While many Canadian cannabis firms struggled in 2019, much of the conversation revolved around European markets. From supply chain management, forward-thinking legislation, and a greater wealth of knowledge, the European Union looks to be stepping out in front. And with a projected market in the hundreds of millions, many in the space are paying close attention.

But what exactly happened in 2019, and what does 2020 hold for the European cannabis industry? Well, quite frankly, a lot.

Medical cannabis gaining momentum

The more powerful economies in the Europe Union have all been making big strides in the medical cannabis sector.

Although Germany legalised the consumption of medical cannabis in 2017, the country has been dealing with supply issues. Demand since the laws changed skyrocketed nearly overnight. In response, the German government offered a handful of lots for well-placed growers to help service this market.

Of the thirteen lots on offer, Aphria and Aurora picked up five lots each. This comes as no surprise as the German government was looking for reputable companies with a few years of experience already under their belt. Naturally, Canadian companies, especially those in financial difficulty, were eager to fill that role.

The final three lots, however, were given to a smaller German outfit, Demecan. These three lots may not mean much in terms of growing capacity, but it does indicate an interesting shift in narrative.

In an interview with Canopy Growth Corp. founder Bruce Linton, he told Strain Insider that:

‘[Canada isn’t] great at everything, but we have a couple of things. We have a history with blackberries, which worked out for a while. One of the other things Canada developed a world-leading competence in is the governed production of cannabis.’

Linton’s sentiments sum up the mainstream narrative that Canadian cannabis companies are the market experts. More importantly, and according to Linton, ‘[Canadians] should be unapologetic and exercise [their] expertise.’ This may soon change, though, at least in Europe.

Shortly after earning their three lots, Demecan also picked up €7 million in financing from btov Partners and a private family office. The investment will be used to help Demecan expand their operations and better serve the fast-growing medical cannabis industry in Germany. The event is striking for several reasons.

In the first, the German government trusted a local Berlin-based company to begin participating in the cannabis space. Second, btov Partners, a European venture capital firm, has deployed a large amount of capital to help stimulate Demecan’s ambitions. Why? Because they also trusted a company with a German narcotics license, EU-GMP certification, and the ability to export abroad.

In 2019, onlookers witnessed the first European company compete against Canadian heavyweights, win, and continue their progress. It’s not unlikely that the space will see a lot more native European investment and businesses execute similar plans in 2020.

Expect these events to continue emerging out of Germany, but also Italy and the Netherlands. Each of these three countries experienced realistic sales of medical cannabis in Europe. Plus, other countries are still lagging behind from a legislative standpoint.

The fact that these three nations are struggling to meet demand also means that they’re lucrative markets for exporters. Which, if regulated correctly, could be met by neighboring EU states. Greece, for instance, legalised medical cannabis in 2018. Unfortunately, the country hasn’t yet built out the infrastructure to establish itself as a reliable supplier to the rest of Europe.

None of this matters, of course, if firms don’t achieve the highest standard of regulatory compliance and quality. This, one saw all of 2019, has been a serious problem for the CBD market.

A booming ‘gray’ market

The hype surrounding CBD, the non-psychoactive compound found in cannabis, reached a pitch in 2019.

The compound was found in an incredibly wide variety of products like chewing gums and skincare products. It gathered the most traction, however, in the wellness sector.

Companies sprung up left and right as they attempted to cash in on one of the biggest trends of the year. The speed to market was incredibly quick, and the diversity of products was overwhelming. Regulators, unable to grapple with this rise, are still facing difficulties weeding out the bad actors.

This has given rise to a thriving gray market for CBD products in Europe.

Gray market products are those that take advantage of unclear language or gaps in current regulations. Put otherwise, many CBD products on the market cannot guarantee quality, effects, or safety. This is also why the European Food Saftey Agency (EFSA) added CBD to its list of novel foods. This has meant many drugstores and beauty retailers having to remove products containing CBD from their shelves.

Still, there are far too many companies in the space for regulators to catch all of them. Dr. Marjeta Česen of Pharmahemp, a Slovenian cannabis firm, explained that the combination of hype and number of producers means that ‘authorities cannot follow all the companies selling [low-quality] products.’

At current, there are no authorized CBD products that have been approved by the EFSA.

Cannabis Pharma, a Czech cannabis company is looking to change this despite having its application on file with the EFSA since 2016. This first application is for an isolated version of CBD. Cannabis Pharma’s mother company, CBDepot, later filed an application for a synthetic variety in December 2019.

Boris Baňas, the CSO and founder of CBDepot said:

‘We’re covering both versions of Cannabidiol — isolated and synthesized — to be approved as authorized Novel Food ingredients for food supplements. This gives us an important competitive headway in the fast-evolving CBD sector.’

It’s thus safe to assume that 2020 will usher in harsher crackdowns on illicit CBD producers, as well as a rise in firms following regulations as closely as possible. From an investor’s perspective, this means keeping a close eye on companies like CBDepot who are actively seeking to comply.

The speed of this promising sector also depends on further legal uniformity across the continent. More than anything, many in the cannabis sector are hoping for industry-wide standardisation.

But how long will they have to wait?

Unifying a fractured market

Regardless of whether a cannabis company is placed in the medical cannabis or CBD sectors, the lack of standard rules and regulations will prevent any company from scaling in Europe. Some countries are only slowing waking up to the advantages of cannabis. Others are working hard to prevent the plant’s proliferation.

One of the world’s largest single markets is, unfortunately, incredibly fractured. But that doesn’t mean that entrepreneurs and investors should wait around in standby mode. It simply means that they need to refine their strategy.

Instead of examining your business as participating in Europe, startups should take a more granular approach. Eveline Van Keymeulen of Allen & Ovary, a law firm helping clients navigate complex legal territory said that:

‘Make sure you follow the market you’re interested in. Follow what’s happening, what local authorities are doing. It’s important you monitor all that. You can’t do everything by yourself. Get involved in trade associations. They get a lot of information, and will be able to inform you.’

Looking beyond this, and falling for the green gold rush meme is sure to come back and bite you. Interested parties should also be keeping a close eye on regulatory experiments.

French authorities, for example, will be launching a two-year trial into the medical cannabis space next year. The project will investigate the use of cannabis to help patients whose conditions aren’t necessarily improving with traditional medications. Medical professionals are encouraged to follow along as well and will even be offered extra training in prescribing cannabis.

Luxembourg has taken perhaps the biggest step in the European cannabis space. In 2019, the minister of health, Etienne Schneider, announced his plans to legalise all cannabis production and consumption. Politicians will review the first iterations of this law next year, but it is expected to be fully legal by 2021. Schneider told Politico at that time that:

‘Our drug policies were not very successful. I’m hoping that all of us will get a more open-minded attitude toward drugs.’

If put in place, such broad-sweeping regulatory changes will surely have a domino effect on other member states. Thus the strategy for companies should be to play by the rules until at least 2021.

After that, it’s anyone’s guess how high the European cannabis market will rise.