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European Cannabis is the Emerging Market to Attract North American Investment

By Mark Wheeler
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european union states

Europe continues to be the new frontier of medical and wellness developments in the cannabis industry, with various sources predicting that Europe will become the world’s largest legal cannabis market over the next 5 years. Key related statistics, include:

  • A population of over 740 million (over double US and Canada combined)
  • Total cannabis market estimated to be worth up to €123 billion by 2028 (€58bn medical cannabis (47%), €65bn recreational cannabis (53%))
  • Over €500 million has been invested in European cannabis businesses (including significant expenditure in research and development, manufacturing and distribution)

To reiterate this belief, this month, hundreds of industry experts and delegates will be attending Cannabis Europa in Madrid, to discuss the expansion of cannabis across Europe and the challenges facing the industry across the member states of the EU and the UK.

Global mainstream leans to European strength

Since late 2018, major global operators have made substantial moves into the cannabis sector. Anheuser-Busch InBev, the world’s largest beer company and maker of Budweiser, entered into a partnership to research beverages infused with two types of cannabis. Constellation, owner of Corona beer, announced a commitment for $4 billion investment in Canadian cannabis company Canopy Growth. BlackRock Inc, through five actively managed BlackRock funds, has invested into Curaleaf Holdings Inc, a dispensary operator, for a not too insignificant investment sum of $11 million (as at March 2019). Such international investments prove that cannabis has moved from the fringes and into the mainstream.

When considering the impact of mainstream cannabis, it should be recognised that major European countries have approved or are planning on implementing, legalisation of medicinal cannabis. The UK, Germany, Italy and the Netherlands already have legal systems in place for medicinal cannabis and France and Spain are currently reviewing key legislative reform to align themselves with international practices. At present the German market is the third largest cannabis market (in terms of size) behind the US and Canada.

european union states
Member states of the EU, pre-Brexit

In addition to medicinal cannabis, several key European countries have systems in place, or are developing systems, or considering the reform of existing systems, to approve cannabis with THC content at a recreational level. The Netherlands already has a system and Luxembourg’s health minister in August 2019 announced the intention to legalise cannabis for Luxembourg residents. The Luxembourg government is lobbying EU member states to follow suit.

Whilst the EU has a labyrinth of laws in relation to edible CBD (as a novel food) which make the regulatory landscape complex, there has been an explosion of CBD products for vaping and cosmetics. Of course, with each of these products being subject to different local laws (some aligned between EU members states) in relation to vaping and cosmetic related regulations. The Brightfield Group has predicted a 400% increase in the European CBD market (including vaping liquid) from $318m in 2018 to $1.7 billion by 2023. There is also an expansion into applications for CBD with animals with many US manufacturers of CBD-infused pet food.

The European Parliament’s health committee has been calling for properly funded scientific research and there are motions to establish policies to seek to incentivise member states to advance the studies of medical cannabis, with a priority on scientific research and clinical studies – the first step necessary to drafting legislation, designed to better support the industry.

Where does the UK sit within cannabis?

Medicinal cannabis famously saw a legalisation, of sorts, by the then Secretary of State, Sajid Javid, who provided the authorisations for prescriptions for the high profile cases of Billy Caldwell and Alfie Dingley. Subsequently, on 1 November 2018, this was codified into law by an amendment to Schedule 2 of the 2001 Misuse of Drugs Regulations. This allows clinicians to prescribe cannabis as an unlicensed medicine.

There have, of course, been some high profile licensed medicines. The UK company, GW Pharmaceuticals, is the largest exporter of legal medical cannabis in the world, cultivating medical cannabis for production of cannabis-based medicines (e.g. Epidiolex & Sativex). Epidiolex (manufactured by subsidiary Greenwich Biosciences) became the first cannabis-derived medicine approved for use in the US for treatment of seizures caused by Lennox-Gastaut and Dravet syndromes (both severe forms of epilepsy).

When considering the level of research development and investment in the medicinal field, it is no surprise that the UK is the world’s largest producer and exporter of medical cannabis. Research published by the International Narcotics Control Board indicates that the UK produces over 100,000kg a year of medicinal cannabis.

UKflagPrevious guidance from the National Institute for Health and Care Excellence (NICE) indicated that further research is required to demonstrate the benefit of medicinal cannabis, citing its cost versus evidenced benefit. However, there is now renewed confidence in the UK following NICE’s approval of two cannabis-based medicines produced by GW Pharmaceuticals,  Epidiolex (cannabidiol) oral solution and Sativex (nabiximols), for routine reimbursement through the NHS.

Following the re-categorisation of medicinal cannabis in November 2018, a number of clinics have been established where specialised clinicians can start the process of prescribing cannabis based medicinal products (CBMPs). Whilst this route is not fast, and challenges are well documented as to the satisfaction of prescriptions made in the UK, there is momentum behind the development of this as a means for providing genuine and established medical care. A significant step in October 2019, was the CQC registration of one such cannabis clinic, Sapphire Medical Clinics Limited.

