NewsEurope's Leading Cannabis Capital Fundraisers On Why They Are...

Europe’s Leading Cannabis Capital Fundraisers On Why They Are A Favourite For Investors

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Berlin headquartered Sanity Group is not only beloved of celebrities but recently completed the biggest ever European Series A funding round for cannabis-based products raising an impressive €35m. Jane Hall speaks to co-founder and managing director Finn Hänsel.

IN its three short years, Sanity Group has attracted the sort of attention and backing its competitors can only dream of.

In June the Berlin-headquartered start-up completed what is to date Europe’s largest ever Series A cannabis funding round, raising €35m

The cannabis and digital health venture had been looking for €30m, but such was the interest, the group has found itself in the fortunate position of having what managing director and co-founder, Finn Hänsel, describes as a “nice €5m buffer.”

€65m Raised Since 2018 Launch

The last financing round led by Swiss venture capital firm Redalpine along with US-based Navy Capital and SOJE Capital, with the participation of GMPVC German Media Pool, shattered the previous such record of €20.1m set in February last year – by none other than Sanity Group.

It brings funding in Sanity since its launch in 2018 to €65m.

Finn Hänsel

Investors over that time have included Munich-headquartered HV Capital, Atlantic Food Labs, Cherry Ventures, Bitburger Ventures and SevenVentures.

In addition, Sanity has also attracted a notable gallery of celebrity US and European angels, including musician, entertainer and Black Eyed Peas frontman, Will.i.am, US actress Alyssa Milano, German soccer star Mario Goetze, and model Stefanie Giesinger.

They join Canadian singer Justin Bieber’s manager, Scooter Braun, whose investment fund TQ Ventures has also sunk money into Sanity Group.

This growing investment war chest is being used to help grow Sanity’s medical arm in Europe as well as its consumer goods division, and for research and development. 

This will include the setting up of a facility near Frankfurt dedicated to cannabis extract research and production for its Vayamed pharmaceutical business, which will be compliant with EU good manufacturing practice (EU-GMP).

Investors Like Duo’s Track Record

Europe is now the fastest growing region in the global cannabis market with the legal sector expected to be worth €3.2bn by 2025, according to global data and canna-tech firm, Prohibition Partners.

Industry figures show that total investment in the European sector has topped €1.2bn – 20% of which was raised in the first six months of this year.

Retail investors are flocking to crowdfunding sites, multinational companies are entering the sector and the London Stock Exchange has opened itself to cannabis start-ups.

But even in this booming market, Sanity Group’s investment success stands out.

So what is it that sets Sanity Group apart from its competitors? Hänsel has his theories. “There are a lot of things, but I think historically – and I would say fortunately things are changing – that cannabis didn’t have a very good reputation, especially in business circles, and that was prevailing until recently.

“You had a lot of companies coming up in the cannabis sector and I think what many investors have had trouble with is understanding which kind of pitch is nonsense, which kind is a good idea, and which one they can trust.

Fabian Friede

“Then there’s the fact that Fabian (fellow managing director and co-founder Fabian Friede) and I have been tech founders in the past. For example, for Movinga (an online European house removals and relocation platform) I was raising a total of €120m over the past five years as investment. Fabian was a start-up guy raising a total of almost €50m in the last two tech ventures that he created.

“Because we have a good track record, especially in the venture capital scene in Europe, most of the funds know either me or Fabian. Many of those VC funds had been hesitant of cannabis because first of all they didn’t know how the industry worked, they didn’t see founders who had a track record, and they didn’t know how to differentiate between the good business models and the, shall we say, the bullshit.

“But the fact that Fabian and I already had a history of fundraising, of successfully exiting companies, and of international work, has been the reason why many investors have looked for someone in the industry they could trust from before.

“So, I think they are the reasons why we have attracted a lot of investment because of the combination of a team that most of the investors know, a good track record and what is a new and emerging market.”

Cultivation Is ‘Super-Complex’

Sanity Group still has to be a good proposition, however. No-one can afford to invest in a firm that doesn’t have the right business model – no matter how well regarded its founders might be.

Hänsel agrees, but believes Sanity has achieved the right mix.

“We are in the consumer health space, which I call our CBD focussed products, and we are in the RX space, which is all our medical pharmaceutical products, and what we said from the beginning is that we want to centre on the most attractive future potential business areas.

“One thing we didn’t do from the beginning was cultivation. We always said we wanted to benefit from the parts of the value chain that we believe will generate profit, not only in one year but also in 10 years. 

