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8 cannabis investors share their outlook on the European market in H1 2022

With Germany set to legalize recreational use, where are investors placing their bets?

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Germany’s government created quite a buzz when it announced that recreational cannabis would be legalized during the current term. Does this mean that we’ll see recreational use of cannabis for adults becoming a common policy in Europe? It’s too soon to say.

After interviewing several active investors in cannabis-related startups, we learned that the regulatory and functional landscape in Europe is just as fragmented as it is in North America. Another important data point that connects both regions: the black market is a competitive factor. According to Europol, illicit spending on cannabis in the EU amounts to €9 billion each year.

However, things are moving on the legal side of the market — it appears medical cannabis still carries most of the momentum, and it is only accelerating. Around €354 million worth of unlicensed medical cannabis will be sold in Europe in 2022, according to market intelligence firm Prohibition Partners, and this number is expected to rise to around €2.3 billion by 2026.

Investments and M&A in the sector are also being spurred by Germany’s promised legislation.

“Our belief is that M&A will be front of mind for all legal cannabis operators. The difference in Europe is that there is opportunity for non-cannabis players to potentially get strategic and attempt to enter the market through an integration of cannabis as a CPG [consumer packaged good] or pharmaceutical-grade option,” said Todd Harrison, founding partner at CB1 Capital Management.

Also encouraging for producers and operators is the fact that medical cannabis isn’t verboten at a federal level across the EU, which lets companies legally sell their products across borders.

“This means that you can produce cannabis, for example, in Portugal, and sell to any EU country as long as you have export/import licenses. Hence, cross-border commerce in Europe is relatively fluid, meaning companies can scale relatively quickly if they know what they’re doing,” said David Bonnier, founding partner at Enexis AB.

We spoke with:

David Bonnier, founding partner, Enexis AB

What are some of the biggest challenges facing Europe’s cannabis industry right now?

Europe is largely a medical-only market right now. Unlike the U.S., medical cannabis in Europe is regulated as a medicine and falls under EU and national pharmaceutical regulatory systems.

As such, standards for production and distribution of medical cannabis are exceptionally high. Moreover, European doctors are generally more conservative and evidence-based. Therefore, it takes time to build the necessary infrastructure in order to get stakeholder buy-in.

Key challenges include (1) lack of education and buy-in from industry stakeholders such as physicians, research institutes, insurance companies, politicians, etc.; and (2) lack of downstream infrastructure such as research centers, specialized clinics, licensed wholesale distributors and manufacturers.

The good news is that since cannabis companies have to operate under pharmaceutical regulatory systems in Europe, we are seeing material accumulation of high-quality patient data.

Note that doctors in Europe can only prescribe a finished product to patients, unlike the U.S., where you only need a medical card. Patients must often follow up with doctors several times, which yields several valuable patient data points that can be used in real-world evidence studies.

As such, we believe Europe will most likely become a key leader on the research front for medical cannabis, which will further help lift the evidence base and general acceptance.

How are these issues informing your advice to your cannabis-related portfolio companies?

We are focused on companies that know how to navigate the European regulatory landscape and are filling key gaps in the market.

For example, we currently like the downstream part of the value chain, which has been underserved so far, including distribution companies, specialized clinics platforms, research and development centers, and companies that are accumulating patient data, which we believe will become very valuable over time. We also like ancillary businesses.

As in the U.S., legislation across Europe is fragmented but evolving. Are these situations comparable to you?

To an extent, albeit there are some key differences. Given that North America has already paved a pathway (starting in 1996 with medical cannabis in California, and again in 2012 with adult use in Colorado and Washington), legislation in Europe is accelerating at a faster pace.

While the Netherlands was first to legalize medical cannabis in Europe in 2003, the legalization wave really didn’t happen until much later, when Italy legalized, followed by Germany, Poland, the United Kingdom and many more. Currently, nearly 400 million Europeans now have legal access to medical cannabis in some form, which is more than in the U.S.

Also, Europe does not suffer from federal prohibition of medical cannabis like in the U.S. There is an EU-wide directive for production and distribution standards for medical cannabis products, which is interpreted by each country.

This means that you can produce cannabis, for example, in Portugal and sell to any EU country as long as you have export/import licenses. Hence, cross-border commerce in Europe is relatively fluid, meaning companies can scale relatively quickly if they know what they’re doing.

