Oct 18 / 2019
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Exploring the US medical cannabis market

The United States Cannabis industry – lessons learned for the European market

By Michael Patterson – CEO for US Cannabis Pharmaceutical Research and Development.

As the global market for medical cannabis continues to expand, standardisation and consolidation will be paramount to success.  As individual European countries begin to legalise, there becomes a bigger emphasis on standardisation of law and regulation across the EU to allow for the medical cannabis industry to grow and investment to continue to come into the market.

Individual US states have been legalising medical and recreational cannabis since 1996 when California became the first state to legalise medical cannabis.  As of 2019, 33 states have legalised medical cannabis (in some fashion) and 11 states have legalised recreational/adult use.  However, due to the US Federal Government still considering cannabis illegal (in any form), the state-by-state legalisation model has created big challenges and zero consistency in laws and regulations on a state or federal level.

For any industry to succeed it needs to have clear, distinct law and regulation.  It is extremely difficult to secure investment and plan for the future when law and regulation become a moving target and creates tremendous uncertainty.  In the United States, all production and distribution for medical cannabis must be within the state boundary and is not allowed to cross state lines.  This creates more cost and inability to create economies of scale.  However, even with the US legalising hemp/CBD at the federal level in 2018, there is still uncertainty and ambiguity regarding hemp/CBD.  This creates difficulties for companies to acquire bank accounts, loans/financing, and attract accredited investors.

Therefore, the challenges in the US industry will most likely lead to the following areas being implemented within EU rules and laws regarding medical cannabis/hemp/CBD:

Consistent law/regulation across borders

For the EU markets to grow and succeed, laws and rules which provide consistency, safety, and transparency are critical.  Some of the areas that must be standardised are production rules, mandatory lab testing of product, maximum THC content per dose, defining “prescription strength” CBD and “food grade” CBD, banking rules and guidelines for cannabis/hemp/CBD based businesses that comply with US FINCEN 2014 guidelines, seed to sale tracking, chain of custody, and the ability to patent products/strains. Once the EU standardizes rules and law, the EU market will grow exponentially for the next 5-10 years.

FOMO affect (fear of missing out)

As of 2018, with the US market having 90% of all legal cannabis sales in the world and the EU having less than 2%, there is a feeling that Europe is missing out on this new market.  However, the European market is expected to grow dramatically over the next 5 years. This dramatic increase in growth will attract dishonest people who are looking to make money on investors who do not understand these fast-changing markets.  If you are looking to invest in a medical cannabis or CBD business, make sure you understand the industry, what products/companies you are investing, the laws of the country in which the investment is taking place, and the backgrounds of the principals/operators of the business.

Education of law enforcement/military/customs

Hemp/CBD has been legal in the USA since December 2018, and we still have people getting arrested for transporting hemp across state lines for processing, and even had a grandmother get arrested at Walt Disney World in Florida for possessing a CBD skin cream.  The EU must include funding to educate government agencies on all new medical cannabis/CBD law to facilitate a better transition into these new legal industries.

Educate the public

If you are starting a business in medical cannabis/CBD in Europe, you must be the leader in facts.  You must overcome decades of propaganda and ideology on medical cannabis/CBD. You must change the narrative in order to change society. The quicker societal views can change regarding medical cannabis/CBD, the quicker both become legal across Europe.

Identifying a “frame of reference” for employees

Since the medical cannabis/CBD industry is new, everyone who enters the industry comes from different professional backgrounds.  Also, everyone comes from different educational and societal backgrounds.  With this diversity in staff comes faster  innovation and potentially more conflict (within a team). Your medical cannabis/CBD business must work to establish a baseline of knowledge or universal frame of reference for all employees regarding your company and your business.  You must get your team on the “same page” when you begin to enable your company to move forward together as a well-oiled machine.

Factor in the “illegal to legal” aspect of the business

Most businesses and investors in the USA did not factor in delays into their business plan.  Delays of all types will happen because you are in a business that was illegal and now its legal.  Be prepared for delays at every turn (licensing delays, property zoning delays, bureaucratic delays from people who still hate medical cannabis/CBD, etc.) These delays can create a disconnect between investors and operators regarding expectations of the business and time frame to profitability.   If you are starting a medical cannabis/CBD business, ensure you notify your investors in writing about the potential for delays within the system (that are out of your control) because law/rules are still evolving.  Also, when raising funds, account for these delays by attempting to raise 50-100% more capital than you expect to need.

The future of the global cannabis/CBD markets will go through Europe. With 700 million residents, the EU will have more people using cannabis/CBD products than anywhere in the world.  The US and Canada have been the “first movers” in the industry.  They have grown their industries through trial and error, and a ton of money.  With Europe becoming the “second mover”, it will be able to grow the industry faster, cheaper, and better by using the lessons learned from North America and not making the same mistakes twice.

Michael Patterson will also be speaking at the upcoming Medical Cannabiz Summit Malta in November.

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