Ones To Watch, is a newsletter about the people shaping the European cannabis sector.
Each update contains a brief note on some of the exciting entrepreneurs and startups I’ve met on my journey, and some of the talent that is moving through the sector.
The theme today is the subtle yet seismic movements in Scandinavian cannabis, and what we might see in 2021.
As we’re approaching a new year I thought I’d do a slightly deeper dive than usual, and split this issue into two parts.
The Short Version (1 min read) – 2021 key trend and companies to watch.
The Longer version (6 min read) – background, analysis & detailed company info.
++ The Short Version (1 min read)
My 2021 outlook places Scandinavia as a key region in the European cannabis market.
Based on recent activity and signals from the market, Scandinavia looks poised to become a European hub for cannabis entrepreneurs looking to raise money and launch businesses. Expect more public market listings in Sweden and Denmark in particular, and more innovative startups launching in the wider region.
Cultural – Pro-business and investment environment. Investing more common amongst the population. New sectors like file sharing and online gaming, and ‘vice’ industries like powdered nicotine snus products (with the exception of alcohol) have found a home in the region.
Financial – Home of first European cannabis operator to IPO since GW Pharmaceuticals. More recent IPOs have further revealed a pent up and untapped investor appetite. There is a parallel fast-growing pool of VC money investing primarily in consumer-focussed businesses.
Political – Government support in Denmark is creating a thriving entrepreneurial ecosystem and attracting hundreds of millions of Euros in foreign investment into the region.
Economic – Mainstream Scandinavian businesses from adjacent sectors (agriculture, medtech, pharmaceuticals) are already aggressively pursuing cannabis sector market share.
Timing – Scandinavia’s biggest competition for financing cannabis deals will be London. It is unlikely the UK public markets will be ready for cannabis listings in the next 12 months. This is the window of opportunity for Scandinavia to become the financial hub for the European cannabis sector.
Ones to watch:
Stenocare – Danish. Producer of cannabis medicines. First cannabis operator to IPO in Europe (since GW).
DanCann Pharma – Danish. Recent IPO following in Stenocare’s footsteps. Also saw an oversubscribed public offering.
Enexis – Swedish. Cannabis-specific fund. Invested in major European players. Interested in opening up domestic markets.
Mantle – Swedish. CBD wellness brand. Well-known founder and ‘celebrity’ investors.
YSUB – Finnish. CBD beverage company with local VC and angel backing, led by experienced FMCG operators. First signs of life in Finnish cannabis?
Aureum – Danish. North American backed contract manufacturer creating a buzz in the market.
QNTM Labs – Danish. Product of the supportive Danish cannabis ecosystem. Labs and testing for the cannabis sector.
Cannabis Delivery Sciences – Swedish. Cannabis spin-off of a listed pharmaceutical technology business, Klaria.
Heliospectra – Swedish. Listed mainstream agri-tech business with LED lighting technology. Heavily exposed to cannabis and grabbing market share globally.
Swedish Match – Swedish. Nicotine product specialists trialling a new CBD snus product in Switzerland.
++ The Longer Version (6 minutes)
It's the end of the year and everyone is making predictions. I’ve always felt uncomfortable with predictions as they often feel heavily influenced by wishful thinking or have a hidden commercial motive.
We all want 2021 to be the best year yet in European cannabis, but whether it will or won’t be is best understood by looking at what information we already have. What are the wider trends at play, and the cultural and regionally-specific factors that may influence future events?
In 2015, I was working at a drug policy think tank focussed on UK cannabis legalisation. We spent a lot of time analysing the mechanisms that create change. We looked at the big moments (ballot initiatives and referendums) and the smaller moments (individual legal cases or celebrity advocates) that influenced drug policy reforms globally.
The regional-specific inputs were often the most important factors to consider e.g. Will an argument for cannabis legalisation framed around the potential tax revenues work in a country where the opposition to legalisation is focussed on mental health concerns? Probably not.