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

While there is a lot of buzz around the use of cannabis by adults, it is still largely a non-existent market from a commercial standpoint. Malta has legalized (albeit it has a small population); the Netherlands is running a pilot program for legal production, which was previously illegal; Switzerland is running a commercial pilot program; and a few other countries have legalized home-grown cannabis for personal use.

Germany is, of course, the 800-pound gorilla, being the fourth-largest economy in the world. The country’s new ruling coalition has agreed to roll out a commercial adult-use program, but this will likely take several years to implement. We’ll likely see other countries implement commercial adult-use programs before Germany — for example, Portugal.

That said, medical cannabis will continue to dominate the market this year, and we’ll likely see an acceleration in patient uptake in key markets with established downstream assets. The CBD market is competitive and will likely go through a consolidation cycle ahead of the U.K. and EU Novel Food application approvals.

Is Germany’s possible legalization of recreational cannabis already priced into the investments and M&A happening in the region? Are you seeing more M&A appetite from North American players?

No, not yet. That said, we are seeing a lot more interest from U.S. investors and operators looking at Europe, and we will likely see more cross-border M&A activity.

Where do you expect the main production hubs for legal cannabis in Europe to be located? How much does this overlap with the region’s main markets for legal consumption?

Southern Europe, mainly Portugal, is emerging as a powerful low-cost production hub, and Northern Europe, mainly Denmark, is emerging as a more expensive/high-quality production hub. Portugal and Denmark are small markets, but given that companies can export to other EU markets, it’s not really an issue.

Not every cannabis-related startup can bring a celebrity investor on board. Given the uncertainty and restrictions around this sector, can you share some tips for customer acquisition?

For over-the-counter products (i.e., CBD), you can market across most channels except on social media platforms like Facebook and Instagram. So it really depends on how much money you want to spend.

We see a lot of companies spending money on SEO strategies, which has worked pretty well. For medical cannabis, you cannot market it at all. So, customer acquisition is largely driven through education and clinic SEO strategies.

What are you looking for in your next cannabis-related investment?

We typically look for revenue-generating companies that have passed the proof-of-concept stage and are ready to scale. We also look, to a lesser degree, at companies involved in niche segments that fill missing gaps in the market.

Do you plan to invest in psychedelics-related companies operating in Europe?

We already have some exposure via Octarine and are open to investing in psychedelic companies.

How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?

The best way is to get in touch through our network (portfolio companies, bankers, consultants, etc.). If you send us a pitch, please don’t blast us with long emails and decks. Send a few bullet points and a teaser. If it’s interesting, we’ll get back to you.

Todd Harrison, founding partner and CIO, CB1 Capital Management

What are some of the biggest challenges facing Europe’s cannabis industry right now? 

Europe faces many of the same problems that U.S. MSOs [multistate operators] face. While many EU nations have medical cannabis rules, with CBD legal, the forms and types of products are more pharmaceutically focused.

This is similar to how some U.S. states had restrictive programs that, over time, allowed for more medical conditions, and then finally for legal use of cannabis.

European countries similarly have a plethora of laws. This architecture, where some countries are laxer than others, can allow the black market to proliferate as the laws change.

Consumers are used to buying patterns, and when transitioning from black market to a regulated market, the consumer weighs the price of the product, which can be cheaper without taxes on the black market, versus tested and regulated products, which are more expensive but safer.

How are these issues informing your advice to your cannabis-related portfolio companies?

The European cannabis industry is a step or two behind the U.S. and North American cannabis markets. Many of the opportunities are in the early or infant stage of investment. They are largely private companies, country-specific, or operating under the wing of a larger organization.

There is also more of a pharmaceutical setup in Europe. This means that the investments, being more early stage, are not generating as much cash as more mature operators and are still operating in an uncertain regulatory environment.

As in the U.S., legislation across Europe is fragmented but evolving. Are these situations comparable to you?

One advantage that the EU has over the state/federal structure here in the U.S. is that if there is an agreement/treaty between countries, then they can legally ship medical cannabis between borders.

Shipments have been sent and received from countries like South Africa. One of the largest global transfers of cannabis was exported from South Africa to North Macedonia; Israel has received and sent shipments, and there is already cross-country medical cannabis being transported throughout Europe.