In November 2019, a project backed by the Royal College of Psychiatrists was announced with the aim to be the largest trial on the drug’s use in Europe with a target of 20,000 UK patients.

The UK medicinal cannabis sector is establishing a research-based approach to expand usage in the UK and across Europe.

How North America compares to Europe

Canada

Canada, as a first mover within the cannabis sector, has a multitude of large companies which are well-capitalised and have substantial international footprints. The Canadian exchanges have large listed companies looking to Europe with the intention of acquiring or investing into European operations. As of the date of writing, the 10 largest cannabis companies in Canada have an aggregate market cap of over $23.5 billion (and all registered cannabis companies in Canada having an aggregate market cap of over $46.5 billion).

Listed companies have had a tough time over the last 6-12 months with a slowdown in the market as a natural re-balancing occurs – part of which is due to rapid expansion and heavy investment into cultivation by all the major participants in the market. Over the next 6 -12 months we can expect to see management changes (some of which will be voluntary and some of which will be imposed by institutional pressure) to introduce different skill sets at board and senior management level to facilitate the oversight and leadership necessary for large pharmaceutical companies. Many operations have expanded into highly regulated products and complex supply chains whilst still operating with fundamentally the same team that established the operations with entrepreneurial efforts but, perhaps, a lack of experience in these sectors. The recent announcements by Aurora Cannabis and Tilray demonstrate that these restructurings and costs reductions have already commenced. However, with increased experience at board level and an improvement of profitability focused on sustainable business practices, should come new opportunities on a global scale for these North American operations.

The US

The US market, because of the complexity of state and federal laws not being fully aligned, is closer to its infancy than the Canadian market. This is not too dissimilar to the European market. That said, there are a number of well-funded and quite large US enterprises. A limited number of these, such as Tilray, are looking to expand into Europe.

Many of the companies in the US have, and continue to, expand quickly so we can expect to see a number of mergers and acquisitions. We are likely to witness Canadian and US entities merging with one another with the potential for acquisitions for operations within Europe. It is unlikely that the North American companies will risk their capital through organic growth so would be expected to be identifying “turnkey” solutions.

One of the major challenges facing US companies is the complexity of supply and distribution. This is largely a result of the complexities for state and federal laws interacting with one another as well as international importation and exportation with US states.

How you can invest within the UK and Europe

Developments in the fields of research and development are anticipated to add further weight to the lobbying of government and regulatory bodies across Europe.The UK remains, despite the events of Brexit, a major financial hub for Europe. The London market has seen the growth of several investment and operation cannabis companies. This includes private companies such as; EMMAC Life Sciences Limited and the operations formerly trading as European Cannabis Holdings (now demerged into several new entities including NOBL and LYPHE) as well as publicly listed companies; including Sativa Group PLC (the first publically listed cannabis specific company in the UK) and World High Life Plc, both operating on the NEX Exchange.

The Medical Cannabis and Wellness Ucits ETF (CBDX), Europe’s first medical cannabis ETF fund, domiciled in Ireland, and which has been passported for sale in the UK and Italy, has also caused a renewed stir within the market with a further platform for listed investment.

As the regulatory framework evolves further there is an anticipation that more medicinal cannabis and CBD related enterprises should have the opportunity to list on public exchanges, whether in the UK or in European countries.

Conclusion

Despite a period of slow down following the natural rebalancing of the fast-growing North American markets for the cannabis sector, there is renewed confidence in the expansion of the industry. Developments in the fields of research and development are anticipated to add further weight to the lobbying of government and regulatory bodies across Europe.

There is an increased push for a public dialogue and consultation in relation to medicinal and recreational cannabis in the UK, backed by several mainstream media platforms. This is likely to be shaped in some parts by national debates in Luxembourg and other European countries as they consider their own domestic laws.

With European parliaments across the EU (including the UK) hopefully having time freed up to discuss other political matters now that Brexit is progressing, the next 18 months should prove an exciting time within the European cannabis sector.

Food Safety Hazards for the Cannabis Industry: ERP Can Help

By Daniel Erickson
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To say that there has been explosive growth in the cannabis edibles market is an understatement. In the next 5 years, edibles are expected to become a $5.3 billion industry according to the Brightfield Group, a cannabis market research firm. Skyrocketing demand for cannabis infusion in food and beverage products, both recreational and medical, has prompted concern for the health and safety of consumers due to the lack of federal legality and regulatory guidelines for these products. Edibles consumers assume the same level of safety and quality present in other food and beverage products in the market. Progressive cannabis operations are opting to follow current food safety guidelines to mitigate hazards despite not being legally required to do so. Utilizing these guidelines, as well as incorporating an industry-specific ERP solution to automate processes, enables cannabis businesses to provide quality, consistent products and establish standards to support the eventuality of federal cannabis legalization.

