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Malcolm Gledhill

Marijuana Industry Expansion in Europe? Think Again.

by Malcolm Gledhill | Dun & Bradstreet Editor

November 3, 2016 | No Comments »

The business of pot is growing … in the States at least. The steady legalization of medical-use cannabis from 1973 to the current day in 25 states and the legalization of cannabis for recreational use in four states (Alaska, Colorado, Oregon, and Washington, as well as Washington, DC) have led to the growth of a billion-dollar industry.

According to First Research, sales of the drug were worth around $5.7 billion in 2015 — 80% medicinal — and growing at a rate of 25% a year, and with further legalization looking a distinct possibility in the years ahead, the industry has enormous potential.

Legislators in Europe, however, have shown little sympathy toward calls for legalization or, indeed for the most part, decriminalization. Pockets of legal cannabis consumption can be found: The Netherlands’ 600-odd coffee shops have long made it the continent’s safe haven for cannabis use, Spain has a few hundred cannabis clubs, and consumption of the drug has been decriminalized in Belgium, Estonia, Russia, Ukraine, and Portugal (which has decriminalized all drug use). Medical-use cannabis is permitted in Germany, the Czech Republic, and Italy.

But it nevertheless remains illegal in the UK, France, Ireland, Poland, Scandinavia, and much of Central and Eastern Europe, and even Spain and the Netherlands have pushed back against cannabis usage. Amsterdam has become something of a cannabis-friendly enclave within the Netherlands after the city successfully resisted a membership-only policy for coffee shops introduced by the government in other Dutch provinces. In 2016 Barcelona’s cannabis clubs fought off attempts by the mayor to implement zoning laws that would have effectively outlawed 80% of the city’s clubs.

In terms of business, despite prevailing negative attitudes towards the drug, there are pockets of activity. GW Pharmaceuticals, a pharma company based in Salisbury, England, can lay claim to be the world’s most valuable company active in medicinal cannabis. It does not sell whole cannabis plants, but rather a product called Sativex.

Sativex is a whole-plant extract, which means it is essentially chemically identical to the unprocessed plant, and is administered as a spray for the treatment of multiple sclerosis-related spasticity. GW Pharmaceuticals brings in around $43 million a year from the drug, of which around 75% is generated in the US. It is available, either through private or state health care, in 15 countries and has been approved in another 12. GW is also pushing for the recognition of its pain-relieving properties in cancer patients and for the treatment of epilepsy.

In Amsterdam, the cannabis coffee shops exist in something of a legal grey area and operate under an “open front door, closed backdoor” policy, whereby the sale of the drug (the “front door”) is legal, but the shops obtaining the drug in the first place (the “backdoor”) aren’t. Hence, the distribution of cannabis in the Netherlands is conducted illegally, and moves to regulate the backdoor have dragged on for eight years and made little headway.

A notable positive economic effect of cannabis in the Netherlands is from cannabis tourism: While difficult to accurately assess, the impact is significant, with coffee shops generating around €400 million a year in tax and tourism contributing nearly 20% to the city’s income. The unregulated backdoor has prevented (legal) growing and distribution companies forming. It should also be noted that there is little consolidation in the coffee shop industry; Bulldog and Boerejongens operate a few locations across the city.

Overall, the prospect of a US-style cannabis industry cropping up in Europe remains at best a distant prospect. And while in the medicinal side of things Britain’s GW Pharmaceuticals has found fertile soil, if a large player in global recreational cannabis consumption is to sprout, it will certainly be an American business.

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Malcolm Gledhill is Dun & Bradstreet’s expert on the European marketplace. Malcolm joined Dun & Bradstreet’s Macro Market Insight team in 2014 before moving to the Company team in 2016, and has a BA from the University of Southampton.

Photo courtesy of Bulldog.com.

 

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