HomeEconomicsBad Money. Marijuana will lift the economy of Europe. It will help the development of technology and bring billions.
April 8, 2019
Bad Money. Marijuana will lift the economy of Europe. It will help the development of technology and bring billions.
More and more countries are decriminalizing and legalizing marijuana. Over the past few years, these plants have been allowed to grow and sell in the UK, Germany, Italy, Switzerland and many other countries. The new market brings huge profits, for example, one hectare of cannabis grown in Italy brings ten times more profit than wheat. High-margin business has attracted money to the industry, which allows farmers to strengthen their position and develop new technologies. Marijuana players compete for quality, strive to optimize costs and therefore invest significant sums in the development of new technologies. The success of marijuana will directly affect the entire branch of agriculture – new technologies are being adapted to grow traditional crops.
The introduction of lighting systems in agriculture is the trend of the decade, they help to obtain high quality crops all year round and use the land economically. Although LEDs are suitable for all crops, they were most actively used for growing marijuana. According to the consulting firm Markets and Markets, the LED equipment market will grow to $ 6.2 billion by 2023 (for comparison, in 2017 it was $ 2.1 billion). The jump occurred after the legalization of cannabis in several European countries. “We are only at the beginning of the greenhouse boom in Europe,” says Alex Brooks, an analyst at financial company Canaccord Genuity.
The market is growing, there are more and more new companies that operate in the legal field and want to use advanced technologies to beat the competition. As stated in the report “The Impact of Legal Cannabis on Agriculture”, the cultivation of marijuana helps to promote technological advances that can later be used by all farmers. Currently, the most advanced technologies are used in breeding marijuana.
“Since legal cannabis producers sell their products at fairly high prices, they can afford significant innovation costs, thanks to which innovations will be more efficient and cost-effective for the rest of the industry,” said Nikolai Kerslake, founder of investment company Newbean Capital. There are growing demands on the quality of packaging and product testing on the market. Kerslake notes that the knowledge gained by manufacturers will help those who grow more boring plants in the future. “We hope that those involved in the field of hemp will work together to develop technologies that will benefit the entire agricultural market. All food manufacturers can benefit from legalization, ”says Kerslake.
Signat NV, one of the manufacturers of lighting equipment, also relies on cannabis (it is a branch of the world-famous Philips, which became a separate company, changing the name from Philips Lighting to Signify about a year ago. “Where it is legal, we participate,” admits executive director Eric Rondola. According to him, the approach to the cultivation of cannabis is changing – the company discovered this direction only a few years ago, but now these buyers are generating a significant portion of income. “Recently we have witnessed a great increase in the legalization of cannabis and believe that this is also due to our activities,” Rondola is sure. German manufacturers are not lagging behind – Osram Licht AG acquired last year a startup Fluence, which is developing energy-efficient LED lighting for greenhouses.
The legalization of marijuana in new countries gave impetus to the development of the entire market. According to consulting company Progression Partners, now more than 50 countries have legalized the production of marijuana for medical purposes, it is expected that another 10 countries will join them in 2019. New markets immediately attract investors. Canadian companies producing cannabis believe that in the growing European market, gross profit (the difference between revenue and cost) will reach 60-70 percent. For example, in 2018, European sales of the Canadian company Canopy Growth amounted to $ 7.6 billion.
In the UK, medical use of marijuana was allowed only last year, while the market is small – in 2018, the volume was only $ 7 million. However, money flowed into the industry. So, in early 2018, Oxford Cannabinoid Technologies, which wants to attract $ 10 million, began to attract investments. The Californian venture capital investment company Casa Verde Capital has already decided to finance the project. Sativa Investments was able to raise $ 33.6 million to develop the first cannabis-based drug in the country, and PhytoVista Laboratories research company invested in it. Due to the high interest of venture capitalists, the legal cannabis market in the UK can grow significantly in the next couple of years.
In Switzerland, the use of marijuana with tetrahydrocannabinol (THC) content of less than one percent is legalized, which also gave impetus for the rapid development of the industry. In 2017, 410 companies were registered there that produced or sold cannabidiol, a non-psychotropic compound of cannabis, also known as CBD. The total amount of their sales for the year amounted to about 62 million dollars. The Swiss supermarket Coop is the first large network in the world to sell cannabis cigarettes containing less than 1 percent THC. You can buy marijuana cigarettes under the Heimat brand in 700 stores across the country.
