How German Cannabis Market Could Boost North American Marijuana Stocks
Germany announced that it will become the third country in Europe to legalize recreational cannabis.
Luxembourg and the tiny island nation of Malta legalized pot in December 2021. (Source: “Germany’s Adult Use Cannabis Laws Steeped in Optimism and Uncertainty at the Moment,” Benzinga, September 21, 2022.)
But with estimated populations of less than 650,000 and 540,000, respectively, that hasn’t revolutionized the marijuana industry. Malta and Luxembourg certainly got the ball rolling, though.
Fast-forward about a year and Germany’s coalition government has agreed to legalize recreational marijuana. The coalition could table a draft law by the beginning of 2023. (Source: “Germany: Lauterbach Outlines Cannabis Legalization plan,” Deutsche Wells, October 26, 2022.)
Germany’s health minister, Karl Lauterbach, was initially against legalizing recreational pot, citing health risks. But today, he says the country’s current policies haven’t been successful in limiting cannabis consumption. Lauterbach cited a survey that suggests about four million adults in Germany use pot, and that there’s a huge black market for the drug.
Lauterbach says Germany won’t be following in the footsteps of the Netherlands, which doesn’t have a regulated marijuana market. Instead, the German model will be “the most liberal legalization of cannabis in Europe” while also being “the most regulated market” in the EU.
Under Germany’s proposed plan, adults would be allowed to carry 20 to 30 grams of cannabis for their own use. The plan would also allow for each adult to cultivate three marijuana plants.
With a population of more than 83 million, Germany has the largest economy in Europe and the fourth-largest in the world. In January 2017, the country’s parliament legalized medical marijuana for critically ill people. In March 2017, an amendment allowed people with certain qualifying conditions to legally access medical marijuana from pharmacies with a doctor’s prescription.
If recreational cannabis becomes legal in Germany, the country would quickly become the second-largest weed market in the world, worth an estimated $4.6 billion annually. (Source: Benzinga, op. cit.)
The U.S. marijuana market totaled almost $25.0 billion in 2021, followed by Canada with just over $4.0 billion.
5 Pot Stocks That Could Rise Due to German Cannabis Legalization
With Germany preparing to legalize recreational cannabis, the rush is on for North American marijuana companies to stake their claim. There are already a number of American and Canadian pot companies with a presence in Germany.
Canada is the largest exporter of cannabis to Germany, sending 6,493 kilograms (14,315 pounds) of dried flower and extracts each year. Denmark and the Netherlands are a distant second and third. (Source: “Could Germany’s Impending Cannabis Legalization Prop Up Canada’s Flagging Producers?” The Globe and Mail, September 23, 2022.)
According to a leaked paper, Germany might rely on domestic cannabis to supply its recreational pot market. The country’s ministry of health argues that imports could violate international treaties, which means the draft law would only allow domestic supplies. (Source: “Germany May Rely on Domestic Cannabis Cultivation, Leaked Paper Suggests,” MJBiz Daily, October 20, 2022.)
Eventually, the German demand for legal recreational marijuana will likely outstrip the domestic supply, which could lead the government to open up the market to imports. Until then, the cannabis companies that already have a presence in Germany will have a big advantage.
Tilray Inc
Tilray Inc (NASDAQ:TLRY) has been tagged as one of the Canadian marijuana producers best positioned to benefit from a German legal recreational cannabis market.
The company has been operating in Germany’s medical cannabis market for four years, gaining a leading share of that market (20%). (Source: “Tilray Brands’ First Quarter Fiscal Year 2023 Performance Affirms Global Cannabis Leadership,” Tilray Inc, October 7, 2022.)
In the first quarter of Tilray’s fiscal 2023 (ended August 31, 2022), the revenue from its German operations increased by 22%. As for the company’s German infrastructure, Tilray Inc owns one of the three marijuana grow facilities operating legally in Germany.
Curaleaf Holdings Inc
Wakefield, MA-based Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) has a presence in 21 U.S. states, with a focus on highly populated states such as Arizona, Florida, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania. It has 144 marijuana dispensaries and 29 cultivation sites.
Curaleaf Holdings Inc also recently made the leap to Germany. In September, The company announced that it had acquired a 55% stake in Four 20 Pharma GmbH, a fully EU Good Manufacturing Practice (GMP)-licensed and Good Distribution Practices (GDP)-licensed German producer and distributor of medical cannabis. (Source: “Curaleaf Completes Majority Stake Acquisition of Germany’s Four 20 Pharma,” Curaleaf Holdings Inc, September 19, 2022.)
In addition to solidifying a strategic pathway into the German cannabis market, Curaleaf Holdings Inc is in a position to acquire complete control of Four 20 Pharma GmbH after two years of recreational marijuana legalization in Germany.
High Tide Inc
High Tide Inc (NASDAQ:HITI) is a leading retail-focused cannabis company with operations in Canada, the U.S., and Europe.