Overall though, the mixed bag of regulations in the transitioning markets will continue to allow for black market activity to occur as it has in all the states in the U.S. that have approved and are transitioning to adult use.

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

For the upcoming year, although two European countries are approving cannabis usage for adults (Germany and Malta), the thrust of the revenue in the region will be on the medical side.

The expansion of programs and the additional focus from outsiders with expertise entering the market (e.g., Curaleaf’s acquisition of EMMAC), means that the quality and selection of medical products should continue to grow. In the jurisdictions where this happens, we have seen that the medical programs expand, the stigma around the use of the plant begins to subside, and more people become open to using medical cannabis.

Is Germany’s possible legalization of recreational cannabis already priced into the investments and M&A in the region? Are you seeing more M&A appetite from North American players?

Our belief is that M&A will be front of mind for all legal cannabis operators. The difference in Europe is that there is opportunity for non-cannabis players to potentially get strategic and attempt to enter the market through an integration of cannabis as a CPG or pharmaceutical-grade option.

If the laws allowing for adult use extend through Europe, there is the chance that a non-cannabis operator sees it as an opportunity to set up a lab to test out legal cannabis products. Other cannabis operators looking for international exposure will continue to want to pursue Europe based on the total addressable market, which will be bigger than in the United States.

We are still seeing limited appetite for EU-focused M&A (or EU-focused conversation), but some of the private deals we have seen out of Germany have been attractively priced.

Where do you expect the main production hubs for legal cannabis to be located? How much does this overlap with Europe’s main markets for legal consumption?

With the rules and regulations being different in each jurisdiction (in the near term), we anticipate a setup that’s similar to the U.S, where the growing of cannabis plants and manufacturing of products is contained within each country.

Since transportation between countries is different from the U.S., the countries that can take advantage of the Mediterranean climate will be the main regions where cannabis will be grown.

Some cannabis operators have drawn parallels with the dramatic food export out of the Netherlands, and how cannabis export in Europe could likely look similar.

Not every cannabis startup can bring a celebrity investor on board. Given the uncertainty and restrictions around this sector, can you share some tips for customer acquisition?

We know that growing high-quality, smokable cannabis at scale is hard to accomplish. It is also currently difficult to manufacture cannabis products and cannabis as an ingredient for consumer goods.

The companies in the U.S. that are doing the best job of attracting consumers and keeping them coming back have a consistent product. With different grow mediums and various ways to extract the product, the companies that consistently produce high-quality cannabis products at scale will attract the most customers.

What are you looking for in your next cannabis-related investment?

We believe investment focus will be on the science of the plant and the study of its effects on the human body as the markets evolve in the U.S., Europe and other jurisdictions.

In our allocation to private investments, we are looking at companies that are taking advantage of this thesis and have cannabinoids, flavonoids, terpenes and/or other components of the plant that are in various stages of drug development.

Do you plan to invest in psychedelics-related companies in Europe?

Not out of the realm of possibility, but not a focus of our team.

How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?

Science and evidence that what you are working on has applicability in your expected market. What is it that will make you generate more cash, better margins or have ownership of IP that will set you apart from others?

Granularity. Realistic projections and expectations. The ability to showcase competency and the data to reinforce belief. After years investing in this industry, most investors are very timid on new investments.

Yoni Meyer, partner, Casa Verde Capital

What are some of the biggest challenges facing Europe’s cannabis industry right now?

There are a few core challenges facing the European cannabis industry. At a baseline level, the general lack of capital for cannabis companies is a pervasive theme, especially so in a nascent market like Europe.

Furthermore, the war raging in Ukraine has destabilized the geopolitical environment such that it might lead some investors to take pause. Finally, access to medical cannabis varies widely across the continent, depending on the regulatory system and acceptable market indications (e.g., 100,000+ patients in Germany versus 5,000+ in the U.K.).

How are these issues informing your advice to your portfolio companies?

The advice we offer our European businesses closely echoes what we tell all of our portfolio companies: Remain focused on executing the core business and manage cash burn accordingly. Our industry has not yet reached the point where additional capital is readily available, so these elements are critical to keep in mind for all entrepreneurs in the space.

As in the U.S., legislation across Europe is fragmented but evolving. Are these situations comparable to you?

