500 million was invested in European cannabis businesses in 2018

Cannabis a Lower-Cost Alternative to Pharmaceuticals

While cannabis isn’t a cure-all, it is an alternative to many pharmaceuticals with fewer side effects to some. With increased testing of new uses for medical marijuana, European countries are poised to become a lucrative market for a range of products with cannabis as an ingredient that will be lower in cost than many current medicines. Cannabis is already proving to be a successful aid for pain relief, anxiety and depression, and relief from some nervous disorders for humans and animals. Products such as CBD oil don’t have the negative health effects that smoking marijuana has. Testing will continue to discover new uses for the health aid, and safe concentrations for various ailments.

European socialized government-sponsored healthcare programs will require government approval for use of cannabis, but governments are moving forward to legalize cannabis for medical use, utilizing companies like AMP Chinook Tye to help facilitate the process of importing GMP EU certified Cannabis into Germany. Reference

According to Prohibition Partners and the Davos World Economic Forum, Europe’s medical cannabis market could double in size in 2019.

The European cannabis market’s value soared last year, with 500 million euros invested in the market – and most of this was being funnelled into distribution and cultivation licenses. However, such investments could be just the beginning for the medical cannabis market, as according to the Davos report, many combined European countries are now forecasted to become the world’s largest federally regulated medical cannabis market over the next five years.

The medical cannabis market

Six countries have announced new legislation and over €500m has been invested in European cannabis businesses and Europe’s cannabis market is estimated to be worth up to €123bn by 2028.

Europe’s three largest medical cannabis markets, Italy, Netherlands and Germany, are forecasted to see patient counts more than double to a combined 225,000 this year. Furthermore, Germany, Italy and the Netherlands could see the medical cannabis market grow to 18 billion euros in the next decade.

The report highlights how: “Europe is seeing a fast-paced wave of regulatory and legislative change,”

“Throughout 2018, a swathe of European countries introduced, reviewed or announced future legislation to advance the legal cannabis agenda. The UK, Portugal and Malta have legalized medical cannabis products.”

Moreover, the report breaks down commercial opportunities in production, processing, distribution and retail, digital and ancillary.

Other vital aspects regarding the growing world of medical cannabis

Despite doctors now being able to legally prescribe medical cannabis in the UK (since 1 November 2018) serious access restrictions exist in the United Kingdom.

Moreover, with awareness of medical cannabis rapidly increasing, 2019 could prove to be a big year for the World Health Organization, as it reassesses its position regarding medical cannabis.

Reference

An overview of the legal status of medical cannabis in Europe

Reports by Prohibition Partners have shown how Europe is going to be the largest legal cannabis market, with an estimated value of 123 billion euros to be reached by 2028. Unlike other countries in the world, the situation in Europe is quite fragmented when it comes to regulatory environments, with each country of the bloc having its own framework on the matter. On top of that, the European Medicines Agency is another institution to deal with, as this is the bloc’s medicine supervisor. Obtaining licenses or permits by EMA does not qualify companies to have a cannabis business in EU countries, licensing regulations of which still need to be complied with.

The Netherlands, Spain, and Germany

The most renowned country in Europe when it comes to cannabis is definitely the Netherlands, which legalized the consumption and the sale of dried flowers during the 1970s. Even though the regulations leave open many gray areas, especially when it comes to stock production, the ‘coffee shop’ phenomenon has been thriving until the beginning of 2000s, when many municipalities shut down many of these. However, exactly in 2000, the Netherlands legalized the medical use of cannabis through the creation of the Bureau of Medicinal Cannabis to side with the pharmaceutical industry. In the country, Bedrocan Medical Cannabis has the monopoly over the production and distribution of cannabis. On top of that, the company is also the biggest medical cannabis supplier in Europe: for instance, they have supplied Italy with more than 450 kg of cannabis in 2018.

In other parts of Europe, especially in Spain, there are the so-called ‘cannabis social clubs’, which exploit the decriminalization of home growing, thus taking advantage of the ‘1 plant per person’ rule, making it ’20 plants per 20 people’, so to say. In Spain, these clubs navigate a gray area, though some regions have made steps towards their regulation.

However, Germany is expected to be the market with the most potential. The country legalized medical cannabis in 2017. In the past months, we have also witnessed the tender process through which some Canadian companies won the right to produce medical cannabis within the country’s borders. Aphria, Aurora, and Demecann by Wayland Group have to grow 10,400 kg in four years.

The Italian situation

Italy, as usual, represents a case study on its own, with the phenomenon of the ‘cannabis light’, which is cannabis with a low THC percentage, and high CBD. Many growers and entrepreneurs exploited a low-regulated aspect of the prohibitionist Italian cannabis law which made illegal cannabis flowers with a certain percentage of THC. In a few years, this generated a whole new market, with many cannabis light shops sprouting throughout the boot. However, the recent right-wing leaning government tried to put a stop to the burgeoning cannabis light market, with the Court of Cassation saying that existing laws do not permit the sale or transfer, for any reason, of products ‘derived from the cultivation of cannabis’, and that products currently on sale including oil, leaves, inflorescences and resin must be removed from shelves.

Poland and Romania

In Poland, medical cannabis was legalized in 2017. Yet, only one year later the first non-state company was able to obtain approval to import medical cannabis into the country, and it took another year before this was available to patients.