We found that smaller moments act as ‘micro-catalysts’ for wider change, and are easier to identify, and a lot easier to influence. If you identify historic micro-catalysts you can begin to see which areas are more susceptible to further change in the near future. Combine this with local cultural and political intel and you are forecasting – similar to predicting but more focussed on extrapolating out scenarios based on historical data.
US political forecaster Nate Silver covers the sectarian roots of ‘predicting’ and ‘forecasting’ in The Signal and the Noise. 'Prediction’, had roots in Latin and Catholicism, and involved interpreting signs that told you about your inevitable fate. It had an otherworldliness about it. ‘Forecast’ on the other hand had Germanic and Protestant roots and was linked with concepts of mastering your own fate and gaining an advantage by understanding these signals.
We will stick with forecasting in this issue as we’ve got some pretty good data points to work with. I’m more comfortable with this, but maybe that’s just because of my Irish Presbyterian roots.
Neither predictions nor forecasts should be discouraged, especially not in new sectors like cannabis. When new sectors are developing there is a ‘chicken or the egg’ situation, where predictions and forecasts can influence future events as much as they can foresee them.
So with that in mind, here is my glimpse into the future, and the reasons why I’ll be looking at cannabis investment and entrepreneurship in Scandinavia in 2021.
I have tried to be as objective as possible but I’ve recently watched all seasons of Danish political drama Borgen, so maybe I’ve fallen victim to the alluring soft power of these Northern European nations!
I’ll let you be the judge once you’ve heard the theory.
Next Year, Look North
The European cannabis startup funding landscape is still in its infancy.
It consists of a handful of cannabis-specific European-headquartered funds at various stages of fundraising, a few North American cannabis funds who have tentatively made some investments, and a couple of tech-focussed VCs that have made the jump across into cannabis.
On top of this, there are a number of angel investors and family offices whose names pop up regularly. Waiting in the wings are the investment banks, biding their time, waiting for large pre-IPO rounds similar to those that their North American colleagues partook in during the heady 2018/2019 years of the Canadian cannabis industry.
All eyes have been on London and Berlin but, slowly and subtly, a number of disparate trends and events have created a Northern European region ready to become an important hub for the sector this side of the Atlantic.
The opportunity in Scandinavia is influenced in part by cultural attitudes towards investing and entrepreneurship, and by top-down policymaking. I’ll be looking at the opportunity through a couple of different lenses: Cultural, financial, political, economic, and timing.
1. Cultural – Attitudes towards investing
Appetite for risk
In Scandinavia, there are signals of openness to investing in commercial cannabis businesses coming from the market, and a different investor risk profile to other parts of Europe. You can get a sense of these differing attitudes towards risk in how Scandinavian countries approach vice products and health in particular.
Most Nordic countries are not known for being ‘nanny states’ – with the exception of the strong alcohol regulations in Sweden, Finland, Iceland, and Norway. They are also home to many businesses that are not welcomed with open arms everywhere including online gaming and snus (tea bag-like pouches of moist powdered tobacco). Sweden’s initial approach to Covid also echoed wider themes of personal responsibility seen in its approach to health issues.
Peter Max, who runs Gemstone Capital, a corporate finance firm in Copenhagen, told me that their neighbours in Sweden have a ‘share-owning culture’. This familiarity with investing in startups means that casual investors are acutely aware that higher risk can lead to higher reward.
David Bonnier, who founded Stockholm-based cannabis investment fund Enexis with his business partner Amaury De Poret, echoed this sentiment. He believes that in Sweden it is the retail investors that often lead change, and it is the government and regulators that come to terms with it once there is a clear consensus on the issue.
Pro-business, pro-investment environment
The Danes are no stranger to investing. In 2019 the Danish National Bank put out a report stating that ‘Danes choose Danish stocks’, having shown a preference for their domestic market by investing a total of DKK 177 billion (€23.7 billion) in the Danish stock market.