While medicinal cannabis legislation does vary across Europe, there remains a fundamental difference vis-a-vis the U.S.: legalization at the federal level versus state level. Because cannabis is legal at the federal level throughout Europe, companies are able to move products across borders, list on U.S. stock exchanges and access traditional banking services, none of which are currently feasible options for American cannabis businesses.

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

The medical market shows the most promise this year. While there has been some news about recreational legislation recently, even early adopters are still some time from actually implementing a regulated marketplace. We do not believe sentiment around CBD has much of a bearing on the recreational market.

Is Germany’s possible legalization of recreational cannabis already priced into the investments and M&A in the region? Are you seeing more M&A appetite from North American players?

There certainly are players attempting to raise at higher valuations with this in mind. That said, I think a clearer picture around upcoming regulations is needed before investors will be comfortable ticking up valuations. Additionally, we definitely foresee more M&A activity in Europe, as many North American players are starting to evaluate the market.

Where do you expect the main production hubs for legal cannabis in Europe to be located? How much does this overlap with the region’s main markets for legal consumption?

Several factors will determine which areas become the production hubs in Europe, including favorable climate, low-cost labor and open regulatory environments. We see these factors aligning nicely in countries like Portugal, Spain and Poland, among others. While there might be some overlap, Germany is clearly the largest legal consumption market.

Not every cannabis startup can bring a celebrity investor on board. Given the uncertainty and restrictions around this sector, can you share some tips for customer acquisition?

The primary driver for customer acquisition in medical markets is tied to product quality, meaning flower with high levels of THC and consistent test results will prevail.

What are you looking for in your next cannabis-related investment?

We’re always looking for scalable, capital-efficient businesses that are solving long-term needs in the cannabis industry. The founders behind these companies are typically seasoned entrepreneurs who are incredibly focused on executing their strategy.

Do you plan to invest in psychedelic-related companies operating in Europe?

While not a core focus, we are interested in psychedelic-related companies and recently participated in the Series A round for Delix Therapeutics, a biotechnology company focused on harnessing the neuroplasticity benefits associated with psychedelic compounds and decoupling those benefits from resulting hallucinogenic effects.

Whether or not the next opportunity is in Europe or another location remains to be seen, but we are definitely following the space.

How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?

We typically like to receive materials ahead of time so we can familiarize ourselves with the company before a call. This leads to a more productive conversation rather than a page-by-page review of the deck.

Viken Douzdjian, managing partner and co-founder, Argonautic Ventures

What are some of the biggest challenges facing Europe’s cannabis industry right now?

The cannabis industry in Europe is at an earlier stage than the U.S., but both lack a common regulatory framework to cover the region.

In Europe, each country has its own set of regulations for medical cannabis, but a regulatory framework that enables international commerce is no easy task. For example, a health and safety regulatory framework that requires lab testing for the same pesticides, molds, heavy metals, mycotoxins and other microbial impurities across all countries in Europe is critical.

The implementation of a European system to track cannabis at every stage of the supply chain is another challenge to ensure the product is not being sold in the illicit market (seed-to-sale tracking).

How are these issues informing your advice to your cannabis-related portfolio companies?

Reset and focus on priorities and processes. The cannabis industry is familiar with volatility and hurdles. Alignment across the team on the top two or three priorities provides stability when facing challenges.

Once there is alignment, revisit the various functions’ standard operating procedures (SOP) and key performance indicators (KPIs) to ensure each function is working towards the priorities.

As in the U.S., legislation across Europe is fragmented but evolving. Are these situations comparable to you?

The state-by-state framework in the U.S. is analogous to Europe’s country-by-country cannabis market. In the U.S., each state has its own set of regulations. One lesson to be learned from the U.S. is [that] every state has amended its legislation and regulations (considerably) since legalization. Legislation with clear and measurable goals is needed in both regions.

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

I expect the European cannabis market will mirror other global markets in the medical market and build initial traction, which will catalyze reform for recreational cannabis. This year, the medical market has the most potential to grow. Over the next three years, the recreational market has more promise.

Is Germany’s possible legalization of recreational cannabis already priced into the investments and M&A in the region? Are you seeing more M&A appetite from North American players?

