1. Introduction to the European Cannabis Market
Although Europe has been slow out of the blocks, it is set to become the largest cannabis market in the world within the next five years, however there are some key considerations when it comes to how the cannabis industry develops.
Europe's population is twice the size of the US and Canada put together but is centred around a relatively small geographical area of over 50 countries. The many cultural differences contribute to a complex regulatory and business environment that will be significantly different from other progressive cannabis markets around the world.
Europe is an educated and informed part of the world, so the cannabis legalisation/regulation debate will not be won over night. Whilst there has been a shift in attitudes from some governments, the reality is that a medical cannabis industry will have to be explored, developed and tested before the conversation on recreational use can begin.
The potential recreational market makes it an interesting and enticing proposition for government (tax revenue) and business alike. Although companies within the cannabis industry recognise the enormous opportunity, many governments have yet to embrace this.
There is always a degree of scepticism due to the lack of credible research or analysis into the value of tax revenue and medical benefits that could be generated but there is no doubt that a legal cannabis industry will give a welcome boost countries economy.
Spain, Italy and Poland are showing positive signs of growth, but the more severely damaged Greece and Portugal are still exploring new opportunities that would give their economies a kick start. A common link shared by these countries, as well as the leading light of Germany, is a strong vision for a properly regulated domestic cannabis industry.
The versatility of the cannabis plant will have a significant impact across multiple industries including beauty & wellbeing, manufacturing, textiles and food & beverage.
2. Estimated Market Value
*Estimates are based on a fully legal and regulated market across all of Europe.
With a market of over 739 million people and a total healthcare spend of €1.49tr, Europe will be the largest medical cannabis market in the world. Both business and government realise that this thriving industry has a future, but it must be based on conclusive research. A record level of investment in research has seen new facilities opening across Europe, from Ireland and the UK to Estonia and the Czech Republic.
One of the results has been an ever-increasing list of conditions that cannabis can treat. As the list grows, so too does the potential patient base. Early research has shown that patients not only outnumber but also outspend recreational users in legal markets. This will clearly make the European medical cannabis market a key target for pharmaceutical companies over the next 5-10 years.
The health and economic benefits of medical cannabis have already been recognised by several the leading insurance companies. While federally illegal in the US, some insurance companies in Canada and Australia have changed their stance and are now covering prescriptions in these markets. The requirement of insurers to cover European patients will be taken on a state by states basis. However, the early indication from Germany is that fulfilling medical cannabis prescriptions will become a basic requirement of any policy.
Europe’s cultivation capacity and processing infrastructure will quickly put the region on par with the North American market when it comes to the hemp CBD category. However, the battle for control and classification of the category looks likely to heat up as major pharmaceutical companies enter the space.
It is estimated that cannabis accounts for the lion’s share of the €40b+ illegal drug market. New products, distribution and supply channels have further advanced cannabis consumption and presence throughout Europe over the last ten years. This potential market of over 140m active cannabis consumers remains on the wrong side of the law.
Despite the enormous amount of illegal cannabis users, Europe is solely focused on legislation for medical and industrial cannabis. Factors such as new employment opportunities, additional tax income, reduction in crime and greater clinical research are going to become key driving forces for the establishment of a legal recreational cannabis market in Europe.
3. Regulation & Legislation
Europe is undergoing a wave of regulatory and legislative changes with several European countries planning to introduce or announce future legislation to advance the legal cannabis agenda.
4. The UK Market
Medical cannabis in the UK is legal but limited – Nabilone and Sativex are the only cannabis based medicines licensed for prescription.
Current legislation is in keeping with a law first introduced in 1971. On the 10th October 2017, a new bill calling for the legalisation of cannabis for medicinal purposes was introduced to parliament with the next debate and outcome expected in late February 2018. There is increasing optimism that this bill could become the catalyst of the UK’s move towards legalisation.
The cannabis investment sector is beginning to gain traction and the pharmaceutical and cosmetic industries have begun to embrace and capitalise on the myriad of applications cannabis has to offer.
UK Facts and Figures
5. Industry Trends
1. Canada Leading the Way
Canada is in pole position to lead the cannabis world and represents a real opportunity for leadership on the international stage. The country has built a sophisticated medical framework with more than 170,000 patients relying on the quality of domestically produced products to ease many medical conditions. In addition, recreational use will finally become legal next summer. Supplying high quality cannabis to international markets is likely to become part of Prime Minister Trudeau’s vision to leverage innovation to create jobs and drive long term economic growth.
2. Europe will become the largest market
Public perception of cannabis is changing rapidly across Europe. The region has a population of 740m and even the EU alone is the largest economy in the world with €25,000 GDP for each of its 500 million consumers. However, Europeans are passionate about owning and controlling their own industries so the opportunity for foreign companies entering the market is primarily through JV's or strategic partnerships with local companies.
3. The rise of China
Cannabis is a major industry in the Yunnan and Heilongjiang provinces. Authorities turned a blind eye to production before legalising and regulating last year in Heilongjiang and back in 2003 in Yunnan. The crop can be highly profitable with local farmers bringing in close to €1,500 per hectare, compared to just a few hundred Euro for more common crops like corn. There are no official figures, but plantations are flourishing for both commercial and illegal drug use. This growth has in part been made possible by the government’s funding of numerous scientific studies, some of which date back over 40 years.
4. Advances in medicine and science
Cannabis is pushing the boundaries of medicine and science. There have been approximately 25,000 published studies on the plant with Europe, Israel and Canada leading the way. Last year, the first and only US research institution was launched however US research will open up properly on the back of federal legislation and rescheduling of the plant. Cannabis is now being treated around the world as a medicine with prescribed applications to specific conditions and diseases. Global understanding of the plant’s scientific and medical uses will only continue to expand over the coming years.
5. Genetics, DNA & IP
Over the last 18 months, scientists have developed a much clearer understanding of the molecules within cannabis compounds which has given rise to significant advances in genetics and DNA. This means that companies now have an opportunity to define their product while making quality and consistency integral to their brand. On the flip side, large agricultural companies now have a familiar entry point into the industry and could easily take advantage by claiming IP on genetically altered strains.
6. Low cost export market
Cannabis will become a commodity crop like the corn industry which means a race to the bottom on price is almost inevitable. Growers that can’t or won’t differentiate on brand will be forced to move cultivation to low cost markets and export out. The Sri Lankan government seems to have taken the lead here with the launch of an official cannabis plantation to supply the US medical market which will produce more than 25 tonnes a year under military protection.
7. Luxury recreational cannabis
There is a lot of perceived luxury but ‘small crop craft’ is an emerging category set to gain significant traction over the coming years. Increasingly, farms will grow special strains in limited batches and release them at high price points – not unlike what alcohol companies have been doing with their wine, craft beer and whiskeys brands for many years. Terpenes also have an important role to play here, these essential oils can add smells, flavours and effects to cannabis.
8. Personal home grow
Consumers in illegal markets including most of Europe are often forced to cultivate cannabis at home. This has seen the emergence of a large and profitable ‘home grow’ market with a very sophisticated range of products now available to the patient or recreational users.
Although the purchase of cannabis seeds from companies such as Discount Cannabis Seeds is legal in the UK, the germination of the cannabis is illegal. Seed genetics have also evolved with tougher strains now being very capable of flowering in cold, northern hemisphere climates.