For Danish cannabis startups, the local ecosystem offers access to capital in unexpected forms. Vækstfonden, the Danish State's investment fund, has recently funded high-tech R&D cannabis biology startup Octarine Bio.
It is not only the internal business environment that makes the region attractive for startups. A short chat with Gowling’s Julian Henwood and Samantha Myers, opened my eyes to some of the key reasons British businesses, in particular, could do well in the Nordic markets:
(1) the 5 countries are pro-UK
(2) they are English speaking, generally, and
(3) they still see the UK as a fantastic place to do business.
To succeed in Sweden, Bonnier tells me, you would be wise to have a ‘Swedish angle’ – local assets, advisors, board members, or partners all potentially help local investors quickly get comfortable with a foreign cannabis startup.
2. Financial – Access to Capital
London is the obvious choice for European cannabis companies looking to list, and announcements from the UK’s financial regulator makes it look all the more likely it will become a hub for the sector at some point. To date though, cannabis operators have struggled to list in London.
Frankfurt has been tipped as another location for cannabis companies to list but it has never materialised as a compelling route to the public markets for European cannabis businesses.
What Scandinavia offers is a clear pathway to the public markets, examples of businesses that have done it, and the support of regulators and government.
Pent up demand
In 2018, a Danish company, Stenocare, was the first medical cannabis operator (since GW Pharmaceuticals) to IPO in Europe, listing first on Sweden’s Spotlight exchange before uplisting to the NASDAQ Copenhagen exchange.
During the Stenocare listing their advisors, Gemstone Capital, discovered just how much demand there was in the region for cannabis investments. It was an historic IPO, with extreme interest leading it to be 21 times oversubscribed. They also discovered that 55,000 Danish retail investors (non-professionals) were already invested in public Canadian cannabis companies.
This was not a once-off pathway to the public markets either. Another Danish medical cannabis producer, DanCann Pharma recently followed suit. DanCann raised over €4 million (£3.6m GBP / $4.9m USD), and a press release from the company said the public part of the IPO was more than 4 times oversubscribed.
The European retail investor’s interest in cannabis is relatively unknown elsewhere on the continent. This data alone is very compelling for entrepreneurs looking to list.
Public market infrastructure
NASDAQ, the US brand synonymous with stock markets, owns 4 of the 5 stock exchanges in the region. These markets raise lots of money for smallcap and mid-market businesses – similar to AIM, a sub-market for the London Stock Exchange.
The main market is Denmark's Nasdaq Copenhagen. The other key markets are First North (Denmark), a growth market for small and medium-sized enterprises, and Spotlight (Sweden), which is a common jumping-off spot for smaller companies.
The NASDAQ brand brings certain clout, and it is clearly open for cannabis business. Expect more companies to follow the route forged by Stenocare and DanCann.
More private investing
The private capital market is also heating up. The appearance of some big-name angel investors and experienced consumer goods operators, particularly those backing local businesses, is something we’re seeing elsewhere in Europe.
Signs of life in the Finnish cannabis sector, as beverage company YSUB (name is “literally the opposite of busy”) looks to bring stylish and calming CBD drinks to market. Their CEO previously managed consumer brands for Paulig, a leading Finnish family-owned food and drink company, and the team have raised money from experiences consumer product investors in the region.
Swedish wellness company Mantle, co-founded by Josefin Landgård and Stina Lönnkvist, is part of a new wave of European consumer-focussed CBD companies that have raised money from serious and sensible technology venture capitalists. Mantle’s founders landed some top European angel investors for their seed round, including Sophia Bendz (Partner at Cherry Ventures) and interestingly Cristina Stenbeck (a multi-millionaire Swedish American businesswoman).
Big names like Stenbeck moving into a sector are a micro-catalyst. They generate news, trust, and excitement in the sector. ‘Celebrity-driven investment’ is something we’ve seen elsewhere in the sector (Snoop Dogg and Casa Verde Capital, Will.i.am and Sanity Group etc) and it gets a lot of mainstream attention.
