AnalysisWhat's In Store For The European Cannabis Industry In...

What’s In Store For The European Cannabis Industry In 2023? (Part 1)

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Following a milestone year for European cannabis in 2021, which saw many companies take advantage of a wave of excitement surrounding the young industry’s potential, 2022 saw this wave break sooner than many expected.

2023 is expected to bring yet more change. All eyes will be firmly fixed on Germany, Czechia and Switzerland, who are each pushing the boundaries of reform across the continent, while European regulators look to be placing more of a focus on harm reduction and human rights.

As Europe’s first potential recreational markets and models begin to take shape in 2023, the medical and pharmaceutical cannabis industries are also expected to have a strong year, with investors favouring stability in what will likely be another tough year economically.

These economic pressures will likely lead to continued consolidation in the market throughout 2023, leading to a ‘maturation’ of the market, leaving only those with business models able to weather the storm standing.

Oskare Capital  

Oskare Capital

Although in the sector as a whole we’re not expecting a great year, we believe the medical and scientific part of the sector will continue to grow as hype from recreational markets take a back seat. In terms of our specific space, which is therapeutics that target the endocannabinoid system, we remain bullish. Building out the value chain will also continue to expand. 

This year we predict that European medical cannabis pharmaceutical markets will take investment away from recreational markets as investors prioritise stable and developed regulation with scientifically proven products. 

We’re seeing a lot of Life Science funds looking at deals that focus on the endocannabinoid system, while the pharmaceutical industry is also showing more of an interest in this space. 

In light of this, we anticipate another multi-billion dollar exit in the medical cannabis – endocannabinoid space in 2023-2024 through the sale of a biotech company to a big pharma firm. 

Furthermore, we predict that a new drug like Jazz Pharmaceuticals’ Epidyolex will be approved this year. We have seen a number of new drugs for conditions including IBS, autism spectrum disorder, cardiomyopathy and cannabis use disorder which are in later stage trials or accelerating, and we would expect one of these products to be legalised this year. 

Meanwhile, we expect one or more of Canada’s ‘big five’ LPs to either go bankrupt or be delisted from the stock exchange this year. 

Across the EU, we don’t expect this to be as bad as the sums of money involved aren’t as big, but we expect consolidation to be sector-wide. 

This will be driven by continued asymmetric regulations, dissuading further financial institutions from participating in the sector due to the regulatory risk, as well as poorly managed companies and strategies throughout the sector. 

In turn, valuations on the vast majority of private deals in Europe will continue to decrease in 2023, with German companies pushing recreational cannabis leading the way as that market will take longer than expected to structure and open up. 

Thomas Skovlund Schnegelsberg, CEO, Stenocare 

Stenocare, which managed to enter three new countries during 2022 and have nine prescription-based medical cannabis oil products approved for sales – are optimistic regarding how the European market for medical cannabis will evolve during 2023. 

Pharma is the destination: The industry standards will continue moving further towards the pharma world, which will help suppliers understand and better meet the requirements of the medicine agencies. This will benefit the work of developing compliant innovative products and having them approved for sales to patients. Denmark is one example, where the Danish Medicine Agency is in the process of defining the future monography for medical cannabis.

German curve ball: With the expectations that German v 1.0 recreational cannabis will reach consumers during 2023, we can see several scenarios how this will influence the medical cannabis business in Europe. Cannabis in general will be the talk of the town.

The German recreational v.1.0 will favour local cultivation, and therefore the southern and northern producers will not be able to also supply recreational cannabis. This is very likely a “curve ball” for their strategy. However, Stenocare still sees German recreational cannabis as a catalyst for more countries to ease regulation and/or legalise medical cannabis. Making the medical market larger during 2023 and beyond.

Money talks: Competition will drive suppliers to exit markets or even Europe altogether. The global economy is under extreme pressure, and access to capital and investments will become the competitive factor for the industry. Therefore, the winners will be the companies that can show sales and deliver value for their investors/shareholder.

The capital rich honeymoon for the young medical cannabis industry is long gone, and the 2023 reality will more than ever be centred around the old virtues of topline growth and a positive bottom-line. This might sound like a problem, but Stenocare find’s this will both deliver credibility with financial stakeholders and elevate the industry towards a long waited sustainable business model. Therefore 2023 will be a year of maturing for the European medical cannabis industry.