FDAlogoEdibles consumption has grown not only in a recreational capacity but also for medicinal use to treat chronic pain, relieve epilepsy symptoms, decrease nausea, combat anxiety and other health issues. Cannabidiol (CBD) infused products take many forms including candies, baked goods, chocolate, oils, sprays, beer, soda, tea and coffee. Their popularity is partly due to their more socially acceptable use, creating an appeal to a wider audience. While the Food and Drug Administration (FDA) is responsible for overseeing food and beverage safety for products sold in the United States, their regulations are not enforced in the cannabis-infused marketplace. Without federal regulatory standards, there exist inherent food safety concerns that create risks to consumers. The average cannabis edibles customer is likely unaware of the “consume at your own risk” nature of the products.

The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.

There are many consequences of not addressing food safety hazards, as the possibility of food-borne illnesses resulting from unsafe and unsanitary manufacturing facilities have become increasingly likely in an unregulated market. In addition to these concerns, problems particular to cannabis growing and harvesting practices are also possible. Aflatoxins (mold carcinogens) on the cannabis bud, pesticide residue on plants, pest contamination, improper employee handling and training and inaccurate levels of CBD all contribute to the risk of outbreaks, hefty fines, recalls or business closure. To mitigate the risk of exposure, it is recommended that edible manufacturers employ a proactive approach of observing proper food safety standards that encompass the growing, manufacturing, packaging, handling, storing and selling of products. With a focus on safety, cannabis edible manufacturers utilizing an ERP solution and vendor with experience in food safety management will reap the benefits that food and beverage businesses have experienced for decades.

Following established food safety protocols and guidelines of the food and beverage and dietary supplement industry, allows manufacturers of cannabis-infused edibles to implement a proactive approach by focusing on safety and reducing the risk to their operations. Food and beverage manufacturing best practices include: maintaining supplier list, quality control testing, sanitary handling of consumables, maintaining clean facilities and mitigating cross-contamination. Successful food and beverage manufacturers also incorporate a food safety team, preventative controls, and a food safety plan (FSP) including a detailed recall plan into their safety initiatives.HACCP

Establishing and maintaining a supplier list with approved quality ingredients is an essential building block for reducing food safety hazards and can be easily maintained within an ERP. Documentation of vendor information and recording of stringent testing results ensures that specific quality standards are met. Conducting extensive research regarding the source of the ingredients for use in cannabis edibles allows companies to confirm that raw ingredients were processed in a safe environment. The importance of supply chain visibility cannot be understated, as suppliers are in control of potential hazards. Quality processes and regularly performed testing is automated through the workflow of an ERP solution in the manufacturing facility – enabling noncompliant raw materials to be quarantined and removed from production. The ERP solution allows for management of critical control points to catch non-compliance issues and set-up of alternate suppliers in case of supplier-related issues. Maintaining approved supplier lists is an industry best practice that provides current and accurate information in the event of possible consumer adverse reactions.

GMPFollowing current Good Manufacturing Practices (cGMPs) should underlie efforts to address food safety concerns in the cannabis edibles industry. An ERP solution assists with documenting these quality initiatives to ensure the safe and sanitary manufacturing, storage and packaging of food for human consumption. This includes evaluating equipment status, establishing cleaning and sanitation procedures and eliminating allergen cross-contamination. Employee training is conducted and documentation maintained in the ERP solution to ensure hygienic procedures, allergen awareness, illness reporting and required food or cannabis handling certifications.

Cannabis businesses can benefit from establishing a food safety team tasked with developing a Hazard Analysis Critical Control Points (HACCP) plan to provide effective procedures and protect consumers from the hazards inherent in edible cannabis products – including biological, chemical and physical dangers. Automating processes within an ERP solution prevents and controls hazards before food safety is compromised. Since HACCP plans have historically been used by food and beverage manufacturers to ensure a safe product for the consumer, cannabis edibles manufacturers can apply the lessons from these food safety protocols and procedures in their initiatives.By utilizing food safety best practices partnered with an ERP solution, cannabis businesses can avoid the negative consequences resulting from failure to address food safety hazards in manufacturing, storage and packaging. 

A comprehensive FSP, as required by the FDA’s Food Safety Modernization Act (FSMA), identifies food safety hazards and guides the development of a company-specific, validated plan. This plan documents processes throughout the manufacturing, processing, packaging and storage stages of the operation. ERP software provides real-time, forward and backward lot traceability from seed-to-sale with the ability to track materials, document recipes and accurately label products. This detailed level of traceability provides an automated system that implements and documents food safety policies throughout the manufacturing process. With a trained Preventative Control Qualified Individual (PCQI) implementing the FSP, preventative controls, recall plans and employee training records are maintained in an integrated system.

