Is Europe's Legal Cannabis Market a Good Place for Entrepreneurs and Investors? One Bioscience Veteran Thinks So

Half a century ago, marijuana was a powerful symbol of a growing counterculture. In the heady days of the late sixties and early seventies, it was the recreational relaxant of choice for a post-war generation that was at best ambivalent about capitalism and the world their parents had made.

So here's the irony. Fast forward to the second decade of the 21st century, and you might find that capitalism and marijuana are in the process of making peace with each other.

Witness Cannaray, a British cannabis startup that boasts alumni of Royal Bank of Scotland and JP Morgan on its non-executive team. The company has set an ambitious goal to become Europe's largest legal CBD and medicinal marijuana brand from a more or less standing start. Moreover, it has its eyes ultimately on a floatation. But is this a market that will reward entrepreneurial ambition?

CEO and co-founder Scott Maguire thinks it is. Entrepreneur with experience in finance and bioscience, he oversaw the listing of pharmaceutical company Xenetic Bioscience in 2017. As he admits, it was an event that left him struggling to accept the possibility of semi-retirement. Then the phone rang. I got a call from a hedge fund. They asked me if I wanted to start a cannabis business,” he recalls.

At that point, Maguire had not yet considered a market, but he began to do some research, mainly in terms of what was happening in the US. He became convinced that cannabis-based products could confer real health benefits. Thus, Cannaray was founded to explore what Maguire hoped would be a rapidly growing health and lifestyle segment.

This year, the company raised £7.8 million in Series A funding, with the money coming mainly from American investors (who wish to remain unnamed). Meanwhile, the acquisition of another business - Therismos - granted Cannaray a license to import and distribute controlled substances.

The next step in the company's plan is to become a market leader, with the first CBD products set to be launched next year. But let's pause for breath. Some big challenges lie ahead.

The Cannabis Challenge

First, the obligatory scientific paragraph. Cannabis plants contain two active ingredients, THC and CBD. Products featuring the former compound (psychoactive) are, with two exceptions, illegal in the UK. The latter, however, is now widely available in a variety of lifestyle products and can be bought in pharmacies, specialist shops, and major chains.

So, in theory, the CBD market is already ripe for exploitation, but here's the potential problem. CBD is said to offer medical benefits ranging from conferring an overall sense of well-being to an effective counter for arthritis and other chronic diseases. Maguire says it's also good for inflammation and anxiety.

That should be a marketing director's dream, but there are restrictions. According to UK regulations, specific claims about medical or health benefits are currently not allowed - mainly because the necessary research evidence is not available.

Work in Progress

So this begs a question. How does an ambitious company create a health-oriented brand without being able to explain the beneficial effects of the products in question? And therefore, what is the selling point that can be conveyed to consumers? This is a work in progress. Maguire says research is the answer.

"We will conduct clinical trials that will allow us to make claims," he says.

In the short term, word of mouth provides a means for individuals to share their experience with others and thus create demand for CBD products. But there is an additional challenge in terms of differentiation from other brands.

Leah Park, Chief Creative Officer and co-founder of the company, says Cannaray is seeking superior and consumer-friendly branded products. "We plan to stand out in e-commerce, digital marketing, and social media," she says. Product development is also key. "We are experimenting with new and appealing flavors," she adds.

But it could be a tough market. Major chains like Boots and Holland & Barrett (the latter with its own brand) are already selling CBD products. Current players include Vitality, Healthspan, and Dragonfly. These and others are vying for the attention of consumers ranging from convinced CBD enthusiasts to cannabinoids-curious.

However, Park argues that a newcomer with good resources in the market has everything to play for. "There is currently no brand leader," she says.

The Medical Market

Meanwhile, under immense pressure from patient advocacy groups, the UK has licensed two cannabis treatments that can be prescribed for people suffering from multiple sclerosis and epilepsy. But there is a way to go before THC-containing products are widely or easily available through the National Health Service.

Maguire sees huge opportunities in the medical side of the market but acknowledges that Cannaray will have to play a role in proving the efficacy of cannabis. To that end, it has brought neurologists, pain specialists, and pharmacists onto the advisory board. Again, clinical trials will be essential. Meanwhile, the company has its eye on the German market, where medical marijuana has been legalized.

Given the nascent state of the market and the regulatory challenges, Cannaray may justify its £7.8 million Series A in terms of growth prospects. Maguire points to the US, where over 30 states have legalized marijuana for medical purposes. According to Grand View Research projections, that market is expected to be worth $66 billion by 2025.

There will certainly be growth in Europe. Following Germany's decision to legalize medical cannabis, similar developments have occurred in Poland and Malta. As mentioned earlier, the UK has licensed two prescription treatments.

But any company working in this space faces a regulatory and legal maze. In turn, Cannaray is laying the groundwork. In addition to acquiring a license to import controlled substances, the company has partnered with horticulture company Newey and plans to grow its own crop, provided the requested permissions are granted.

In the long term, Maguire's view is that the legal cannabis market will be profitable - he argues because products coming online can offer a safer alternative to opioid-based medicines. The scale of that growth, of course, remains to be seen.

Source: Forbes