Report: Europe’s Major Marijuana Problem
Who Will Supply Their 743 Million Marijuana Customers?
By J. Daryl Thompson
Right now the North American market has been the driving force behind the marijuana boom. Legalization for medicinal purposes and recreational use is spreading across the US and Europe is taking note. Changes are coming that will put them face to face with a MAJOR problem.
Europe now offers similar investment opportunities we’ve recently witnessed in North America, but the difference is that the European market is twice the size of the United States and Canada combined.
Opportunities are so huge that Forbes predicts the market will double, growing into a €58 billion industry.✢ Make no mistake: Europe is set to become the world’s largest cannabis market, and with these projections, it will soon surpass the U.S.
These opportunities are as lucrative as investing in the ‘Big 5’ Marijuana Companies in 2016/17, when Canopy Growth was trading around $1.82/share, Aurora was just over $1/share, and Cronos and Aphria were both trading around $0.25/share. This was when exponential growth was occurring all over the industry, and when investors made life-changing returns.
But as great as those companies are…they’re in North America. Europe is a whole different animal that many are saying ‘the Big 5 can’t handle’.
‘Why’ becomes the first question, then, ‘WHO’?
Quality, Speed, and Cost.
The big picture is that while the cannabis industry has exploded onto the marketplace with the Big 5 (Canopy, Tilray, Aurora, Aphria and Cronos) dominating the landscape,
they will not be able to meet demand in Europe, due to several inherent limiting factors. These companies have greatly benefited from favorable deregulation laws and outright, full-scale legalization of cannabis in Canada in October 2018. The USA is approving permits for all levels of the marijuana business at an ever expanding rate.
However, delivering a product into a foreign market is different than delivering at home.
Quality assurance will be different from what the ‘Big 5’ are usually familiar. The time of harvest of fresh product and delivery can have a massive impact on the product that can mature and often changes chemical composition over time.
YOUR NEXT OPPORTUNITY?
Europe is on pace to become the world’s largest legal cannabis market in as little as 3-5 years. What’s more, they have the chance to supply a massive market while holding higher margins than ANY other cultivator.
Although the science in North America has a leading edge, Israel has actually been a world leader in research, and when Europe wants to distinguish quality, they’re going to go with the ones with a history that goes back 30 years. The depth of science will play a part in meeting the demand that will come from Europeans who are often well educated and tend to have discerning tastes.
All those years of research is poured into creating a higher quality product which as prices and demand continues to increase, will also increase in demand. And when the discussion turns to ‘medical grade’ that’s where the high tech equipment, scientific research, and almost year round ‘free’ (via the sun) growing season, really showcase what can be produced much closer to home.
Closer to Europe will win on quality…and the SPEED of delivery also has an impact on quality.
Being able to ship a product FRESH transatlantic is a major and costly undertaking. Just look at the time it takes to get a product from the US coasts to the UK:
New York, East Coast: 10 – 14 Days on the water. Door-to-door will take approximately 4 weeks.
Los Angeles, West Coast: 30 Days on the water. Door-to-door will take approximately 6 weeks.
With the quality of the marijuana at stake, those 30 days are going to change the chemical make-up of the product. This might require additional testing (and time) at the ports, which will lead to more delays, risking (1) longer periods of time for those North American companies to be without cash flow; AND (2) the possibility of delivering an inferior product to the marketplace.
So Europe will more than likely look south to help solve the speed problem as shipments coming from marijuana producers in favorable climates, like Israel, will be able to deliver product quickly while maintaining quality tested at labs.
Quality producers who can quickly fill supply will dominate the market, and an Isrealian company (Isracann BioSciences) is making an interesting case for themselves being the leader.
It’s a simple math problem: Sales – Expenses = Profits.
Israel is focused on being a worldwide cannabis producer.
Israel is leading the industry in policy, research and innovation. Having approved exports to Europe, Israel is proving that they just may be the new leader in European markets for cannabis.
It appears from below that the cost to grow marijuana and the cost to ship tons of marijuana overseas far outweigh the profits for most North American companies.
Canopy, albeit the world’s largest cannabis producer, incurs current production costs upwards of $5.11/gram. That is well above industry average throughout North America of $2-4/gram.✢✢ Additionally, Isracann has much cheaper export costs, and an ideal climate that allows for multiple rotations a year, giving them a huge advantage over their overseas competitors.
A recent CNBC report disclosed that while costs of production have come down slightly, they are still well above the industry average. ✢✢✢ The industry’s second-leading producer, Aurora Cannabis, has much lower costs of production, as disclosed in their most recent financials report. It indicates that production costs were less than half of Canopy at $3/gram, but this is still 7X higher than Isracann.✢✢✢✢
This means that what the next big cannabis stock play investors should be looking for is definitely not one of the Big 5, because their biggest profits are behind them. But this also doesn’t mean we shouldn’t try to learn from their early success. Doing so will help identify companies like Isracann Biosciences (CSE:IPOTF) that are set to profit from European markets. They have an ability to return much higher profits to investors for several reasons.
With the biggest opportunity now in Europe, companies that can mimic the Big 5 by taking the same advantages they did for themselves, and adding to them, will take control of the European market of 743 million people. That’s twice the size of the U.S. and Canada combined. Companies that can scale this opportunity — and the investors that discover them — will not just gain substantial profit, but possibly create fortunes that sustain years of financial growth.
When investigating cannabis companies that could provide massive value to Europe, the things to focus on are not only the elements that built the current crop of industry leaders, but also the timing of their most strategic and stock-moving decisions. The biggest example of this is when Canada saw the opportunity to profit from the U.S. market, based off of federal deregulation and proximity for export.
These are the same advantages that Isracann has in its hands with European markets, as it shares the shores of the Mediterranean for export and is subject to some the most industry-supportive cannabis laws in the world.It’ll be interesting to see who is able to solve the European marijuana problem, but it appears Isracann (CSE:IPOTF) might have a head start on the competition.
Continue your education by downloading (free) my latest marijuana research report, The Pot Boom Cycle: The History, The Winners, and the Future! It’s my second research report on marijuana. Each time I’m more and more impressed by the industry’s nuances and opportunities!
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Here's The PROBLEM...
Business models of the Big 5 have shortcomings when attempting to compete in European markets.
Their dependency on other companies to cause the most recent stock fluctuations has many wondering if the time for the biggest gains to be made by investors has already passed. And, many in the industry are starting to look elsewhere, towards companies like Isracann (ISCNF), who are scaling operations over 580,000 sq ft., larger than some of the biggest in the world.
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