Global Cannabis Strategy Series: What are the key elements of a globalization strategy?

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Canada’s first-mover status has helped the country emerge as the global leader in cannabis. Although, generally, Canadian companies have had success venturing south of the border, when push comes to shove, Uncle Sam’s message to Canadian cannabis companies has been less than welcoming, including imposing a travel ban on Canadians who are investing in the U.S. cannabis market. Elsewhere, Canada’s aspirations of global dominance can be advanced by winning the biggest global prize since the so-called California Green Rush: the European market.

The global cannabis market is opening up quickly

Cannabis is still illegal in most countries, which makes international trade tricky. However, an increasing number of countries are jumping on the legalization bandwagon, slowly lowering the global barriers. Based on a KOMAND Consulting analysis (which was derived from multiple sources), 44 countries have legalized cannabis in a significant way, that is, by recognizing cannabis as a medicine and, thereby, enabling it to be prescribed as a drug in dried flower or oil form. In the last two years, the analysis indicates that 22 countries have introduced some form of cannabis legislation. If that trend continues on pace, well over a third of the globe will accommodate cannabis by 2024.

Cannabis is rapidly legalizing around the world, with 44 countries having introduced legislation to legalize cannabis in one form or another, 22 of them within the past 24 months.

How could this uptake impact business?

Taking Canada as an example, full recreational legalization last fall opened up the trade gates for Canadian companies. Beyond the transfer of cannabis products, this new route advances the flow of cannabis greenfield investments, mergers and acquisitions activity and auxiliary industry services.

A perfect example is Canada’s recent domination of the German local cannabis cultivation market. Following national medical cannabis legalization in Germany in 2017, the government opened up a public competitive tender for the cultivation of 10,400 kg of medical cannabis flower over a four-year period. The winners for the full volume were three Canadian-owned companies: Aurora Produktions GmbH, Aphria Deutschland GmbH and DEMECAN GmbH, partially or fully owned by Aurora, Aphria and Wayland Group, respectively.

However, when one party’s country legislation has more restrictions, trading is governed by the most restrictive rules. Consider Canopy Growth Corporation’s deal with Acreage Holdings, which operates in multiple U.S. states. Since cannabis remains illegal at the federal level in the U.S., the proposed acquisition was really just an option to buy once the U.S. legalizes cannabis federally.

Markets by continent

A country’s cannabis legalization evolution is likely to start with decriminalization, followed by medicinal legalization (including psychoactive compounds such as THC) and, eventually, full approval for recreational use. Each legal stage lays a marker for country-specific market opportunities. That being the case, Canadian companies need to take notice to be able to estimate global market opportunities and develop a globalization strategy based on anticipated legalization, trade routes and demand.

Any form of medical cannabis legalization is a good indicator that full legalization could eventually unfold. With multiple European countries legalizing medical cannabis, Europe is expected to be the largest market in the world over the next five to 10 years

Americas

Uruguay was the first country in the world to fully legalize recreational cannabis. The major cannabis players in the Americas are now the U.S., Canada and Colombia, with Mexico a market to keep an eye on. Over the next 10 years, the Canadian and U.S. markets are expected to reach US$3 billion and US$26 billion, respectively, notes information from KOMAND Consulting and Eight Capital. Canada may have an edge, looking to expand globally, while the U.S., absent federal legislation, will need to focus on existing legal markets. The U.S. delay is Canada’s opportunity.

Africa

Africa—a young, yet promising, region, in part because of its climate—is beginning to arrive at the industry table. In the last 24 months, Lesotho, Zimbabwe and South Africa have legalized medical cannabis and established the beginnings of a southern African cannabis cluster. South Africa has gone a step further and legalized recreational use cannabis (possession and cultivation only). Based on African demand projections from New Frontier Data, KOMAND Consulting forecasts that market will surpass Canada over the next three to five years.

Asia-Pacific

With the exception of Australia, the region is lagging the rest of the world in legalization. Medical cannabis has been legalized in Australia, but the ever-present stigmatization is evident by physicians’ reluctance to prescribe. The market is expected to grow, however, especially with Canadian cannabis incumbent, The Cronos Group, setting up its Asian-Pacific headquarters in Victoria, Australia. India and South Korea are the next most advanced in terms of legalization for medical and scientific research. India is expected to follow a similar roll-out strategy as the U.S., namely on a state-by-state basis.

Europe

Perhaps the most attractive region, the European market could swell to twice the size of that of Canada and the U.S. combined. Based on information from KOMAND Consulting and Eight Capital, the market could reach a staggering US$42 billion in domestic sales by 2028. That said, the challenge of balancing European-wide regulations versus domestic ones will, no doubt, also be an issue with the cannabis sector. For example, every European Union (EU) cannabis facility must comply with the EU’s Good Manufacturing Practice (EU-GMP). But compliance inspectors are employed by local authorities and, similar to the U.S., cannabis legislation is governed at the local level, meaning the licensing framework varies by country. The Italians have decided that only the Ministry of Defence is adept to distribute cannabis, while the Germans require that federally approved local import agents are mandatory for receiving and distributing shipments.

Canadian cannabis companies are the front-runners in the race to global leadership. However, capitalizing on this early lead is the true test for Canadian interests. When federal legalization hits the U.S., a sleeping giant will be awakened and its full market power will bear down on those with a head start.

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