By revenue, High Tide is the largest Canadian retailer of recreational marijuana. It has 140 branded retail locations across Canada and owns the third-largest cannabis retail network in the world. (Source: “High Tide Investor Presentation: October 2022” High Tide Inc, last accessed November 9, 2022.)
Raj Grover, High Tide’s president, CEO, and executive chairman, recently said the company is in the advanced stages of discussions with a number of potential German partners. (Source: “Leading Canadian Cannabis Retailer to Establish German Adult-Use ‘High Street’ Stores,” BusinessCann, October 12, 2022.)
“Our intention is to establish a brick and mortar High Street footprint in Germany as soon as federal legalisation takes place,” said Grover. “Our aim is to be in there ASAP and to become one of the market leaders. We are very excited to be able to bring our retail store Canna Cabana concept to Germany.”
To get there, High Tide Inc is exploring two potential paths. Grover said the company will either do it all by itself or find a strategic partner in Germany and form a joint partnership.
For its third fiscal quarter of 2022 (ended July 31), the company announced that its revenue increased by 98% year-over-year to a record $94.5 million. (Source: “High Tide Reports Third Quarter 2022 Financial Results,” High Tide Inc, September 14, 2022.)
The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed by 176% year-over-year in the third quarter to $4.2 million. This represents the company’s 10th consecutive quarter of positive adjusted EBITDA.
High Tide’s current annual run rate of more than $400.0 million puts it in striking distance of being the highest-revenue cannabis company that reports in Canadian dollars.
Flora Growth Corp
With a market cap of just $80.1 million, Flora Growth Corp (NASDAQ:FLGC) is a relatively small, overlooked pot stock. As of this writing, Flora Growth Stock trades for $1.37 per share, but don’t let its penny-stock status scare you away.
The main reason FLGC stock is deep in penny-stock territory is investor apathy due to the drawn-out process of cannabis legalization at the U.S. federal level.
In terms of its business, Flora Growth Corp has been doing well. In May, it reported outstanding 2021 financial results. The company’s revenue in the second half of 2021 advanced 329% year-over-year. Moreover, management provided strong guidance and announced that the company’s unaudited first-quarter revenue soared by 450% year-over-year.
Flora Growth Corp’s chairman and CEO, Luis Merchan, said 2021 was “a foundational year” for the company. (Source: “Flora Growth Reports Fiscal Year End 2021 Results,” Business Wire, May 10, 2022.)
Flora Growth Corp is in the midst of announcing and completing a wave of acquisitions. In late October, the company announced that it will be acquiring 100% of German medical cannabis and pharmaceutical operator Franchise Global Health Inc (FRA:WV4A, CVE:FGH) for approximately $40.0 million. (Source: “Flora Growth Signs Definitive Agreement to Acquire Franchise Global Health,” Flora Growth Corp, October 24, 2022.)
This deal will help Flora Growth establish a massive foothold in Europe’s largest medical marijuana market. Flora Growth Corp already has a strong presence in Europe, with its cannabidiol (CBD) brand “Just CBD” being available in the U.K. It’s one of the few brands to be sold through the “Amazon UK CBD” pilot project.
In September, Flora Growth exported its first shipment of high-CBD dried cannabis flower from Colombia to Switzerland and the Czech Republic and CBD isolate to the U.S. (Source: “Flora Growth Completes Multiple Commercial Cannabis Exports Into New International Markets,” Flora Growth Corp, September 26, 2022.)
Aurora Cannabis Inc
Edmonton, AB, Canada-based Aurora Cannabis Inc (NASDAQ:ACB) is well positioned to capitalize on German marijuana legalization through its Berlin-based subsidiary Aurora Europe.
Aurora Cannabis Inc supplies pharmaceutical-grade medical cannabis products to patients throughout Europe. In 2017, The company entered the German market and became one of the largest authorized importers and distributors of medical marijuana in Europe.
In 2019, Aurora was awarded a contract by the German Federal Institute for Drug and Medical Devices for the annual production of 1,000 kilograms of medical cannabis flower over a four-year period. (Source: “Aurora Strengthens Leadership Position in Germany with EU-GMP Certification at Preeminent Local Cannabis Production Facility,” Aurora Cannabis Inc, May 18, 2022.)
Earlier this year, Aurora completed the construction of its 3,600-square-meter production facility in Leuna, Germany. In May, it received EU-GMP certification for its state-of-the-art medical cannabis production facility.
Analyst Take
Germany’s impending recreational cannabis legalization should give a big boost to pot stocks that have a first-mover advantage in the country.
Recreational marijuana legalization in Germany bodes well for U.S and Canadian suppliers of medical and recreational cannabis that already have operations in Germany, such as Aurora Cannabis Inc, Curaleaf Holdings Inc, and Tilray Inc.
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