I don’t believe it is fully priced into the German opportunities we see. While valuations are trending up, Germany’s exciting market developments still require business leaders to perform and scale. As market leaders like Cansativa emerge, they will benefit from the market realizing the true potential of German cannabis businesses.

There is growing M&A appetite from North American players, but it is still in the early stages. There will likely be growing interest over the coming years as there is further clarity on the size and market dynamics of the European market.

U.S.-based MSOs have already begun making investments in Europe as Canadian LPs divest or downsize their European operations due to poor market timing.

Where do you expect the main production hubs for legal cannabis in Europe to be located? How much does this overlap with the region’s main markets for legal consumption?

I expect Germany to emerge as a production hub in Europe and likely be a leader in the region. Other countries that may emerge as leaders are Portugal, Spain, Denmark and the Czech Republic, driven by various levels of progressive regulations, production infrastructure and favorable growing climate. The legal cannabis market in Europe will likely overlap with the most populous countries, initially.

Not every cannabis-related startup can bring a celebrity investor on board. Given the uncertainty and restrictions around this sector, can you share some tips for customer acquisition?

Step one of any customer acquisition strategy is to understand the various customer segments a startup should target. This requires thoughtful and comprehensive interviews and focus groups to drive product and brand development.

Ensure that your company’s mission is reflected in the product and brand marketing, and aligned with key customer segments. As a business matures and the go-to-market funnel takes shape, there are various channels to reach customers. Teams that build measurability into their go-to-market strategy make better-informed customer acquisition decisions.

What are you looking for in your next cannabis-related investment?

We are looking for founders who have identified a demonstrable problem and begun the process of solving it. Areas of focus include B2B software, genetics and international growth. We are primarily focused on the founding team and their understanding of the problem they are solving.

Do you plan to invest in psychedelic-related companies operating in Europe?

No, psychedelics-related companies are not a focus area.

How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?

We partner with founders who are obsessed with learning and are able to synthesize and prioritize these learnings to build a solution for a targeted problem. At the simplest level, I want to understand what you are building, who you are building it for and what your business model is.

Will Gibbs, principal, Octopus Ventures

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

We are exclusively interested in the medical impacts of cannabis. Since the rescheduling of cannabis in 2018 in the U.K., the level of prescriptions issued have been notably low, especially compared to other markets such as Germany.

Our view is that for cannabinoids to be a truly mass-access medical compound, they must go through the same rigorous processes of testing and manufacturing as more traditional finished pharmaceutical products.

As a result, key areas of interest for us include:

  • Reducing the data gap and enabling high-quality data collection to increase clinician confidence and prescription volumes.
  • Production methods that enable cannabinoids to achieve the same production consistency as any other pharmaceutical-grade product such as aspirin or paracetamol. This means moving away from physical cultivation and more toward synthetic biology approaches.
  • New business models that enable private pain clinics and more emotive areas of health to be matched with proven science and the properties of cannabinoids.

Have you or do you plan to invest in psychedelics-related companies operating in Europe?

Yes, this is another area that is considered “taboo,” but where the science and research community is rapidly building the case for the value of applying psychedelics to otherwise untreatable conditions.

Many of the first wave of such businesses were funded by more niche investors and family offices, but increasingly, we are seeing reputable biotech funds such as RA Capital (investor in Delix) get involved in this sector, which is a good measure of how the stakeholders around this market are evolving.

Oliver Lamb, co-founder and investment manager, Óskare Capital

What are some of the biggest challenges facing Europe’s cannabis industry right now?

The U.S.’ hybrid medical and recreational market invites the possibility of lines being blurred between the illegal and legal market, and this is a significant roadblock to the industry being able to utilize traditional banking services.

Europe, on the other hand, has a much clearer regulatory framework for medical and pharmaceutical cannabis, which has helped the sector make use of traditional services. That said, we definitely still have issues with banking in Europe for the sector, but where there is an issue, so is an opportunity!

How are these issues informing your advice to your cannabis-related portfolio companies?

Our focus is on deep tech and life sciences projects that are able to capitalize on medical and pharmaceutical cannabis opportunities. As such, our advice is typically to not get distracted by sentiment toward cannabis in general and just focus on providing the best science, service or solution possible.

As in the U.S., legislation across Europe is fragmented but evolving. Are these situations comparable to you?

Comparable, yes, but by no means the same. The U.S. has essentially built a CPG sector and tagged on some loosely targeted medical benefits as a byproduct.

