Building Concrete European Cannabis Business Plans: A Few Tips

Investors are, rightfully, wary of the entire cannabis sector right now – sadly even in Europe. However here are a few tips to make pitches more effective

The European cannabis market is set to boom over the next few years – both for medical and the coming recreational revolution. But investors are still (if not even more) wary right now in the aftermath of the Juicy Fields scandal.

Here are several ideas for budding cannapreneurs that I routinely pass on to my consulting clients when building business plans and selling projections to investors.

Being realistic, logical, and basing assumptions on numbers and projections that are defensible is a very important first step.

Use Available (Government-Set) Benchmarked Pricing Models

The German market has set a price for the market which, like it or not, is a benchmark that will be used to calculate not only sales prices but profits. Namely, the German cultivation bid set the price of cannabis flower grown domestically at 2.20 euro per gram (when sold to distributors), and has also set the price of 4.30 euros per gram to pharmacies who may no longer mark up flower (although they may add processing costs). While the latest decision does not apply to imported cannabis, these are very good benchmarks to go by.

Further, as a result, anyone expecting to sell EU-GMP flower into this market needs to consider pricing at about 1.20 euros a gram. This is because if you are selling to a distributor who hopes to compete with Cansativa, the sole company with the right to distribute domestically grown cannabis, or DEMECAN, the only German-owned producer, this is the margin the current price schemata demands.

Yes, Bedrocan sells into the German market for a much higher price, but that is because they are not only well established, but the doctors who prescribe cannabis know the brand name (fairly or unfairly).

The prices for non-medical flower will almost certainly track medical prices, if not come in below, with the logic that the flower is not as expensive to produce.

The same also goes for dronabinol.

Current Revenue Is Very Important

There is a lot of debate about valuations in this industry. Here is a great rule of thumb if thinking about how to craft a business plan that is not laughed out of the room. Do not use “multipliers.” And stress the value of current revenue. This is the one benchmark in this market that means anything.

For one thing, it means actual sales. The second thing is that it also means that you are established in this market, with a supply chain and sales. This is important right now.

It is also common sense.

When calculating how much you are “worth,” this plus equity and assets is the only thing that counts. And in the latter case, while it is correct to use flower stocks in the same, realize that these are time-delimited assets and need to be depreciated accordingly, starting with the stability test data one has on the flower in one’s possession.

Off-take Agreements

These are also very important, particularly for cultivators. While there is no way to accurately determine sales, especially in the coming recreational market, having even a letter of intent for such sales is a crucial step that should not be ignored or overlooked. It shows that you are serious about actually selling the product and have entered into real conversations to do the same.

Stay Away from Multipliers

There are many (especially Canadians) who believe that it is appropriate to apply multipliers to this market to determine company worth. This is, however, dangerous ground. One of the most common multipliers used here to calculate “company worth” is 5 – which is imported directly from Canada.

There is zero defensible logic in using this supposition there – and even less in Germany, with a tightly regulated and difficult to access medical market. Even using it in projections as of 2024-2025 is dubious. There is no way to know when either the legalization legislation will pass, much less market start will begin. Further, there is almost no way to judge the market volume as home grow will almost certainly be part of the mix.

The Bottom Line

This is certainly a potentially huge market. But other country’s experiences with legalization, starting with Canada, should make all who hope to tread in such waters extremely wary.

There are multiple other factors to consider – such as transportation, and importing from Europe vs. other locales (including Central and South America and Africa for starters).

There is no crystal ball, in other words. But a little common sense will go a long, long way.


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