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European Cannabis Companies Courting Capital

Stockhouse Editorial
2 Comments| March 8, 2019

Up until now, the growth of a cannabis industry in Europe has been a chicken-and-egg conundrum. Companies seeking to advance cannabis operations in Europe have been hamstrung by a lack of access to capital (a familiar refrain for much of the U.S. cannabis industry). But banks in Europe have been reluctant to provide financing because they can’t (already) see the revenue potential here.

This has meant that Canadian-listed companies have had a distinct advantage in building up EU cannabis operations since they have been able to obtain funding on this side of the Atlantic. However, a recent Bloomberg article suggests that this funding/finance gap for European-based entities may be starting to close.

The firms are laying the groundwork for an expected increase in stock sales and mergers and acquisitions as companies seek to capitalize on Europe’s growing acceptance of cannabis, particularly for medical uses. There has been “significant” interest from medical cannabis companies for stock-market listings in Europe, said Tristan Gervais, the London-based Canaccord banker who’s spearheading the firm’s push in the region.

However, from an investor standpoint, the spotlight continues to shine on North America-based companies. The Bloomberg article qualified the growing interest in European cannabis operations by noting that the primary focal point for cannabis investing remains North America.

French bank Bryan Garnier & Co. in the past year started covering the Canadian sector via a Paris-based analyst. Jefferies Financial Group Inc. recently initiated coverage on a slew of North American pot stocks through a London-based analyst.

The slow evolution of a cannabis industry in Europe remains attributable (at least in part) to social stigma. Europeans have also been saturated with a century of anti-cannabis propaganda. Stodgy European media outlets have been even slower to jettison antiquated attitudes toward cannabis than mainstream North American media. Bloomberg was only able to identify a handful of existing European cannabis companies.

Click to enlarge
(cannabis usage levels in Europe)

Bloomberg’s current assessment of the investing landscape for cannabis in Europe is bleak:

For now, the European market is basically uninvestable for managers of institutional equity funds.

Even North American media have a long ways to go when it comes to self-education on cannabis. Absurd statements (such as the Bloomberg quote below) still appear with disappointing frequency, illustrating the profound ignorance that remains with respect to most mainstream business writing on cannabis.

To be sure, it may be a good thing that the market has been slower to develop than in Canada, where recreational pot was legalized in October, because it may mean the region avoids the market frenzy that hit North America last fall.

The bubble, similar to the cryptocurrency craze before it…

No. The cannabis industry bears no fundamentals properties of an asset bubble – at all. Companies with market caps in the millions or low billions are chasing trillion-dollar markets.

Cannabis is the basis for superior pharmaceutical drugs. Cannabinoids are safe, possess numerous potent medicinal properties, and cannabinoid-based pharmaceuticals have the potential to be commercialized faster and cheaper than conventional pharmaceutical products – in this trillion dollar per year industry.

Cannabis is a superior recreational drug to alcohol or tobacco. Nicotine is both one of the most addictive drugs and most poisonous chemicals known to humanity. Alcohol is also toxic and addictive, and strongly “counter-indicated” to numerous pharmaceutical products – such as opioids. Alcohol + opioids kills.

Cannabis is non-toxic and non-addictive. Because it is so safe/benign, it isn’t counter-indicated with respect to any pharmaceuticals. Cannabis has unlimited potential to claim market share in the $2 trillion per year (legal) market for recreational drugs.

No. The cannabis industry bears no similarity at all to the cryptocurrency "craze". The only (vague) fact that the two have in common is that both are relatively new. The Bloomberg article also refers to the “tainted perception” associated with cannabis. Yes, thanks to uninformed mainstream media outlets like Bloomberg, cannabis ignorance is still a “growth industry”.

The global cannabis industry will become a trillion dollar per year enterprise. Cannabis as food is yet another multi-trillion dollar global industry for which cannabis has unlimited potential for market penetration. Yet intellectually bankrupt media pundits still throw words around like “bubble” and “craze”.

In fact, as the audience for most print media sources continues to diminish, Bloomberg Finance itself looks much more like a craze in danger of dying out than legalized cannabis.


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