3. Political – Top-down support
This is more of a uniquely Danish characteristic. Some Scandi countries that do well in the other categories (investing, entrepreneurship) lag behind in the political realm.
Uniquely, Denmark has embraced medical cannabis as part of its high tech ecosystem of pharma and life science innovation – providing startup support and access to capital. The Danish model was launched as a trial program in 2018 and backed by a unanimous vote in parliament.
Invest in Denmark, an economic unit of the Danish Ministry of Foreign Affairs, has focussed on the cannabis sector – attracting international businesses to the region to set up production facilities or invest in high tech businesses. Expected foreign direct investment into Denmark totals over CAD $407 million since they launched their cannabis programme.
This top-down support is already beginning to attract keen local entrepreneurs, some of whom have teamed up with international experts. These companies have only just launched and are already beginning to generate quite a stir with investors and operators in Europe.
Aureum – a contract manufacturer for cannabis medicines, led by CEO Pete Patterson, has been causing quite a stir in 2020. They are positioning themselves to be pivotal in the European supply chain, having seen how the sector developed and value was created elsewhere.
Their board is a smorgasbord of serious North American cannabis futurists – Joel Sherlock of Vitalis Extraction Technology, Nelson Cury of GreenField Global Opportunities Fund, and William Muecke of Artemis Growth Partners. If these guys are looking at the Scandinavian market, you should be too.
QNTM labs – a cannabis laboratory looking to be a centre of excellence within the Danish and wider European ecosystem. CEO Justin Ihnken is a man on a mission – to see robust testing at the forefront of the sector in Europe. The team is a blend of local and North American corporate finance and scientific expertise.
The already thriving Danish cannabis ecosystem shows that when signals are sent out to the market that says ‘we are open for business’ entrepreneurs answer that call.
4. Economic – Measurable mainstream activity
A key signifier of sector growth is the presence of mainstream businesses. Established corporates across Scandinavia are already active in cannabis. The region is home to world-leading agriculture, pharmaceutical, and healthcare businesses, and the cannabis sector has slowly integrated itself with the economy. Here are a couple of notable businesses from different sectors now playing in cannabis.
Klaria Pharma Holdings, a listed Swedish pharma company focussed on medtech (they produce an alginate film that allows drug delivery through the mouth), launched a subsidiary called Cannabis Delivery Sciences to explore cannabis-specific uses of their technology.
Swedish tobacco company Swedish Match is trialling a CBD snus product in Switzerland – harm reduction with a buzz.
Heliospectra the Swedish headquartered international horticultural LED greenhouse grow lights company is active in the global cannabis sector in North America and Europe. They are aggressively pursuing the market and were quick to take advantage of the large yet compliant opportunity for ancillary businesses in cannabis.
The presence, and success of, mainstream businesses in the cannabis sector only serves to further open up the opportunity to entrepreneurs and investors in the region.
5. Timing – The window of opportunity
While London listings are the alluring end destination for European corporations or tech unicorns, the chances of the UK’s financial regulators completing their consultation in the very short term are low. A concerted effort to guide that consultation is needed, and in the meantime, large European cannabis startups will look for other routes to access capital on the public markets.
The team at Enexis spotted the cannabis opportunity early and its founder David Bonnier has quickly become a champion for the cannabis sector in the region. “Right now there is no other sector with these qualities,” he told me. Bonnier is bullish about his home country's position in the European cannabis sector;
“Sweden is a champagne bottle ready to pop. It is being shaken by world events, we are just waiting for the consensus”
I still think that once London opens up it will become the leading financial hub for the cannabis sector in Europe.
Until then there is a window for other countries to offer cannabis entrepreneurs access to much-needed growth capital.
If your friends and colleagues have the same curiosity about cannabis entrepreneurs with proper visions for the sector, share this newsletter with them.
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