On the other hand, Europe is a network of largely independent ecosystems, the vast majority of which have enabled targeted and thorough research to be conducted on how the human body’s endocannabinoid system can be modulated to provide specific and well-defined health benefits (from the cannabis plant as well as molecules completely independent of the plant). Some of these ecosystems are now legalizing recreational cannabis as an afterthought.

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

Medical. The recreational market is interesting, undoubtedly, but the roll out is slow and likely to take a lot longer than widely expected. Additionally, the recreational market will likely suffer the same setbacks as we’ve seen in North America — namely, lower-than-expected uptake and stiff competition from the illegal market.

The medical sector, on the other hand, has significant and demonstrable growth in addition to a much broader and clearer regulatory and legal framework, enabling significant further growth.

Is Germany’s possible legalization of recreational cannabis already priced into the investments and M&A in the region? Are you seeing more M&A appetite from North American players?

Yes. Valuations appear to be based on best-case assumptions regarding regulatory pathway and consumer uptake, which is in stark contrast to the medical and pharmaceutical sector, where valuations have been subject to wider macro price pressures.

That said, there will likely be significant value generated in the recreational markets, but beware the first movers.

Where do you expect the main production hubs for legal cannabis in Europe to be located? How much does this overlap with the region’s main markets for legal consumption?

For the recreational markets, I suspect production hubs will largely correlate with the existing arable distribution across Europe, where regulation permits.

Production of the plant is becoming largely commoditized, and so it will come down to simply where it is most cost-effective. For the medical and pharmaceutical sector, it will likely eventually mirror the current pharmaceutical production landscape as phytocannabinoids become less heavily relied upon.

Not every cannabis-related startup can bring a celebrity investor on board. Given the uncertainty and restrictions around this sector, can you share some tips for customer acquisition?

Luckily, our targets are typically ecosystem plays or life science projects, and as such, we don’t have to think too much about celebrities. For our targets, our advice would be relatively simple: Get the science right, protect your property, get well capitalized and stay agile.

What are you looking for in your next cannabis-related investment?

Either an ecosystem (picks and shovels) business with product-market fit, the best team in the sector and the ability to grow rapidly. Or a life sciences team who have Phase I data, solid IP protection, a well-defined indication and a substantial and underserved target market.

Do you plan to invest in psychedelics-related companies operating in Europe?

Through our investment in Octarine, we entered the psychedelics space almost by accident. Whilst our team is geared toward evaluating opportunities in the endocannabinoid space, there is, of course, significant cross-pollination with adjacent sectors.

Octarine have proved that their platform is as applicable to the psychedelics sector as it is to the cannabinoid space — a win-win for us.

How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?

An email with a one-line description and a one-page overview; the more concise the better! Regarding initial calls, presentations would ideally be no longer than 15 minutes (advice we rarely stick to ourselves!).

Leah Fletcher, founder and director, Arbutus Innovation Centre

What are some of the biggest challenges facing Europe’s cannabis industry right now?

This depends on your definition of cannabis, which varies depending on your company, country and personal opinion.

For example, in Canada, CBD products are regulated and distributed the same as THC products. This is very different from the U.S. and Europe, where demand and growth in the OTC CBD industry has exploded over the past three years.

Speaking to the current $2 billion European CBD industry, one of the biggest challenges is uniformity in the application of European Union law versus the interpretation and enforcement of law for each EU member state.

For example, across the EU, hemp flower containing less than 0.2% THC (recently moved to 0.3%) is generally legal. However, hemp flower is entirely illegal, according to Irish domestic law, regardless of THC content. This sort of divergence from established EU law continues to create barriers for countries, entrepreneurs and investors looking to participate in a legal and regulated marketplace.

As in the U.S., legislation across Europe is fragmented but evolving. Are these situations comparable to you?

In Europe, legislation is moving along nicely with appropriate caution and attention toward the complexities associated with the plant, its parts, extracts and finished cannabinoid products.

A rush of legislative changes to appease lobbyists has occurred in certain member states. This has created more hurdles for the industry and frustrated consumers, with gaps in policy creating compliance and supply chain issues.

It is up to companies to understand policy and regulation in detail before investing in markets. The biggest opportunity for Europe will be federal streamlining in the United States. Once this happens, there will be an explosion of activity in both directions across the Atlantic.