In Romania, on the other hand, the Health Ministry created a commission to investigate the potential of legalizing medical cannabis. However, specific conditions qualify patients for derivatives or extracts.

Luxembourg

In this midst of different regulations, gray areas, and soon-to-come opportunities, Luxembourg could potentially be the first country in the EU to fully legalize and regulate the cannabis market as a whole. The government coalition has suggested that the country is making huge steps towards that achievement, and the Health Ministry stated that the legislative path will be disclosed this fall, with the objective to get to full legalization within two years.

Reference

Italian medical cannabis tender

Aurora Deutschland – the German subsidiary of Alberta-based Aurora Cannabis – won all three “lots” to supply Italy with a total of 400 kilograms (880 pounds) of medical marijuana over two years, the Italian government announced.

But the award may come at a cost for the Canadian company: The average price it offered – 1.73 euros per gram ($1.94) – was less than half the tender reference prices and only slightly above the company’s latest reported average “cash cost of sales per gram of dried cannabis sold.”

Italy was the second-largest European medical cannabis market in 2018, with sales totaling about 600 kilograms.

Most of the Italian supply currently comes from the Netherlands, imported from the Dutch Office of Medical Cannabis and currently produced only by Bedrocan.

In addition, the Italian Ministry of Defense, through its office of Stabilimento Chimico Farmaceutico Militare (SCFM), produces almost 150 kilograms per year of medical cannabis.

Italy’s defense ministry announced the latest award Monday, with Aurora being the sole company selected after other bidders were disqualified for various reasons.

Assuming Aurora supplies 50 of the new 400 kilograms before the end of 2019, Italy’s total estimated sales in 2019 would be 900 kilograms, a significant increase over 2018.

Margin depletion

The prices Aurora offered for the tender suggest that the higher margins enjoyed in Europe by international companies won’t be the norm unless cultivators find a way to produce at substantially lower costs.

Three recent examples support this:

  • In early 2018, Aurora was the sole winner of the previous Italian application process for a total of 100 kilograms, offering an average price of 3.2 euros per gram.
  • In April 2019, Aurora won the latest application process to supply Luxembourg with 20 kilograms for 50,000 euros ($56,042), or 2.5 euros per gram.
  • In May 2019, the results of the German application process were announced. In this case, neither authorities nor the winning companies disclosed the price offered. But there was an incentive to provide a low economic offer, as 40 of the 100 possible points were granted solely on price.

Aurora reported in its latest quarterly earnings statement an average cash cost of sales per gram of dried cannabis sold of CA$2.05. That’s roughly 1.40 euros per gram, an average that includes production of Aurora’s non-Good Manufacturing Practice (GMP) facilities such as Saskatchewan-based CanniMed and Uruguay-based ICC Labs.

It is reasonable to believe that GMP-produced cannabis shipped to the European Union has a higher cost of sales per gram than the average reported.

The 1.73-euros-per-gram average price that Aurora offered in Italy is barely above the company’s average cash cost of sales, which means Italy represents little profit, if any, to the company.

Award criteria

The award criteria was the lowest offered price for each individual lot. Companies needed to qualify for their offers to be considered, something only Aurora achieved.

Five companies originally applied:

  • Aurora (through its German subsidiary)
  • Canopy (through its German subsidiary)
  • Medicinal Organic Cannabis Australia
  • Tilray (through its Portuguese subsidiary)
  • Wayland (through its Italian subsidiary)

The technical documents were opened July 3, and the evaluating commission immediately disqualified Wayland after an irregularity was detected that could not be remedied because the company declared that it does not apply radiation – or an equivalent treatment – to its products.

All other companies had irregularities but, unlike Wayland, were given an opportunity to remedy them.

  • Canopy presented a flow chart indicating packaging operations done at its German subsidiary. However, Canopy did not indicate a laboratory in the European Union to carry out the microbiological analysis of the product for the purpose of release after packaging. The microbiological analysis carried out by Eurofins Expertchems Laboratories in Canada for the purpose of releasing the product subsequently packaged in Europe was not considered acceptable.
  • Tilray failed to present the European single procurement document with an original signature. Moreover, for the chemical and microbiological quality control, Tilray submitted a GMP certificate by a laboratory that is authorized to process medicines but not active substances.

The commission considered Aurora’s remediation of the observations to be admissible because:

  • The company stated that packaging would be carried out in Canada and, thus, did not require a GMP certificate for packaging in Europe.
  • The GMP certificates and the supporting documents of the company that carries out the irradiation are in line with what was requested.

Because Aurora was the sole company qualifying with acceptable documentation, only its envelopes with economic offers for the three lots were opened. The prices offered by the other companies that were disqualified were not published.

Aurora offered the following prices:

  • 1.78 euros per gram for the first lot of 320 kilograms of high-THC flower, totaling 569,600 euros, a 56% discount over the tender reference price.
  • 1.29 euros per gram for the second lot of 40 kilograms of THC/CBD-balanced flower, totaling 51,600 euros, a 57% discount over the tender reference price.
  • 1.77 euros per gram for the third lot of 40 kilograms of high-CBD flower, totaling 70,800 euros, a 41% discount over the tender reference price.