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Cortex - Life Sciences Insights

| 5 minutes read

UK revealed as Europe's fastest growing hub for cannabis investment

DLA Piper's European Cannabis team in partnership with Hanway Associates, Crunchbase and Seedrs have analysed the European cannabis investment ecosystem for the first time, revealing that private and public cannabis investment in Europe totals over €1.2 billion to date, with more than 20% of that raised in the first six months of 2021.

The report titled 'The European Cannabis Investment Ecosystem', examines the scope and scale of major, EU-wide investments by venture capitalists, retail investors, high net worth individuals and family offices and documents major corporate and institutional investors that are beginning to dip their toes into the sector, starting to reverse the flow of capital across the Atlantic.

ECIE examines the scope and scale of major, EU-wide investments by venture capitalists and retail investors, and documents major corporates and institutional investors that are beginning to dip their toes into the sector – reversing the flow of capital across the Atlantic. The data reveals that cannabis investments are extremely hot for European investors right now with an estimated €120m invested privately in cannabis companies in the first six months of 2021.

Expected fundraising could grow beyond a record breaking €350 million in 2021 at its current rate. 

Key Facts: 

  • Total investment into the European sector tops €1.2 billion, 20% of which was raised in the first 6 months of 2021; 
  • 50% increase in the number of cannabis-related IPOs since 2020 with the amount raised on European public markets increasing by over 116.2%; 
  • Venture capital now makes up over 40% of the capital active in the market as valuations grow and angel investors get priced out; 
  • Major corporations such as Imperial Brands, and public figures including, David Beckham and Anthony Joshua are rushing to enter the sector; and
  • M&A hits record highs in 2021 with $7.2 billion acquisition of British cannabis biotech GW Pharmaceuticals by mainstream pharmaceutical player. 

Bigger players attracted by size of opportunity 

The investment landscape is maturing quickly as VCs begin to represent the majority of European cannabis investment, and angels get priced out. 42.1% of capital invested privately into the European cannabis ecosystem was venture capital while 33.6% of investment came from angel investors & high net worth individuals.

Amongst the VC capital pouring into the sector are some familiar faces. Innocent Drink’s founder Richard Reed’s fund, Jam Jar Investments, invested in British cannabis biotech Beckley-Canopy Therapeutics, Brewdog’s founder Martin Dickie has invested in UK CBD brand HBHM, and Berlin-based technology VC firm Cherry Ventures are invested in German medical cannabis company Sanity Group.

To service the growing ecosystem of cannabis companies, specialist cannabis funds have launched. Swedish cannabis fund Enexis AB have made 18 investments since beginning to deploy capital in 2018, with strong double digit performance. Irish domiciled cannabis fund Oskare Capital’s first fund is targeting €150 million, while London-based Verdite fund has raised €84.3 million ($100m), and plans to scale up to €168.5 million ($200m).

More mainstream VC funds are actively watching the space. Will Gibbs, Principal at London-based VC Octopus Ventures, said they are watching the sector carefully and that they “have built a strong thesis and track record around taboo sectors. Only a subset of investors and entrepreneurs go into these spaces, but the size of the prize is massive.”

Startups are tapping into pent up investor demand

Europe has also seen a 50% increase in the number of cannabis-related IPOs since 2020 in just the first half of 2021. As of June 2021, the amount raised on European public markets has increased by over 116.2% since last year.

Strong retail interest in European cannabis companies is also evident in the increasing number of crowdfunding campaigns. Seedrs opened their doors to cannabis companies in 2021. 100% of the cannabis crowdfunding campaigns on Seedrs have been successful, with companies raising over €6.32 million in 2021 to date. These investments were very popular with, on average, 510 retail investors investing into each cannabis deal through their platform.

Jeff Kelisky, CEO of Seedrs, said "Globally, there is a growing acceptance and recognition of CBD and medicinal cannabis for its enormous therapeutic benefits. This openness is now translating into enormous amounts of interest - and capital - from retail investors. This is a market with huge potential, and now, for the first time at scale, retail investors can share in its growth early on. 2021 is the year many businesses in the cannabis space are looking at hypergrowth and seeking out finance to make that happen.”

London is becoming a cannabis investment hub

Over €42 million is estimated to have been raised in the UK in the first six months of 2021 through private transactions, with €53 million of investment raised on London’s stock exchanges in the same period. London’s AIM exchange was home to the earliest European cannabis IPO with GW Pharmaceuticals in 2001 – which was acquired for $7.6 billion in 2021, setting the benchmark for mainstream acquisitions in the European cannabis sector.

A slew of listings in 2021 after a UK Financial Conduct Authority announcement allowed cannabis companies to list on the LSE further cemented London’s role within the European cannabis sector.

In February 2021 David Beckham-backed Cellular Goods saw their stock value surge 470% on their London Stock Exchange debut after a hugely oversubscribed IPO, bringing the companies market capitalisation to over £100 million.

Marcus Stuttard, Head of UK Primary Markets and AIM, at London Stock Exchange plc said: “A growing number of cannabis related companies are choosing London Stock Exchange to continue their growth journey and we expect this pipeline to remain active.”

Major M&A activity by mainstream operators

The entrance of blue chip corporations are derisking the sector for those following in their footsteps, through major investments into the North American sector – reversing the trend of North Americans investing into smaller European companies. LSE-listed British nicotine giant, Imperial Brands, invested $123 million into Canadian cannabis producer Auxly, while another UK-based multinational, British American Tobacco, invested £126m into Canadian cannabis producer Organigram.

M&A picked up pace in 2021 with a number of large deals taking advantage of ‘the European opportunity’. Multi-country European cannabis companies are becoming an attractive M&A target for large North American cannabis operators, as evidenced by Curaleaf’s acquisition of EMMAC for £281.5 million ($388 million) in March 2021 for their European assets. The Canadan Tilray-Aphria merger valued at £2.75 billion ($3.8 billion) was also predicated on the joining of their key European infrastructure assets.

Medical and pharmaceutical companies represent the majority of European cannabis deals activity. Healthcare investments dominate the ecosystem (50.8%), closely followed by wellness companies (39.3%) made up primarily of CBD brands. Industrial hemp (7.4%) and adult use (2.5%) make up the rest of the market activity. The data suggests that while remaining cautious of cannabis as a consumer product, European investors are starting to recognise cannabis as an effective health and wellness option.

Regulatory clarity attracts high profile investors

Although investment in the sector is growing, regulations still prevent large mainstream investors from fully embracing it. Regulatory confidence in the UK has allowed investors to enter the sector and created the biggest CBD market in Europe. TRIP raised €4.24 million, the highest amount raised by a UK CBD consumer brand in a single private round.

High profile investors are now a common feature on the cap tables of European cannabis startups. Love Hemp, who boast British boxer Anthony Joshua as a shareholder, raised €8.18 million through public markets and private placements. Germany-based Sanity Group raised capital from notable figures including musician, model Stefanie Giesinger, actress Alyssa Milano, and popular German footballers.

“2021 has been a brilliant year for European cannabis. We expect the continued growth in the UK and Europe, but anticipate consolidation in the market as overly optimistic companies may not have learned lessons from North America and will struggle to raise money in the public and private markets. Those with fundamentally sound business models will do well and be attractive targets for investment and M&A, while many will start to get pressure from shareholders seeking opportunities for liquidity.” (Dylan Kennett, Co-Chair of the DLA Piper Cannabis practice).