2020 has been a challenging year for cannabis companies that have been focused on the opportunity in the European Union (EU). The industry has been constrained by the COVID pandemic and many operators do not have the resources to execute on previously announced EU focused growth initiatives.
Although the EU market was challenged in 2020, we expect to see a trend shift in 2021 and remain bullish on the long-term opportunity. The COVID pandemic has put management teams to the test and we believe that many leaderships have shown to have a reactive nature to adversity. We prefer management teams that a proactive approach to the pandemic and believe that the character of such teams will separate leaders from the pack in 2021.
The EU cannabis market represents a substantial growth opportunity, and we consider it to be a less saturated market than North America. From a margin standpoint, we prefer the EU market to North America and believe that the level of saturation has made the economics of the EU cannabis industry more attractive.
According to Chicago-based research firm Brightfield Group and London-based consultancy Hanway Associates, the EU cannabis market could be generating more than $3 billion of sales per month by 2025. This number is highly dependent on the pace of legalization and we want to highlight 3 markets in the EU that we are most excited about in 2021.
Out of all the markets in the EU, we are the most excited about the opportunity in Germany and believe that the industry is poised to record impressive growth in 2021. We are of the opinion that the legalization of recreational cannabis is likely to occur in Germany and believe that this would be the start of a significant trend in the EU.
In 2018 and 2019, Canadian cannabis companies became highly focused on the EU market and ramped up the pace of acquisitions. Many of the EU assets that were acquired had leverage to Germany and this is a trend that started to decelerate in 2020. Companies like Aurora Cannabis (ACB.TO) (ACB) expected Germany to be a major growth driver for the business and unfortunately, the market has not grown as companies have hoped.
Demark is an emerging cannabis market in the EU. After Canada legalized medical cannabis in 2014, we noticed a decrease in interest in Denmark and this is a trend that we have continued to follow.
During the last few years, Amsterdam has taken actions to curb the amount of tourists that are visiting the city for cannabis or for the red light district. Following the COVID pandemic, we expect to see the country lift restrictions on tourism as it looks to increase the amount of revenue that is being generated by businesses in the country.
Tilray Inc. (TLRY) is a Canadian cannabis producer that has been highly focused on the cannabis market in Denmark and has established a distribution hub to capitalize on the opportunity in the EU. Unlike Aurora Cannabis, Tilray has been recording strong growth on the international side of the cannabis industry and this is a trend that we continue to follow. We are favorable on the focus on the opportunity in Denmark and believe that the country’s cannabis industry is poised to record strong growth in 2021.
Portugal represents an emerging cannabis market in the EU and we expect it to record strong growth in 2021. We believe the country’s cannabis industry is in the early innings of a major growth cycle and will monitor how it advances on a going forward basis.
Tilray also owns a distribution facility in Portugal and we expect the company find substantial synergies between its portfolio of EU cannabis assets. Since inception, Tilray has been laser focused on the medical side of the cannabis industry and expect to see it benefit from the growth of the Portugal market.
Going forward, we expect the investment trend in the EU to change and forecast a drop in spending from companies like Aurora Cannabis. We believe that operators that have constrained balance sheets are not going to be able to expand in the EU and believe that this will create a great opportunity for new players.
When it comes to the EU cannabis market, we prefer operators like Tilray which will not be required to invest additional capital in the region. For Aurora Cannabis, this is not the case and we believe the company will more than likely have to invest additional capital in the EU.
If you are interested in learning about companies that are levered to these emerging cannabis markets in the EU, please send an email to firstname.lastname@example.org with the subject “EU Cannabis” to be added to our distribution list.