Which sector shows the most promise for growth in Europe this year: medical or recreational? Has the popularity of CBD products made investors more comfortable about recreational use?

The dominant market is going to be European pharmaceuticals. Yes, CBD products are popular, but longevity in Europe, especially Western Europe, will be enjoyed by producers who can set up to service pharmaceutical companies and scale operations as products are authorized in Europe and beyond.

With the increasing popularity of CBD products amongst consumers, we’ve noticed an uptick of inquiries from investors. My five-year prediction is that CBD will move into mainstream ancillary products like beverages and cosmetics, with bigger players differentiating their products with CBD and other minor cannabinoids as the regulatory framework evolves.

Is Germany’s possible legalization of recreational cannabis already priced into the investments and M&A in the region? Are you seeing more M&A appetite from North American players?

We are seeing increased investment activity, interest in opportunities and demand for regulated, premium products from customers. For example, last month, one of our portfolio companies received multiple unsolicited offers for the acquisition of their CBD brand.

As for North American players, most firms have focused on investing in MSOs, and a majority have little to no knowledge of the established and emerging European market.

While the deal flow and opportunities are available, unfortunately, American PE and VC firms don’t yet have the knowledge or expertise to appropriately evaluate European projects.

Where do you expect the main production hubs for legal cannabis in Europe to be located? How much does this overlap with the region’s main markets for legal consumption?

This really depends on whether you’re asking about food, pharma, cosmetics or recreational.

For example, for dried flower production, it would be difficult for most European countries to compete with the quality and economies of scale enjoyed in Spain and Portugal.

For medical cannabis, Ireland and Germany would be at the top of the food chain, as both countries have established top pharmaceutical infrastructure for European manufacturing and distribution. Currently, the overwhelming demand for product in Germany is overlapping quite well for German producers and importers.

Not every cannabis-related startup can bring a celebrity investor on board. Given the uncertainty and restrictions in this sector, can you share some tips for customer acquisition?

My advice to companies is to focus on your consumer, then your product. What pain points are you addressing? How are you better than the solution they have at present? “Cannabis” is no longer a USP.

Startups need to put effort into learning as much about their customer as they possibly can, with robust research carried out long before investing in scaling and attacking large markets.

For customer acquisition, one must delight the consumer, rather than focus on the ingredients. Guinness advertisements do not advertise at length about their barley, hops and wheat. They delight and entertain their customer with artful advertising and well-thought-out campaigns.

Having a cannabis product doesn’t make a company special. More cannabis companies will succeed if they realize this early on.

What are you looking for in your next cannabis-related investment?

I’m closely looking at an Irish startup focused on the manufacturing of pharmaceutical-grade cannabis actives.

What I’ve learned from early investments into the Canadian cannabis industry is that the movers and shakers who focus on one particular niche are the ones who win. Vertically integrated cannabis does not translate to pharmaceutical operations in Europe.

Global pharmaceutical companies with operations in Europe and customers in Europe are focused on three things: quality, consistency and the bottom line.

Do you plan to invest in psychedelics-related companies operating in Europe?

I’ve already started. More to come on this very soon. Watch my LinkedIn for an exciting announcement — a first for Europe. The model and ecosystem that our incubator has created for cannabis is perfectly transferred to support investment and development of psychedelic projects.

How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?

We love when founders get in touch. Usually an email or LinkedIn message is best, and we follow up with an intake form, which our management team then assesses. We move faster than most investors, so we love it when a founder has their homework done before approaching us.

will.i.am, investor, Sanity Group

Editor’s note: We contacted musician/investor will.i.am for this survey. Although he did not respond personally, his publicist shared a message on his behalf that we have edited for length.

“He is an investor in Sanity Group (Germany), the creator of the CBD wellness and body self-care brand, VAAY. The VAAY line product line includes a range of CBD-infused bath balls, sports recovery gel, massage oils and calming drops.

In the U.S. market, in states where cannabis is legal, he wants people who were previously convicted for smoking it/personal possession, which is now legal, to be freed and their records expunged by the courts.

He and his business team receive and review pitches. Be sure to include a clear “ask” — state what you are seeking, such as investment capital, advisory board or board roles, Futurist consulting, etc.”

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