[Lift] George McBride - Canadian Cannabis in Europe – Challenges and Opportunities
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." – A quote of unknown provenance often wrongly attributed to Winston Churchill
Canada has a unique opportunity in emerging European medical cannabis markets. However, Europe is a complex patchwork of challenges and opportunities that only the most astute will be able to successfully capitalise on. Successful expansion or export into Europe will require securing the best local partners in markets still short on human capital.
Canada is the clear global leader in the cannabis industry but European markets are developing quickly with health authorities across the continent legislating for access to medical cannabis for a range of conditions. The radical policy shift we are seeing in Canada is unlikely in the immediate future in Europe but change is nonetheless proceeding at pace on a state by state basis. At some point in the future, be that 4 years or 14, there will in all likelihood be a standardised EU system for medical cannabis products but until that indeterminate point, we have a big beautiful mess.
Rigorous product standards and varying legislation has resulted in a difficult market for overseas producers to access. The EU has 510 million citizens in 28 member states each with their own fluid and developing internal cannabis policies and all subject to overarching rules regarding the regulation of medicinal products. Beyond the EU are a further 22 countries with another 240 million citizens. The opportunity is vast but far from simple.
In the short to medium term there is a lack of production capacity in Europe. This has presented an opportunity for export and expansion into Europe by certain Canadian LPs. There has been much talk in the cannabis press about Canadian cannabis exports dominating the globe, but how long can this cold, wealthy northern country dominate cannabis agriculture? With a number of countries rapidly building domestic production capacity this opportunity is unlikely to last for long.
There are a number of immediate obstacles to Canadian expansion into Europe, not least the limitations on production methods put on Canadian LPs which only allow a limited range of flower and oil products. There is much uncertainty around European markets but what seems clear is that the demand is primarily for specific formulations for specific conditions. The prerequisite for these is high-quality compliant extractions. Shipping dry flower is not without complications and establishing local production facilities is not a viable option for all LPs. Until Canada’s medical cannabis regulations allow a wider range of product types, Canada’s potential to continue dominating the global export market will be hampered.
Those Canadian companies who have already made headway in Europe have voluntarily imposed on themselves additional regulatory standards beyond those required by Health Canada. For the time being the legal opportunities in Europe remain strictly medical and Europe has some of the most stringent regulation of medical products in the world. Canada is however in a competitive position due to the mutual recognition agreement between Canada and EU regarding Good Manufacturing Practice (GMP) products.
There is a lot of uncertainty regarding the future of the international market. There seems to be a prevailing opinion in Canada that money will flow from Europe into Canada’s burgeoning new market and that cannabis will flow from Canada to meet European demand. This may be misconceived. The travel will be in both directions and quite soon we may see low cost, high quality product flowing from Europe into Canada. This would present LPs currently focused on rapidly ratcheting up production capacity to meet domestic demand with a serious challenge to their business model.
In the longer term, as cannabis becomes a crop like any other, it appears likely that those with valuable intellectual property will dominate the European markets. Investment in research, and a strong focus on what works for patients shouldn’t be lost sight of as Canada strides ahead with its recreational market. Furthermore, those companies which embrace socially and environmentally responsible standards will open themselves up to opportunities short-term thinking companies will miss.
Complacent branding could also scupper otherwise promising plans for world domination. Some North American brands are ubiquitous in Europe but far more have failed to take hold. Creating a brand with international appeal and local relevance is not easy. Those companies with the strongest understanding of local markets and heightened brand-awareness will be in a very competitive position.
Canada has established itself as the global leader in cannabis policy innovation but there is no guarantee that it will maintain this position. To consolidate on and expand on that advantage will take international collaboration, further policy innovation and a healthy dose of entrepreneurial zeal. Innovative ways need to be found to work within, augment and influence existing systems in Europe to create functioning and profitable markets.
George McBride is a partner at Hanway Associates.