The cannabis market’s tremendous growth has driven edibles manufacturers to follow the same guidelines as mainstream food and beverage companies to ensure safety is afforded equally to consumers of cannabis edibles. By utilizing food safety best practices partnered with an ERP solution, cannabis businesses can avoid the negative consequences resulting from failure to address food safety hazards in manufacturing, storage and packaging. At the end of the day, it’s up to cannabis manufacturers to be proactive in ensuring cannabis edibles are safe to consume until regulations are mandated.

Why Does GDPR Matter for The Cannabis Industry?

By Marguerite Arnold
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The global cannabis industry is hitting thorny regulatory challenges everywhere these days as the bar is raised for international commerce. First it was recognition that the entire production industry in Canada would basically have to retool to meet European (medical and food) standards. And that at least for now for the same reasons, American exports are basically a no go.

However, beyond this, the battle over financial reporting and other compliance of a fiscal kind has been a hot topic this year on European exchanges.

As of this summer, (and not unrelated to the other two seismic shifts) there is another giant in the room.

If you haven’t heard about it yet, welcome to the world of EU GDPR (European Union General Data Privacy Regulation).

The German version is actually Europe’s highest privacy standard, which means for the cannabis industry, this is the one that is required for operations here across the continent if you are in this business.

What is it, and what does it mean for the industry?

GDPR – The Elevator Pitch

Here is why you cannot ignore it. The regulation affects bankers as much as growers, distributors as much as producers and of course the entire ecosystem behind medical production and distribution across Europe and actually far beyond it. Starting of course, with patients but not limited to them. The law in essence, applies to “you” whoever you are in this space. That is why it becomes all that much more complicated in the current environment.

While this is complex and far reaching, however, there are a couple of ways to think about this regulation that can help you understand it and how to manage to it (if not innovate with it).

The first is, to American audiences at least, that GDPR is sort of like HIPAA, the federal American privacy civil rights statute that governs medical privacy law. Except, of course, this being Europe, it is far more robust and far reaching. It touches every aspect of electronic privacy including data storage, retention, processing and security that is applicable to modern life. And far, far, beyond just “patients.”

On the marketing side, GDPR is currently causing no end of headaches. Broadly, the legislation, which came into force this year, with real teeth (4% of global revenues if you get it wrong), applies to literally every aspect of the cannabis industry for two big reasons beyond that. Medical issues, which are the only game in town right now in Europe (and thus require all importers to also be in compliance) and financial regulatory requirements.

The requirements in Germany are more onerous than they are in the rest of Europe. Therefore, they also affect the cannabis industry in a big way, especially since there is at this point a great deal of European cultivation with the German (and now British) medical market in mind. Further Germany is becoming European HQ for quite a few of the Canadian LPs. That means German standards apply.

The UK, for those watching all Brexit events with interest, will also continue to be highly affected by this. Whether it stays in the EU or not, it must meet a certain “trusted nation” status to be able to transact with the continent in any kind of favoured nation status.

Bottom line? It is big and here and expensive if you screw it up. If considering doing any kind of business with European customers, start hitting the books now. Large mainstream media organizations in the United States and Canada right now are so afraid of the consequences of getting this wrong that they have blocked readership from Europe for the present. Large financial institutions also must not only be in compliance but compliance of companies also guides their investment mandates on the regulatory front.

For all of these reasons, the cannabis industry would do well to take note.

What Does This Mean for The Cannabis Industry?

The Canadian and rest of the global industry is still struggling with compliance and this will have some interesting repercussions going forward.patient data must be handled and stored differently

Immediately, this means that all websites that are targeted to German eyes (read Canadian LPs and international, even English-only press) should hire German side compliance experts for a quick GDPR audit. There are few European experts at this point, and even fewer foreign ones. It is worth a call around to find out who is doing this auf Deutschland and bite the bullet.

It also means that internally, patient data must be handled and stored differently. And furthermore, it is not just “patients” who have this right, but everyone who transacts with your electronic or other presence. That includes consumers, subscribers to email newsletters and other stakeholders in the industry.

As the cannabis industry also starts to embrace technology more fully, it will also have highly impactful influence on what actually passes for a compliant technology (particularly if it is customer facing) but not limited to the same.

On the marketing side, GDPR is currently causing no end of headaches. Starting with PR and customer outreach teams who are trying to figure out how much of their master mailing lists they can keep and which they cannot. On this front, Mail Chimp is undeniably the go-to right now and has also implanted easy to understand and use technology that is being adopted by European marketers and those targeting Europe.

Stay tuned for more coverage on GDPR as we cover how data protection and privacy regulations will impact cannabis businesses, their marketing and outreach, plus service design efforts (in particular to patients) and other areas of interest.