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Analysis: Aussie Cannabis Firms Go Capital Light As They Roll Into Europe

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A handful of small, young Australian firms are taking a chance on Europe in spite of the region’s diverse markets, hopeful that a capital-light investment strategy will diminish their risks.

Europe could be a hard market to crack as regulations vary by country, but favourable rulings for medical marijuana and potential demand are promising factors. The companies reckon that establishing an early base there and working with European partners will help them better negotiate different markets and steal a march on larger North American rivals.

Cann Group and MGC Pharmaceuticals are among many firms that have pushed into Europe, recently signing partnerships to distribute medical marijuana products and also exploring a dual-listing in the region.

Europe is much smaller than North America, already battling oversupply, but the market is a draw for Australian companies that contend with an even smaller home base.

“With prospects still limited largely to just the prescription market (in Australia), exports remain key to marijuana firms,” said Jo Paterson, founder and CEO of BOD Australia.

New South Wales-based BOD, valued at just $37 million, entered into distribution partnerships in the United Kingdom, Italy and Netherlands last year. Its stock surged two thirds in the period.

There are indications that regulations around cannabis will continue loosening in Europe.

A ruling in November by the European Union’s highest court that cannabidiol – the main ingredient in medical marijuana products – is not a narcotic, is crucial for their success in Europe, the companies said.

The United Nations drug agency voting weeks later to remove cannabis from the most tightly-controlled category of narcotics will also help, they said.

Medical marijuana sales in Europe are expected to surge 52% by 2025, hitting $3.1 billion, according to a report by market researcher Brightfield Group and consultant Hanway Associates.

(GRAPHIC – European medical marijuana sales set to rise: https://graphics.reuters.com/CANNABIS-EUROPE/jbyprdrjgpe/chart.png)

A recent short-lived Reddit-fuelled rally in cannabis stocks notwithstanding, many investors see them as long-term bets. The cannabis index has risen 30% in the past 12 months, outstripping 16% growth in the S&P 500.

(GRAPHIC – Cannabis stocks rally as more catalysts emerge: https://graphics.reuters.com/AUSTRALIA-CANNABIS/oakperndavr/chart.png)

CAPITAL LIGHT

Analysts have warned, however, that Europe’s regulatory landscape is complex and could be hard to navigate.

Even bigger firms such as Canopy Growth and Aurora Cannabis have found it difficult to make profits in the continent and are now scaling back investments, though they say that Europe remains a big opportunity.

“Policymakers and businesses are tackling issues including cross-border supply chains, standardising manufacturing and laboratory practice, and prescription requirements,” said Ibrahim Said Abdeldayem, a risk consultant at Arriello.

Some countries, including Germany and the Netherlands have well-established medical cannabis legislation. In others such as Sweden and Belgium, cannabis is strictly prohibited.

(GRAPHIC – Framework of cannabis legalization in Europe: https://graphics.reuters.com/CANNABIS-EUROPE/xklvyomwbvg/chart.png)

Australian companies are tackling the diverse markets with a capital-light approach: sticking to partnerships with firms that are better-equipped to handle distribution and rules locally, rather than trying to build processing plants.

Cann Group, the first in Australia to receive a licence to cultivate medicinal cannabis in 2017, said it will focus on Germany and Britain because those markets are expected to grow quickly.

Cann, worth roughly $150 million, is partnering with a London-based company to ensure it is well positioned when the market takes off, its chief operating officer Shane Duncan said.

“Hopefully (Australian investments) will be more thoughtful and more strategic, with a better understanding of the limits of the market, and that it will take time,” said Jamie Schau, analyst at Brightfield.

“The important part is to get it right in each market and not treat it as a bloc.”

Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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Airline CEOs, Biden Officials Consider Green-Fuel Breaks

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Chief executives of the nation’s largest passenger and cargo airlines met with key Biden administration officials Friday to talk about reducing emissions from airplanes and push incentives for lower-carbon aviation fuels.

The White House said the meeting with climate adviser Gina McCarthy and Transportation Secretary Pete Buttigieg also touched on economic policy and curbing the spread of COVID-19 travel has been a vector for the virus. But industry officials said emissions dominated the discussion.

United Airlines said CEO Scott Kirby asked administration officials to support incentives for sustainable aviation fuel and technology to remove carbon from the atmosphere. In December, United said it invested an undisclosed amount in a carbon-capture company partly owned by Occidental Petroleum.

A United Nations aviation group has concluded that biofuels will remain a tiny source of aviation fuel for several years. Some environmentalists would prefer the Biden administration to impose tougher emissions standards on aircraft rather than create breaks for biofuels.

Biofuels are false solutions that dont decarbonize air travel, said Clare Lakewood, a climate-law official with the Center for Biological Diversity. Real action on aircraft emissions requires phasing out dirty, aging aircraft, maximizing operational efficiencies and funding the rapid development of electrification.

Airplanes account for a small portion of emissions that cause climate change about 2% to 3% but their share has been growing rapidly and is expected to roughly triple by mid-century with the global growth in travel.

The airline trade group says U.S. carriers have more than doubled the fuel efficiency of their fleets since 1978 and plan further reductions in carbon emissions. But the independent International Council on Clean Transportation says passenger traffic is growing nearly four times faster than fuel efficiency, leading to a 33% increase in emissions between 2013 and 2019.

The U.S. accounts for about 23% of aircraft carbon-dioxide emissions, followed by Europe at 19% and China at 13%, the transportation group’s researchers estimated.

The White House said McCarthy, Buttigieg and economic adviser Brian Deese were grateful and optimistic to hear the airline CEOs talk about current and future efforts to combat climate change.

Nicholas Calio, president of the trade group Airlines for America, said the exchange was positive.

Airlines are ready, willing and able partners, and we want to be part of the solution” to climate change, Calio said in a statement. We stand ready to work in partnership with the Biden administration.

Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor



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