Europe Is The Cannabis Industry’s Next Frontier
If you’ve been following cannabis stories in the media, then you’re probably used to the “will they/won’t they” narrative surrounding federal legalization in the U.S. This conversation tends to be so dominant that it’s easy to forget that we’re barely even a decade out from the first state-legal recreational cannabis market.
Since 2012, 18 states have legalized adult-use cannabis and it has been anything but a smooth ride; taxation challenges squeezing out small businesses, a lack of clarity around social equity licenses and measures, highly restrictive regulations on packaging, little to no access to banking - the list goes on. Yet, despite numerous challenges, the U.S. cannabis market is on pace to be worth nearly $50 Billion by 2026, according to cannabis market research firm, Brightfield Group.
Advocates and entrepreneurs alike understand the financial and social benefits of legalization, not least that taking cannabis out of the hands of the black market results in better, safer products, increased tax revenue, and less lives torn apart by an unjust drug war. Recent cultural normalization of cannabis both from the standpoint of consumption and industry building (thank you weed PR warriors!) has resulted in mass public support and rapid legalization in the U.S., Canada and even Latin America.
It should come as no surprise, then, that Europeans are now facing many of the same questions that North Americans were in the early days of legalization.
KCSA recently partnered with UK-based cannabis consultancy Hanway Associates and a number of others such as Curaleaf International, Ince Gordon Dadd, Pagefield, and Cansativa, to release the first ever “Recreational Europe” report, comprising a trove of in-depth pan-European polling data and commentary on the commercial and cultural impacts of adult-use cannabis legalization in Europe, which found that 55% of Europeans do in fact support adult-use cannabis legalization.
Kris Krane, KCSA’s Director of Cannabis Development and former President at 4Front Ventures, is quoted in the report as saying “Don’t reinvent the wheel! Come to the US and speak with regulators in places like Colorado, Illinois, Washington, Oregon and Massachusetts to figure out what works and what doesn’t.” He continues, “At this point the US has 18 state markets - you have so many different regulatory structures to study and borrow elements from. I am worried that European countries will want to start from scratch - but essentially cannabis is cannabis, whether you’re from Colorado or Munich.”
Kris’s point is that, much like in the U.S., the conversation in Europe has moved from the realm of the theoretical into the inevitable. Even if there are slight cultural and regulatory differences between the two regions, significant parallels can be drawn and learned from. Germany’s recently elected coalition party has promised to legalize cannabis even though an official date is yet to be proposed. Pilot programs in the Netherlands, Denmark and Switzerland have shown limited but promising results for adult-use legalization in the continent. Many believe that Germany’s position as a watershed for the rest of Europe will initiate the domino effect of legalization witnessed after states like Colorado, Washington and California moved to adult-use cannabis programs in the U.S. In both instances, a confluence of public, industry and regulatory support laid the groundwork for fast-spreading legalization.
The potential of Europe’s adult-use cannabis industry cannot be understated, but there are some important considerations for first-movers in the region, especially as we dig into some of the results of Hanway’s polling.
Europeans Favor a Highly-Regulated Market
The individualistic, somewhat libertarian spirit that pushed the U.S. cannabis industry forward in its infancy contrasts with the general European reverence for strict regulations. In fact, it’s Canada’s federal cannabis compliance framework which more closely aligns with the views of everyday Europeans, with a majority supporting advertising bans, restrictions on public consumption, limits on product potency, and plain packaging with health warnings.
While this seems like a measured approach for public safety, it’s important for both regulators and entrepreneurs to recognize how such tightly-controlled regulations have contributed to the challenges that many Canadian LPs have faced in recent years. Packaging restrictions in Canada have made it much more difficult for brands to differentiate themselves, leaving an opening for the illicit market to play around with more creative designs and messages. Alternatively, (somewhat) less restriction around branding in the U.S. has helped cannabis brands professionalize their images well beyond those of the illicit market, luring professionals from mainstream CPG companies who want to test their most innovative ideas.
Europeans are skeptical of “Corporate Cannabis”
The idea that public health and social justice concerns will take a back seat to profit-seeking is a legitimate concern to Europeans. It’s easy to understand why; everyday there are reports of discrimination lawsuits and corrupt actors plastering the pages of cannabis industry trades.
But, perhaps somewhat surprisingly in light of this suspicion, Europeans are not quite as concerned about the benefits of legalization to vulnerable or marginalized populations. While 51% cited that legalization would take cannabis away from the black market, only 17% were convinced that it would result in less discrimination toward marginalized communities.
Europeans see tax revenue as an advantage to legalization
Almost a third of Europeans cited tax revenue that can support health and education services as a major benefit of legalization. Regulators in burgeoning European cannabis markets should be careful to weigh public support for taxes with the realities that heavily taxed markets in North America have faced in recent years.
California, for example, raked in nearly $1.2 Billion in tax revenue from cannabis in 2021, yet taxes have become a major burden to small and medium-size cannabis businesses without economies of scale, so much so that some cannabis operators have proposed Boston Tea Party-like antics to express the fact that excessive taxation could be killing their industry. Regulators need to consider how taxes may attract or deter businesses from investing in their markets.
These points, of course, only scratch the surface of what is uncovered in Recreational Europe. The considerations for regulators and investors span so much more than the attitudes of everyday Europeans, from UN Drug Control Treaties to banking access to repairing the harms of drug prohibition. The point is that Europe is no longer an “if” but a “when” scenario and, for the first time ever, a cannabis market that could become one of the largest in the world has the opportunity to learn from the sometimes messy yet exciting journey of its counterparts across the Atlantic.
This quote from Katya Kowalski, Head of Operations at Volteface, perhaps best sums up the considerations behind European cannabis legalization in light of lessons from North America:
“Some think we are at a crossroads with choosing the perfect legalisation model, having to choose between a public health, social justice or free market approach. However, I don’t think we have to choose one of the three. There is absolutely scope to implement an all encompassing model that addresses all of these aspects to reform, benefiting and providing opportunities for all.”
Our hope at KCSA is that with the insights from this report, we and others in the cannabis industry can begin to have informed and holistic discussions about the European cannabis opportunity. As many in our industry love to say, “the playbook is still being written,” and Europe could very well be its next chapter.