[Article] Investing in European medical cannabis

By June 3, 2019 No Comments
european medical cannabis

European Medical Cannabis

Since recreational cannabis was legalized in 2014 in two US states and in 2018 in Canada, investors across the world have kept a close eye on the recreational and medical cannabis markets. Billions have been infused into the industry, with the Canadian market a leading example of successful policy implementation and impressive company growth within the sector.

Canopy Growth Corporation – a Canadian firstcomer – is now the sector’s most valuable company with a market capitalisation of USD 9.28 billion, a 63% increase following its listing on the NYSE in January 2018. As the numbers soar, and competition becomes fierce, many are looking for opportunities to invest.

Scrutinizing growth markets, where early-stage investment could realise substantial profits in the coming years, could be an interesting and potentially rewarding move for those who want to participate in the “green rush”. The European market, where regulations for medicinal use are slowly but steadily relaxing, is seen as having significant growth potential.

Bearstone Global has selected a few case studies from across Europe, providing an overview below.

Medical Cannabis in Germany

As of May 2019, Germany is the biggest consumer of medical cannabis in Europe. In 2018 the German government called a tender for the domestic production for an overall potential amount of 13.52 tons of medical cannabis, expected to be delivered over the course of four years. According to estimates, this amount will be insufficient to fulfil the substantial projected demand, thus requiring supplementation with imported products.

Burgeoning demand followed landmark legislative changes in March 2017, in which the relevant law was substantially revised in line with recommendations drafted by the German Federal Ministry of Health.

The key changes included:

  • All physicians being individually licensed to prescribe medical cannabis.
  • Public medical insurers being required to cover the costs of medical cannabis, provided that no alternative medication exists and that treatment with cannabis could be reasonably expected to have a positive impact on symptoms. Patients are required to submit a formal application to their insurer for their initial prescription.
  • A specialised Cannabis Agency was created under the auspices of the Federal Institute for Drugs and Medical Devices (BfArM), reflecting the requirements of the Single Convention on Narcotic Drugs, to oversee domestic production (by means of a tender) of medical cannabis.

The changes have opened an array of new opportunities for doctors, patients and businesses. In reality, however, immediate implementation was hampered by a number of factors.

First, insurers were reluctant to fulfil all incoming requests for medication, with patients and doctors placed on waiting lists. Also, the initial absence of domestic production left supply entirely dependent on imports from countries where production complies with the Single Convention on Narcotic Drugs, according to a statement of the German federal government. Imports are the responsibility of another division of BfArM; the Federal Opium Agency.

Despite the still-stringent requirements of the German medical cannabis market, investors are enthusiastic about the potential for growth. The Prohibition Partners research institute cited projections that the medical cannabis market in Germany could grow to roughly EUR 7.7 billion ($8.6 billion) by 2028, with a market of EUR 58 billion for Europe as a whole.

There are more than 20 cannabis companies registered on the market, both domestic, and large international firms including Aurora Cannabis Inc., Canopy Growth, and Spectrum Cannabis, among others. Only Aurora Produktions, Aphria Deutschland, and Demecan however have won tenders for cannabis cultivation in the coming four years.

Medical Cannabis in North Macedonia

North Macedonia has grasped the opportunity to spur its economy by joining the “green rush”, with Germany’s demand for import a clear motivating factor.

In March 2016 the Law on Control of Narcotic Drugs and Psychotropic Substances, and the Law on Medicinal Products and Medical Devices, were amended. These amendments allowed for the cultivation and production of cannabis for medical purposes, as well as for the refinement, extraction and production of hemp seed and cannabis oil. The changes made North Macedonia one of the few countries in the world that allows for the cultivation and export of cannabis products.

Following the success of cannabis legalisation in Canada, the North Macedonian government has implemented a free market approach to cannabis cultivation, distribution and sale. As a result, the industry projects serious market growth potential, which has been met by a prompt rise both in investment, and competition. The local market already has its own established players such as NYSK Holdings, MAM and Farma Medica Cannabis, but substantial cash influxes, both domestic and foreign, have the potential to bring rapid change to the local scene.

The North Macedonian government has offered unambiguous support to cannabis cultivation, and sees it as an important pillar in its attempts to stimulate economic growth in the small, impoverished nation. This gives local businesses and their investors a stable platform for further development within the sector.

