While Canadians scale back in Europe, Curaleaf finds right moment to invest in the continent
As Canadian cannabis companies retreat from establishing a stranglehold on the European market, Curaleaf Holdings Inc. Founder and Executive Chairman Boris Jordan is happy to pick up where they left off.
The head of the biggest cannabis company in the U.S. announced the firm's first international foray with the acquisition of European cannabis distributor EMMAC Life Sciences for US$285 million, a clear shot across the bow to the company's Canadian competitors who have spent years establishing a beachhead presence on the continent.
While the European market is still in its infancy, it holds significant potential for major cannabis firms eyeing new areas for growth. Prohibition Partners sees the market growing to about US$2.5 billion in 2024 from a scant US$300 million last year, with recreational sales accounting for just 10 per cent so far.
But Jordan thinks the European market could be as big as the U.S. in a matter of years, which is why he waited for the right time before investing in one of the its leading medical cannabis players.
"This is no criticism of and Canadian companies. I know they were hampered by not being able to get into the U.S. and so they were looking for anywhere to go outside of Canada in order to grow," Jordan said in a phone interview.
"So they went to Europe because Europe was making noises about getting into legalizing cannabis. But timing is incredibly important and I think they were too early."
As capital flooded into the Canadian cannabis space, companies like Canopy Growth Corp. and Aurora Cannabis Inc. spent millions establishing offices and production facilities across Europe. But lawmakers failed to move quickly and optimism that the market would take off faded, leaving Canadian operators to shutter or scale back their European businesses, including Canopy's announcement earlier this week that it plans to close its Danish facility.
Most companies, including Tilray Inc., Flowr Corp., and now Curaleaf, have flocked to Portugal, which has optimal temperatures to grow cannabis outdoors and a government that has established a friendly medical cannabis program.
"It's the best agricultural climate for cannabis and you can grow it for cheap," Jordan said. "I don't understand why Aurora and Canopy and all these companies built these immensely expensive indoor greenhouse and indoor facilities in Northern Europe. It baffles me a little bit, but it is what it is."
Jordan said his team was looking at the EMMAC asset for about a year before striking the deal to acquire it. He noted that he doesn't expect the company to deliver any material revenue until 2023, and is happy to wait five years until the European market is better established.
"We said: 'Where's the growth going to come from as the U.S. starts to get more penetrated?' Growth rates will fall from triple-digits to double-digits which is still very good, but nonetheless I wanted to see where the next frontier for growth is," Jordan said.
"I basically doubled the size of my potential market for less than two per cent of my market cap. I don't know what industry in the world you can do that."
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CANNABIS SPOT PRICE: $5.84 per gram -- This week's price is down 1.4 per cent from the prior week, according to the Cannabis Benchmark’s Canada Cannabis Spot Index. This equates to US$2,102 per pound at current exchange rates.