While the North American cannabis market faces oversupply, companies like World High Life Plc (NEX: LIFE) take advantage of the emerging medicinal cannabis market in Europe.
The booming marijuana market is completely saturated, according to new data from Canada, as far more companies grow cannabis than there are buyers for it. The oversupply not only depresses margins, but also disgruntles shareholders.
Since medical cannabis has been allowed in Germany, there has been a real hemp hype in the start-up scene. Young entrepreneurs collect a lot of money from well-known investors. The abundant financial injections show that cannabis has successfully changed from an intoxicant to a remedy, there is no longer any fear of it. Experts from the consulting firm Prohibition Partners estimate that the market for medical cannabis could grow by a total of 55 billion euros throughout Europe by 2028.
European companies are well aware of this trend and work to turn it into profit. One such company is World High Life Plc (NEX: LIFE), an investment company registered in London Stock Exchange, that focuses on making investments or acquiring companies operating in the medicinal cannabis, hemp and CBD markets.
World High Life has made its first successful acquisition in October, by purchasing Love Hemp Ltd. in a deal valued at 9 million GBP. Love Hemp is UK’s number one CBD company that offers a variety of CBD-infused oils, sprays and vapes, edibles, beverages, and cosmetics available in over 1,200 UK high street stores and network shops such as Boots, Tesco, Superdrug, and Sainsbury’s. Together with Love Hemp, WHL targets the wider European market in 2020 with specific focus on entering Germany.
While the European cannabis market is still emerging, North America faces a problem of oversupply.
Canada has had a good experience with the legalisation of cannabis. However, new data from the “Government of Canada” available to the news portal Kryptoszene.de show that apparently far more companies grow the “green gold” than there are customers for it. In August of this year, just under 330,000 kilograms were stored. At just under 13,000 kilograms, the market sells only a tenth of the production volume.
The analysis of the data also shows that the gap between inventories is widening considerably month by month. The available quantity of cannabis increased strongly, but the sales figures only slightly. In August, there was an oversupply of around 315,000 kilograms, writes Kryptoszene.de. Even in the USA providers cannot get rid of their cannabis. In the state of Oregon alone, 450,000 kilograms are currently stored.
“The oversupply is obvious, so a decline in the price of cannabis seems almost inevitable in the medium to longer term,” quotes the news portal’s analyst Rapahel Lulay. At least as long as demand doesn’t rise sharply in the near future or as corporations don’t change their corporate policies and production stays at the same level. “This could also have a negative impact on margins and become a problem for both companies and cannabis shareholders”.
This is also suggested by figures from Canada’s largest cannabis producer, Canopy Growth. The company made more losses than expected last quarter – 375 million Canadian dollars (251 million euros) from July to September. “The past two quarters have been challenging for the cannabis industry in Canada,” said Canopy Growth boss Mark Zekulin. “We believe, however, that these difficulties in these entirely new industries are only temporary”. The Canadian provinces, for example, sold significantly less medical cannabis than expected. Zekulin now hopes to sell cannabis foods such as chocolate or drinks. Sales are expected to start in December.
