On July 15, a high-profile meeting about cannabis law in the E.U. between delegations from Germany, Malta, Luxembourg, and the Netherlands yielded an enigmatic yet telling tidbit about the future of legalization. In the joint statement signed on by all of the countries at the meeting except the Netherlands, there are eight little words bound to send a shock through the world of cannabis: “The status quo is not a tenable option.” That’s a dead ringer for major changes to cannabis policy on the horizon.
When paired with Germany’s moves in June to start the process of legalizing marijuana by evaluating the relevant consumer protection standards and holding hearings, it’s clear that a green wave of legalization in the E.U. could be building, and rapidly. While there are no votes scheduled that might change the legislative environment overnight, from the perspective of investors, that’s good news, as it means there’s time to get positioned to profit from legalization if it occurs. Let’s explore what else is going on in the E.U.’s marijuana policy at the moment and discuss which companies are the most likely to benefit.
Nothing is set in stone yet
Despite the ministers’ admission that the status quo of cannabis legalization isn’t suitable for the long term, it’s important to understand the context of what they were discussing. Rather than explicitly talking about legalization for adult-use recreational purposes, most of the joint statement was about the more mundane matters of “public health and public security.” In other words, the ministers were grappling with the difficulty of enforcing the current set of cannabis laws in the E.U. in a way that’s consistent with upholding the public good. Legalization might be one policy approach to address that difficulty in an economically productive way, but it probably wouldn’t be the only policy used to control marijuana use and distribution, either.
Still, it’s hard to understate the importance of a group of countries coming together and agreeing that the current legal structures governing marijuana need to change to account for both practical realities and economic potential. And the joint statement from July isn’t the only action going on right now. Also in July, a different group of ministers in the European Parliament issued a letter to everyone else in the Parliament exhorting them to join in a pan-E.U. discussion about recreational marijuana use. That has the potential to start a more concerted policy push, and it’s possible that momentum could build quite quickly over the rest of the year and 2023. But which company is the best positioned to grow as soon as news of legalization breaks?
This multinational Canadian cannabis business is already winning in Europe
Tilray Brands (TLRY 4.03%) has the E.U. infrastructure already set up in advance of legalization, and it’s already generating revenue there too. Its cultivation facility in Portugal provides it with tax-free access to major European markets, like Germany, Italy, and Poland. In Germany, it currently holds a 20% slice of the medicinal marijuana market, which along with its other European subsidiaries helped to drive more than $53.8 million in international revenue from cannabis products in its 2022 fiscal year.
Furthermore, in mid-2021, it launched and then expanded its medicinal cannabis operations in Luxembourg and Malta. Though those markets are quite small, the company is ready for any change in the law that could enable selling its products recreationally. Given that its situation is much the same in far larger markets like Italy and Germany, it’s reasonable to expect Tilray’s stock to skyrocket if there’s any further movement toward legalization.
But, investors should beware that Tilray isn’t a perfect company, even if it has a massive catalyst on the horizon. It’s unprofitable, and it can’t seem to retain its market share in Canada, where it should be the strongest. Therefore, it might make sense to keep your position on the small side until it demonstrates that it can actually succeed when it competes in the E.U.
Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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