U.S. cannabis company Curaleaf agreed to acquire London-based Emmac Life Sciences in a $286 million deal that represents the company’s first step into the burgeoning European cannabis market.
“We think, although the market is just emerging, it's the addressable opportunity in Europe could actually be bigger than the addressable opportunity in the U.S., and this gives us an unparalleled platform to be able to build on,” Curaleaf CEO Joe Bayern told Cheddar.
The cash and stock transaction is expected to close early in the second quarter of 2021.
Cannabis multistate operator Curaleaf already has a substantial presence across the U.S. market. Following its $830 million acquisition of Grassroots Cannabis, which closed in July, the company has a footprint across 23 U.S. states including Arizona and New Jersey, where voters recently approved adult-use legalization. The Emmac acquisition grants Curaleaf access to the expanding European medical cannabis market.
Emmac has cannabis cultivation and processing facilities in Portugal and Spain — and unlike in the U.S., where interstate cannabis commerce is forbidden, in Europe, it can be shipped across country lines. Emmac exports to Germany, Israel, Italy, and the UK and was selected to supply a pilot medical cannabis program in France. The company also intends to enter Holland and Switzerland within the next year, according to Curaleaf Executive Chairman Boris Jordan on a call with investors following the company’s latest earnings report.
“We believe the consumers in Europe have the same fundamental need that the consumers do in the U.S.,” Bayern said.
There is, however, risk inherent in gambling on new markets. Canadian cannabis producer Canopy Growth pulled back on operations in Africa and South America, and Aurora Cannabis cited the slow rollout of the European market as partially to blame for its decision to shutter offices in Portugal, Spain, and Italy in July, Bloomberg BNN reported.
“Obviously there's risk with any new investments, but we think we are going to minimize that risk by leveraging the expertise we've built in the U.S. We're really taking the same model we've built in the U.S. and just bringing it over to the European marketplace,” Bayern said.
Eight Capital’s Graeme Kreindler wrote in a note that Curaleaf’s deal holds more long-term growth potential than some of the previous European investments by Canadian cannabis companies.
“The acquisition serves as a reminder that the global cannabis market still remains relatively untapped, and those with a track record balancing early investment with prudent capital allocation and scaling are generally rewarded in outsized fashion,” he wrote. "Unlike Canadian LPs [limited partnerships], which invested heavily into the European market in years prior as a means for near-term growth, we view this acquisition by CURA as one holding a much higher degree of option value and longer-term potential as it relates to CURA's overall growth prospects.”
Many in the industry, including Bayern and Jordan, believe that the European cannabis market will one day overshadow the North American markets, in part because the continent’s population is more than double that of the U.S. But it will take years for Europe to reach that potential. European medical cannabis sales totaled as much as $273 million in 2019, according to Marijuana Business Daily. Market research firm Brightfield Group projected the European cannabis market was worth about $359 million in 2020. Cannabis sales in the U.S. market, by contrast, totaled more than $17.5 billion in 2020 versus $12.1 billion in 2019, according to BDSA.
Curaleaf also reported its fourth quarter earnings after the bell on Tuesday. The cannabis company reported $230.3 million in revenue, missing analyst expectations, but beat with roughly $53.8 million in adjusted EBITDA. The company also reported $35.3 million in losses, compared with the $26.6 million in losses it reported in the year-ago quarter.
Bayern attributed the revenue miss to supply chain disruptions and a slowing of the market in the fourth quarter amid a spike in the COVID-19 pandemic.