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Analysis: Aussie cannabis firms go capital light as they roll into Europe

(Reuters) – A handful of small, younger Australian corporations are taking an opportunity on Europe regardless of the area’s various markets, hopeful {that a} capital-light funding technique will diminish their dangers.

FILE PHOTO: Cannabidiol (CBD) oil bottles of Swedish DeHolk AB firm are pictured throughout the Hashish Enterprise Europe 2018 congress in Frankfurt, Germany, August 28, 2018. REUTERS/Ralph Orlowski

Europe may very well be a tough market to crack as laws range by nation, however beneficial rulings for medical marijuana and potential demand are promising elements. The businesses reckon that establishing an early base there and dealing with European companions will assist them higher negotiate totally different markets and steal a march on bigger North American rivals.

Cann Group and MGC Prescribed drugs are amongst many corporations which have pushed into Europe, just lately signing partnerships to distribute medical marijuana merchandise and likewise exploring a dual-listing within the area.

Europe is way smaller than North America, already battling oversupply, however the market is a draw for Australian corporations that deal with a good smaller dwelling base.

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“With prospects nonetheless restricted largely to only the prescription market (in Australia), exports stay key to marijuana corporations,” stated Jo Paterson, founder and CEO of BOD Australia.

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New South Wales-based BOD, valued at simply $37 million, entered into distribution partnerships in the UK, Italy and Netherlands final 12 months. Its inventory surged two thirds within the interval.

There are indications that laws round hashish will proceed loosening in Europe.

A ruling right here in November by the European Union’s highest court docket that cannabidiol – the principle ingredient in medical marijuana merchandise – just isn’t a narcotic, is essential for his or her success in Europe, the businesses stated.

The United Nations drug company voting weeks later to take away hashish from essentially the most tightly-controlled class of narcotics will even assist, they stated.

Medical marijuana gross sales in Europe are anticipated to surge 52% by 2025, hitting $3.1 billion, in line with a report by market researcher Brightfield Group and guide Hanway Associates.

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Graphic: European medical marijuana gross sales set to rise –

A latest short-lived Reddit-fuelled rally in hashish shares however, many buyers see them as long-term bets. The hashish index has risen 30% up to now 12 months, outstripping 16% progress within the S&P 500.

Graphic: Hashish shares rally as extra catalysts emerge –

CAPITAL LIGHT

Analysts have warned, nonetheless, that Europe’s regulatory panorama is advanced and may very well be onerous to navigate.

Even larger corporations resembling Cover Development and Aurora Hashish have discovered it tough to make earnings within the continent and at the moment are scaling again investments, although they are saying that Europe stays a giant alternative.

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“Policymakers and companies are tackling points together with cross-border provide chains, standardising manufacturing and laboratory apply, and prescription necessities,” stated Ibrahim Mentioned Abdeldayem, a threat guide at Arriello.

Some international locations, together with Germany and the Netherlands have well-established medical hashish laws. In others resembling Sweden and Belgium, hashish is strictly prohibited.

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Graphic: Framework of hashish legalization in Europe –

Australian corporations are tackling the varied markets with a capital-light method: sticking to partnerships with corporations which can be better-equipped to deal with distribution and guidelines regionally, reasonably than attempting to construct processing crops.

Cann Group, the primary in Australia to obtain a licence to domesticate medicinal hashish in 2017, stated it should give attention to Germany and Britain as a result of these markets are anticipated to develop rapidly.

Cann, value roughly $150 million, is partnering with a London-based firm to make sure it’s effectively positioned when the market takes off, its chief working officer Shane Duncan stated.

“Hopefully (Australian investments) shall be extra considerate and extra strategic, with a greater understanding of the boundaries of the market, and that it’s going to take time,” stated Jamie Schau, analyst at Brightfield.

“The vital half is to get it proper in every market and never deal with it as a bloc.”

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