From a regulatory standpoint, the North Macedonian Ministry of Health, the Ministry of Agriculture, Forestry and Water Economy, and the Agency for Medicines and Medical Devices are held responsible for oversight of regulatory compliance and production standards.

Cannabis cultivation license holders are subject to stringent requirements, which greatly exceed those that apply to the production of hemp products. Companies engaged in the production, processing and export of medical cannabis have to submit reports to government agencies at each stage of their operations, and should expect at least two inspections during cultivation by a dedicated committee.

Current North Macedonian legislation allows only for the export of final products (extracts, granules, oil, and such). A bill is being drafted that will allow for the export of dry mass of cannabis. As investors await the passing of the bill, however, there is another important hurdle.

All companies that intend to export medical cannabis products to Germany are obliged to obtain a Good Manufacturing Practice (‘GMP’) certificate. However, among all the companies present on the market only NYSK Holdings possesses the certification, along with a state-of-the-art facility where not only cultivation but the research of medicinal properties of cannabis is carried out.

Medical Cannabis in Malta

Malta, which has placed itself at the forefront of trends such as online gaming and blockchain technologies, has also made an early foray into the medical cannabis sector.

The Maltese government, via its Council for Economic Development, is aiming to develop Malta into a production centre for medical cannabis, based on a perceived opportunity for economic growth and export demand. In March 2018, the prescription of medical cannabis was approved. The bill did not prescribe a list of conditions for which medical cannabis could be used, relying instead on the discretion of physicians. Approval for local production followed swiftly, in April 2018.

Companies wishing to engage in production are required to obtain a letter of intent from the Council, a license from the Maltese Medicines Authority, and to pay a EUR 35,000 application fee, with a further annual fee of the same amount. All Maltese medical cannabis production is monitored by the Medicines Authority, which has the right to grant licenses (for which EU-GMP certification is key), and to check companies’ operations and premises at any time.

The country is seeing increased interest in license applications, though it is also being highly selective. By March 2019, Malta Enterprise had approved 15 investment projects. Only a few of these, however, are ready to launch in the short term. Importing licenses have been issued to Bedrocan Netherlands and Pedanios GmbH. Wayland Group, ICC International Cannabis and Columbia Care are reported to be the leading early investors already operating on the market.

Medical Cannabis in Poland

The relaxation of the total prohibition of medical cannabis under the conservative-leaning Law and Justice government of Poland came (somewhat surprisingly) in mid-2017. It followed a locally high-profile campaign by Tomasz Kalita, a Polish parliamentarian who died in January 2017 from brain cancer, having advocated for medical cannabis to treat pain associated with his condition.

In July 2017 the Prevention of Drug Abuse Bill of 2005 was amended. It allowed distributors to import cannabis as medical raw material and provide it to pharmacies, which are authorised to use it in the preparation of drugs prescribed by doctors. Reimbursement of cannabis-based medicines is not guaranteed.

The amendment was widely criticised as a ‘dead letter law’, as its practical application has been fraught with difficulties. Obtaining an import license is administratively complex, and time-consuming. Many doctors lack education on the implication of cannabis medicine and are reluctant to prescribe it. For patients, cannabis-based medicines remain hard to acquire and are substantially more expensive than on the black market.

Still, the market has some interesting prospects. The potential market for medical cannabis products is estimated to be between 300,000 and one million patients. At present, Canopy Growth (through Spectrum Cannabis) and Aurora Cannabis are the big international players who have been granted permission for medical cannabis import.

The government has stridently opposed any local production or cultivation of cannabis, creating a legal environment where it is prohibited unless used for research or industrial purposes. Industrial production is, however, a promising investment opportunity in itself. In August 2018 HemPoland, the owner and distributor of the CannabiGold dietary supplement was acquired by Canada’s The Green Organic Dutchman (‘TGOD’) for USD 15.5 million. TGOD intends to invest USD 10.3 million to help HemPoland expand in Europe.

Before Investing

There are numerous promising opportunities in the European medical cannabis market for investment returns. The European Union’s regulatory oversight is helping to ensure the adoption of industry best practices all over the continent.

It should, however, be noted that each country has its own independent approach regarding cannabis regulation and utilisation. Given also the sector’s status as a nascent industry which has recently emerged from the black economy, investor caution is strongly advised. Bearstone Global, as a regional and sector expert, is ideally placed to conduct geographical and industry risk assessments and enhanced due diligence on investments and potential business partners.

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