“One of our assumptions was always that cultivation was super-complex and not actually very complementary to the skill sets that we have.

“I have a small craft beer brewery in Berlin. However, we would never have had the idea to grow our own hops because at the end of the day they are a commodity. As a brewer your focus is on creating the right recipe and a great end product and not necessarily on how to grow the hops. 

“I think what attracted many investors from the beginning is that they feel we are very strong on the market side and that we don’t put cultivation top. There were a lot of cultivation projects in the past being ditched. Most didn’t survive, the other half took much longer than expected. 

“I think investors like to have a good business model without having the huge long tail of cultivation on our back.

40-Strong Sales Team

“The second thing we do, which is very important for us, especially on the medical side which is our main focus, is that we don’t just see ourselves as a wholesaler buying flowers from cultivators and pushing it into the market. 

“We would rather have a long-term approach, so we have a sales team of almost 40 in the European market, which means we have people to talk to doctors every single day and, of course, we also sell flowers and extracts to the pharmacies. 

“But we actually believe that five years from now flowers in the medical space will not be as important as they are today.”

Hänsel says the company “believes in evolution.” To this end Sanity Group’s Belfry Medical brand is developing a new device for the next generation of cannabis use which will use extract taken via the lungs like an asthma spray. 

“You pump it into the lungs and the cannabis works through them like when you smoke or vape it. However, because it is extract based we know exactly what the dosage is, and through our digital health platform the doctor can track the success of the therapy. That, we believe, will become dominant compared to the flower,” Hänsel explains.

Pharmaceutical Focus

Sanity Group is also looking at creating new pharmaceuticals. A new brand – Endosane – will be operational within the next six to eight weeks. It will join Sanity Medical – one of two business units within the group – consisting of Vayamed, which develops and sells medicinal cannabis products to chemists and clinical institutions, and Belfry Medical, which focuses on the development and appliance of innovative technologies.  

Sanity Care, meanwhile, concentrtaes on developing superior consumer products based on non-psychoactive cannabinoids, and includes the VAAY and This Place consumer wellness and cosmetic labels.

Two Endosane cannabinoid products are currently being worked on, one of which will target mental health.

“Coming back to the question of what attracts investors to us, one of the things is that we don’t live in the today. Rather, we try to keep a good balance between where the market is today and how we can benefit from that, versus how we actually see the market in five to 10 years. We already have plans and strategies in place to benefit from future developments,” Hänsel says.

Fully legal and operated in Germany, Sanity Group is not only investing in the wholesale of medical cannabis, but in research, drug approval, alternative dosage forms, the use of cannabinoids for well products and internationalisation.

Poland And Czechia Next

Currently operating in Germany and Austria, it is about to enter the Polish and Czech Republic markets. 

The UK is in its sights. The VAAY range of CBD oils, mouth sprays and bath bombs targeted at the young, urban consumer, is already available, but there is a bigger slice of the UK market to be had. Hänsel says: “The UK is one of the biggest markets we want to enter going forward because, as you might know, the whole area of medical cannabis is slowly but surely opening all over Europe, with Germany being the largest market with about 80% of all the cannabis/cannabinoid-based therapies today.

“But the UK is number two, which is a super attractive market for us, but for now we will be looking further into Poland and the Czech Republic because those are the markets that have opened up from a regulatory perspective the most over the last two years, and then France will open up next year, so basically that is one after the other.”

The aim is to become the number one cannabis company in Europe, a market that some believe could surpass North America in size and volume, depending on the progress of legalisation across the Continent.

German Election Looms

It is a position that Hänsel could perhaps never have imagined he would be in when he was campaigning in the early Noughties for the decriminalisation of cannabis and legal sales, having witnessed first-hand among his family and friends how important, yet difficult, it was for patients with serious illnesses to get the appropriate medication for pain therapy.

Interest in investing in Sanity Group has continued to grow, although the company is not actively seeking another cash injection. That could all change depending on the outcome of Germany’s Federal Election in September, with a high chance that the Green Party and Liberals will become part of the government.

Both are in favour of the full legalisation of cannabis within Germany.

Hänsel says. “We see a lot of interest now from investors approaching us and saying ‘hey, you raised that money, we like your story, can we participate in the second or third closing of the round.’ It’s a good position to be in.”

Main Image: Sanity co-founders and Managing Directors Finn Hänsel and Fabian Friede


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