The most promising market is Germany, where, since 2017, the use of marijuana for medical purposes has been allowed. According to a study by Motley Fool, sales of marijuana in Germany in 2022 reached almost 1.6 billion dollars. In Germany, more than 691 thousand legal consumers with a population of 82.67 million, and cannabis is sold there in 12 thousand pharmacies. Over the past year, a total of 40,000 German patients received a prescription for marijuana. According to forecasts, this number can grow to one million, and within the entire European Union the number of recipes will reach five million. With an annual cost of treatment from 4.5 to 30 thousand euros, this is a potentially multi-billion dollar market.
Medicinal cannabis is mainly imported to Germany, making it a tasty morsel for suppliers from across the Atlantic. “In the future, sales in Germany may be even more important to us than in Canada,” says Vic Neufeld, CEO of Aphria, one of the leading manufacturers of cannabis. The Canadian company Canopy Growth entered the German market in 2016 by purchasing Spektrum Cannabis, the first German company that was allowed to import medicinal cannabis. The European office Canopy Growth, located in Frankfurt, employs 60 people. It is expected that during 2019 their number will increase to 500.
Canadian companies are actively increasing their capacity on the continent: Aurora has acquired 9 hectares of land under crops in Denmark, Aphria is developing a comparable site in Germany, Canopy Growth already has a manufacturing plant in Denmark. All firms have applied for licenses to grow medical marijuana in Germany. Another Canadian company, the Wayland Group, is currently growing hemp on 170 hectares near Dresden. By 2020, it is planned to expand to 1000 hectares and invest 25 million euros in production. Canadianical Pharma plans to grow at least nine tons of marijuana in Cologne over the next three years.
Medical consumption of cannabis provokes a consumer boom – people are starting to buy marijuana-based food, cosmetics and clothing. “In our society, cannabis is increasingly perceived as a consumer product,” says Georg Würth, head of the German Cannabis Association.
Back to the roots
Another market that inspires great hopes is Italy, where medical marijuana was legalized in 2013. In 2018, it brought relatively little, on the order of seven million dollars, but it is expected that this crop can significantly change the situation of farmers who are in crisis due to low wheat prices, droughts and growing grain imports. The amount of land allocated for this plant has increased tenfold – from 400 hectares in 2013 to 4,000 hectares in 2018. It is worth noting that until the 1940s, Italy was the largest in the world, after the Soviet Union, the producer of hemp, which was planted with 100 thousand hectares. Launched later, the “war on drugs” killed this industry.
For the development of industrial use of cannabis in the country also allowed to grow a culture with a THC content of 0.2 percent. Now on the market you can see hemp ricotta, pasta and cookies. “The boom in the production of hemp is an excellent example of the ability of agricultural enterprises to open new frontiers. We now have opportunities for economic growth and employment, ”said Roberto Monkalvo, president of Coldiretti, Italy’s largest farmers association.
“Hemp saved our business. This year we earned 10 times more than we used to make money from wheat, and this allowed us to hire four workers, ”says Salvo Scuderi, president of the agricultural cooperative Colli Erei. According to the association Rete Canapa Sicilia, wheat in Italy brings a net profit of 250 euros per hectare, and hemp is already 2500 euros. It is not surprising that for many farmers the change of profile has allowed them to seriously strengthen their position.
According to the Italian Council for Agricultural Research and Analysis of Agricultural Economics, the area sown with durum wheat last year fell by 7.4 percent in southern Italy and more than 9 percent in the north of the country. It is believed that the cultivation of hemp – a real opportunity for diversified farming, which will help to revive the abandoned and less fertile land.
The European marijuana market is just beginning to take shape – people are in a hurry to occupy a new niche and make money: start-ups are emerging, old companies decide to expand production by, for example, cannabis beverages. According to Grand View forecasts, the total volume of the cannabis market will reach $ 146.4 billion by 2025, by this time Europe will account for about 55.6 percent of this volume ($ 81.4 billion), which makes the inhabitants of the Old World the main consumers of marijuana .