August 25th, 2020
Arnau Valdovinos
In the last three years, cultivation projects have raised hundreds of millions of euro across Europe. In addition to some small facilities used to supply domestic programmes in Italy, Switzerland and the Czech Republic, large scale operations, with the main goal of exportation, are being set up in Denmark, Portugal, Spain, Greece, Macedonia and Malta. These countries are now all competing to become the European hub of cannabis cultivation.
However, much like in Canada, following a period of shortages and undersupply, the predicted increase in supply will vastly exceed demand. As of August 2020 all fully licensed operators in Europe had the capacity to produce some 34 tonnes of cannabis flower a year, either sold as dried herb or extracted into manufactured products, which is three times the estimated European demand in 2020.
Moreover, if all the projects being planned were to come to fruition, which would be unlikely, Europe would surpass 300 tonnes of cannabis output capacity over the next few years. In the next few months we will see the first commercial harvest in Germany, Denmark commencing exports, Greek operations coming online, more Spanish facilities gaining full regulatory approval and the harvest of outdoor crops in Portugal.
In light of the potential oversupply, a serious rescaling of projects is already occurring, and will probably extend to other producers in the near future. Players failing to understand the current market conditions and not deploying the right offtake strategies are likely to run into financial problems.
Trade with foreign jurisdictions, like Israel or Australia, could offload part of the excess European production. However, Australian LPs are eyeing the German and UK markets, and Israeli operators are targeting Europe as an export market, which may very well happen once its quality and regulatory issues are solved.
The emergence of legal recreational markets within Europe may bring another boost in demand. For instance, the Dutch government estimates that 54 tonnes of cannabis will be required each year to supply the 80 coffeeshops included in their legal supply chain experiment. However, pilot programmes being conceived in the Netherlands, Luxembourg or Switzerland have a limited scope and intend to prioritise domestic-grown cannabis.
The long-term success of current European operators will therefore depend on a continued surge of demand in key growing medical cannabis markets such as Germany, the UK and Poland, as well as the success of the legalisation push in high-potential jurisdictions like Spain and France.
To conduct this analysis, Prohibition Partners has gathered data on over 100 medical cannabis cultivation projects in Europe. Pharmaceutical crops in the UK and Austria or hemp cultivation for the production of medicinal products in Slovenia hasn’t been included. R&D projects in Spain or the Czech Republic are not included either. Cultivation capacity isn’t meant to reflect actual harvested yields or amounts actually sold.
Total production estimates reported by companies reach 1,500 tonnes of combined capacity. However, a third of the projects are unconfirmed or early-stage projects, which have not been considered in this report. Adjustments have been applied to account for crop space over total licensed land, and the reported yields per square meter have been normalised to industry averages per type of cultivation (indoor, greenhouse, outdoor).
For a more thorough understanding of the current state of the supply-demand balance in the European market please contact our consulting team at info@prohibitionpartners.com as well as reviewing our industry-leading reports.
