European Cannabis companies start IPO planning as US considers looser rules
Federal authorities are proposing to reclassify marijuana as a less dangerous drug
A number of European cannabis start-ups are planning to go public in New York to take advantage of a US proposal to reclassify marijuana as a less dangerous drug and decriminalisation in Germany, despite depressed share prices among bigger groups in the sector.
Grow Group, a London-based medical cannabis distributor, is planning an initial public offering on Nasdaq in the first quarter of 2025 targeting a valuation of more than £100mn. It has raised more than £12mn since it was founded in 2017.
Chief executive Benjamin Langley told the Financial Times there had been a period of “six to nine months where money for cannabis was almost completely shut off . . . because of negative global sentiment and general risk aversion”.
However, the market is showing signs of improvement. “What we’re seeing now, is that loosening up such that people are deploying funds and there is definitely money again in this space”, particularly from venture capital, he said.
The company would choose Nasdaq rather than the London Stock Exchange for an IPO, he added, because he would expect a higher valuation there. Grow had been on the verge of signing an engagement letter with a bank for a listing last year, he said, but suspended the process due to lack of investor interest.
Lisbon-based Somai Pharmaceuticals, which is involved in the extraction, development and distribution of medical cannabis products, is seeking €250mn as a “reasonable” valuation in a Nasdaq IPO, with a secondary listing on the Toronto Stock Exchange or the LSE, said chief executive Michael Sassano.
Wellford Medical, a London medical cannabis manufacturer and distributor across the UK and Germany, is another start-up considering Nasdaq. “If the US [reclassifies], coupled with the legislative change in Germany, it could be the perfect time for us and . . . investors to catch that sentiment wave,” said co-founder Joshua Roberts.
The US Drug Enforcement Administration in May published a notice of proposed rulemaking, announcing its intention to remove cannabis from its list of the most dangerous drugs and recognise its medicinal use. The drug is currently banned at a federal level but is legal for recreational use in 24 states and for medical use in 38.
If it is reclassified by the DEA, this could reduce taxes on state-legal cannabis businesses — where the effective tax rate is often 70 per cent or more — in the world’s biggest cannabis market. Clinical research on marijuana is also likely to become easier to conduct if it is reclassified.
In Germany, the largest medical cannabis market in Europe, cannabis possession and small-scale home cultivation were decriminalised in April. It has also been removed from the national narcotics list. Medical cannabis has been permitted since 2017.
The companies looking to IPO say building investor confidence after previous boom and bust cycles will be crucial, in addition to the relaxation of rules.
“There is a taboo with cannabis that continues to be pervasive,” said Sassano. In Canada, most marijuana stocks experienced huge growth after cannabis was legalised for recreational use in 2018, but oversupply and cheaper drugs available on the black market triggered a slump in share prices, which have never recovered to the same levels.
Canopy Growth, once Canada’s most valuable marijuana company, and Tilray Brands of the US have each lost 98 per cent of their market value from respective peaks in 2019 and 2018.
Shares in New York-based Curaleaf, the world’s largest cannabis company, are down 75 per cent from their peak in 2021. However, founder and executive chair Boris Jordan believes this is mainly because of strict regulation.
“Governments need to decide if cannabis is going to be legal or is it illegal. And if it’s going to be legal, then they have to come in and support and create a regulatory environment that [allows] these [cannabis] companies to flourish.”