Nicholas Morland, CEO, Tenacious Labs

2023 looks set to be another significant year for the UK and European cannabis markets. We are expecting there to be envious looks from European legislators with Germany at the latter stages of legalising recreational cannabis, which is set to go live in 2024.

Twice the size of the Canadian market, Germany will be an important proof point for European regulation, although the need for well-thought-through measures and policing should remain front of mind in order to showcase the market as a best-practice example. By focusing on watertight legislation and regulation, combined with stakeholder engagement, there is a unique opportunity to use the cannabis industry to help plug the fiscal gap at a time when governments and consumers alike are facing economic uncertainty.

We estimate the sector is capable of bringing in £5.5 billion in annual tax revenue, as well as creating more than 594,000 new jobs across the UK. As Secretariat to the All-Party Parliamentary Group for CBD Products, we hope that we will look back on 2023 as being the start of concrete steps to put the UK on its way to regulating cannabis and, with that, creating a wealth of economic benefits.

Marc Brandl, Research Analyst, Arcview Management Consulting

The European cannabis industry faces a paradox in 2023. On one hand liberalisation and growth of markets cannabis industry veterans could only dream of ten years ago. Germany, Czech Republic, Switzerland and elsewhere in Europe will show us the early blueprint of what a liberalised adult recreational market will look like beyond 2023. Medical cannabis markets will grow; the UK’s private medical patient count is one data point I’ll be watching closely.  

On the other hand, the macroeconomic environment for Europe and North America looks particularly gloomy. The European economy continues to point towards continued economic deceleration with a real possibility of a severe recession in 2023. The ECB have focused on restraining demand and economic growth in order to quell inflation. My base case is for worsening economic conditions in the first half of 2023, continuing the trend of disinflation via demand suppression. Corporate profit margins are likely to go sideways or down, and economic activity is likely to be sluggish and potentially recessionary. Not a great time to launch a cannabis start-up.

Cannabis is labor and capital intensive in a highly restrictive and uncertain regulatory framework. Cannabis and CBD companies will need to be agile, extend their capital runway and build value in a bear market, not easy.  Many companies simply aren’t going to make it. Companies in cultivation that can focus on how to produce at scale with a focus not just on the technocratic process of EU-GMP but quality products that patients and consumers demand will win the long run. Companies that can import best practices and knowledge from mature markets that have survived the highs and lows already in North America will be at an advantage. Buckle your seatbelts, it’s going to be a wild ride.

Siegfried Legeay, CFO & Co-Founder, Canxchange 

Despite the difficult global environment CBD and hemp have managed to keep a fairly active trend coming into year end. Star products have been CBD isolate as well as hemp seeds and shives. Coming into the new year the trends will greatly depend on how the global environment evolves.

We expect to continue to see prices increase across the board of various products as it feels like the energy prices which play an important part of the production process will remain high in the first part of the year. It is likely that this will also remain a sticky point even after energy prices ease as suppliers will be reluctant to easily give up the higher prices and will try to keep them elevated as long as possible.

Supply in most industrial hemp uses seems to be abundant and will likely remain that way. This has likely been caused by many companies coming under financial stress and being forced to reduce or even totally cancel their buying practices. Supply in the CBD space is also very adequate with most being imported from the US where prices remain much more competitive than the EU. Seed supply, although it seemed like it will be very limited after the harvest, we have seen suppliers still have stock to offer on the spot market implying that it is very likely that they also received order cancellations/reductions from their existing long term contracts.

Demand for hemp shives and technical fiber should rise in 2023 after a less good year than expected in 2022, this rise would follow the creation of new companies manufacturing materials that meet climate challenges.

The only challenge remains transport costs, which are far too expensive for a low value product, but if diesel prices continue to fall, we should see an improvement at the beginning of the year.

At the end of the year, we are seeing a drop in the prices of organic hemp seeds and its derivatives, after an increase this summer before the harvest. Some manufacturers, due to lack of visibility, have revised their forecasts downwards.

In order to attract vegan or vegetarian consumers (estimated at 5% worldwide), new products are beginning to appear.

BusinessCann will be publishing Part 2 of our industry predictions for 2023 tomorrow morning.

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