The Swashbuckling World Of Cannabis And International Finance

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The good news about recent reform in Europe on the international front is that there is, in fact, a legal market for cannabis products. As of 2019, the German government not only concluded the first (European) tender bid for cultivation within its borders but also set its first reference price.

21 out of 28 countries also have no legalized medical use at least in the EU since 2017. But just like in the U.S., differences between countries are huge.

While high flying numbers and estimates continue to fly about (will Europe really be a $50 billion market by the middle of the coming decade), what is the real skinny on the ground if not scoop for avid and savvy international investors?

For those financiers used to battles on the banking front in the U.S. (or even still in Canada), theoretically, there should be plenty of good news to cheer. In such an environment, pesky banking regulations that are even raising their head in the UK at the moment (and which may be called something different but are in the same general waters as money laundering and criminal drug charges in the United States and Canada), are still being waived around in some quarters.

As of two summers ago, in fact, the Deutsche Börse, the stock exchange in Frankfurt and the third-largest in the world by volume, temporarily suspended all publicly-traded cannabis stocks from North America on the basis of the medical legality of the same in Luxembourg.

What is really in the cards for the immediate future on the finance front and, of course, what does that really mean if not entail?

Financing Cultivation. In general, investment in such opportunities is driven by sovereign laws and laws between the countries in question if considering an international transaction, even of the financial kind. For Americans outside of the U.S. this can still be dodgy, but there are funds now being bundled in the U.S. and headed for European shores. A boatload of American side issues exists, however, including where federal banking and narcotics law intersects. 

What about on the positive side of the ledger? See Italy, for example, where the government just announced a tripling of domestic cannabis production in the last month to 500 kilos next year. France will begin a 3,000 patient trial soon, and Luxembourg, Denmark, Switzerland, and Holland all have recreational on the agenda even if in a trial stage. That said, all are tiny domestic experiments even in comparison to most developed U.S. state markets. It is mom and pop sales still in other words, with industrial, expensive pharma if not EU food standards – even in Germany to date. That will change, but don’t expect 10X on a cultivation play here. The margins are deliberately being kept as low as possible for what is going to be a fairly generic, low-cost medication within the next decade.

Investing In Stocks Based on Cultivation Elsewhere. This has already proved tricky once (see the German-Luxembourg drama), but that is unlikely to pop up again in Europe in quite the same way. The bottom line, if the stock is listed on your national exchange, even if it is for a company that buys and sells cannabis elsewhere, you can invest in the same. This side of the Atlantic however, the equity market is a far different beast. Expect lots of pessimism in the German equity market for Canadian cannastocks, particularly of late. 

Investing In Other Parts of The Supply Chain. Apart from cultivation, distribution has been a popular target for cannafinance in Europe of late (the last 24-36 months). International distribution is clearly a “thing” in Europe. However, financing futures in this market is still a dodgy proposition. A distribution license in Germany will set you back 1 million euro just to set up shop and get out of the gate. 

Other Kinds of Cannabis Financing and Business

This is still in its infancy and can range from M&A to arranging financing for foreign deals via a range of creative ways (from f/x swaps to futures financing). While the supposed “worth” in total of the regional market is frequently described in glowing numbers, the truth, in fact, is harder to weasel out because of a lack of volume and the extreme specialization in a still niche but clearly evolving market.

For a current overview of the world of European cannabis finance and market opportunities, do not miss 2020’s International Cannabis Business Conference lineup in Berlin, Barcelona, and Bern!

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