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The third quarter for European cannabis was painfully slow and uneventful. What started as an exciting, promising year fizzled into typical summer laziness. It seems there is even less to be excited about on the horizon and many rumors swirl around Germany’s upcoming adult-use legalization. Although some quarters are less optimistic than others, the European Union cannabis market is long-term bullish and still on track to be the second-largest market in the world. And one thing is for sure, there is more European cannabis infrastructure needed, capital is critical to the growth, and early adopters are leading the largest M&A deals.

3rd Quarter Cannabis EU Legislative Rumors

Leaked rumors and the German parliament’s deliberations over a national recreational market dampened the excitement of the first two quarters and led to general worries as to the direction. After many sessions of policy deliberations, Germany realized creating a recreational cannabis industry requires more than a wave of the pen. 

Hurdles to German Cannabis Legalization

There are many obstacles to overcome on the way to an adult-use market.

One of the most significant is overcoming EU and United Nations rules on the transportation of a narcotic. Though Canada has already found a way around these laws, German policymakers are still grappling with what should be a relatively simple decision based on Canada’s precedent. 

Discussions also revolved around pharmacies maintaining a tight grip on policy. This seems to close the door to the western concept of dispensaries, though Germany could still allow for dispensaries later by giving pharmacies priority at adoption. 

Furthermore, Germany began the process of implementing cannabis price curbs for local producers. These price curbs may not have a large impact initially for global suppliers, but they will squeeze producers to a point where margins become a real issue. The tiered structure of producers, distributors, pharmacies, to patients makes it impossible to compete in price with the unregulated market. These financial issues will likely result in future margin issues for companies that try to make a flawed model work. Canada and the U.S. provide a prime example: the tiered model in Canada has been failing for years, while the vertical market in the U.S. is thriving.

Hopefully, other European Countries poised to legalize medical and adult-use cannabis will not follow the German lead that seems to favor pharmacists and will look to good practices that would beat the unregulated markets. It will be far more effective for them to go against magisterial prep and conform to a general herbal medicine standard, allowing free markets the proper tools to compete and driving prices down with the $30 billion U.S. market as a better model. Following Canada´s divided system would be a recipe for disaster for the European cannabis markets.

EU Cannabis Mergers and Acquisitions

M&As were light but meaningful this quarter, though the news is more consequential for German distributors than the general market. Top EU names grabbed the spotlight.

In the first two quarters this year, distribution companies led most M&As and this trend continued in the third quarter. One of the more interesting purchases was Curaleaf’s acquisition of 55% stake in German distributor Four 20 GmbH, totaling 19.7 million euros. This appears to be a play for future German recreational cannabis and would support Curaleaf´s production assets in Portugal and Spain.

On an equally impressive scale, Sanity Group attracted a huge investment of $37.6 million in a Series B financing round by British American Tobacco. This move has allowed BAT to add their name to the list of notable investors in cannabis. 

Health House International, an Australian cannabis distributor in Germany, has agreed to sales terms with Creso Pharma. This CA$7 million deal will help to bring Canadian products to Germany.

 Lyphe Group entered an LOI to buy Materia Ventures for an undisclosed amount, bringing their United Kingdom distributor capabilities to the German market. 

This quarter saw two non-German M&A deals as well. MGC Pharmaceuticals has secured 1.2 million euros of a total of 10 million euros led by Mercer Street Capital Partners. Later this quarter, MGC followed up with a 40% equity stake in UK-based ZAM Software by issuing 700,000 pound of MGC shares.  

It is also rumored that Brains Bioceutical secured an additional 20-million-pound investment from DSM Venturing, increasing their position in the company’s expansion of cannabinoid APIs.

As the industry looks past a few big deals and nervous rumblings of recreation fromQ3 to the final stretch of 2024, investors expect German distribution to remain a hotbed of activity and regulation framework announcements to come soon. Spain is also still very much awaited news on their medical framework. And other countries are expected to push forward on their own legal frameworks. This may stimulate a nabis distributors and producers across the EU and set off another round of M&As. However, there are only about 35 registered cannabis producers compared to hundreds of distributors. More countries are expected to launch medical and adult-use cannabis programs in the coming quarters, begging the question of where the product will come from, if and when demand picks up exponentially. 

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