Investors bet on recreational pot 

Europe’s cannabis startups are raking in investor funds at an accelerating pace on the prospect of recreational marijuana becoming legal in Germany. Medical use — already legal — is also seeing tremendous growth.

After a slowdown in venture-capital deals in 2020, the cannabis industry recovered last year, and 2022 is also off to a good start as investors position themselves to cash in on the region’s promising cannabis market, according to Stephen Murphy, co-founder and chief executive officer of Prohibition Partners, a research firm focused on marijuana.

Investors are perking up as Germany’s ruling coalition seeks to legalize recreational cannabis in Europe’s largest economy — a plan that is in the pipeline, but doesn’t appear to be imminent yet. Many U.S. and Canadian cannabis businesses, including Curaleaf Holdings and Tilray Brands, already operate in Europe and have positioned themselves to benefit from a bigger recreational market. 

Frankfurt-based Cansativa Group recently raised $15 million in a funding round led by Casa Verde Capital, a cannabis investment firm backed by Snoop Dogg. The Series B funding was more successful than Cansativa’s first round, Cansativa co-founder Benedikt Sons said. The company is currently the sole distributor of domestically grown cannabis in Germany. 

Before that, Sanity Group, a Berlin-based company that has focused on medical cannabis, obtained $3.5 million from Casa Verde in a financing round. So far, Sanity Group has raised more than $76 million, putting it on track for a record funding for a cannabis startups in the continent, according to its managing director and founder, Finn Hänsel.

Medical legalization

Germany’s legalization of medical cannabis in 2017 triggered a startup boom, giving rise to companies such as Cantourage, Demecan, Cansativa and Sanity Group. Investors, however, had been hesitant to back these ventures until the new coalition government came to power last year pledging to legalize recreational use. 

Investors are betting that a move by Germany would help destigmatize marijuana elsewhere as well, and encourage other countries to follow suit. 

Doctors’ willingness to prescribe marijuana for medical purposes has already made Germany the largest European market for medical cannabis. Around the middle of 2021, insurance reimbursements for medical cannabis were up nearly 9% from a year earlier, reaching $17 million. 

Europe’s medical cannabis market is still young, with Prohibition estimating its current annual sales at $270 million. Should Germany legalize recreational cannabis, the research firm projects sales of $2 billion to $4 billion each year.

But first, lawmakers must make rules to regulate everything from production, manufacturing and distribution to sales and marketing. With no definite timeline for the approval of legislation, both startups and investors are testing the water for now.  

The coalition government is still hammering out the details, but the legislation “will become the blueprint for the region,” said Jacob Sons, who founded Cansativa with his brother Benedikt. 

Casa Verde, which also led an investment round in Portugal’s medical startup AceCann, expects “the speed of legalization might be quicker in Europe than what we’ve seen in the U.S.,” according to Yoni Meyer, a partner in the firm. This could set off a domino effect across Europe, he predicted. “Ultimately, Germany will be the largest recreational market.”