European Cannabis Giants Set Sights on Nasdaq: Will US Policy Shake-Up Trigger a Stock Surge?

A wave of European cannabis start-ups is preparing to go public in New York, capitalizing on a potential reclassification of marijuana in the US and recent decriminalization in Germany. Despite current depressed share prices among larger industry players, these companies see a promising future.

Grow Group, a London-based medical cannabis distributor, is targeting a valuation exceeding £100 million with an initial public offering (IPO) on Nasdaq slated for the first quarter of 2025. The company has raised over £12 million since its inception in 2017. Chief executive Benjamin Langley told the Financial Times about a recent period where investment in cannabis was minimal due to negative global sentiment and risk aversion.

However, he notes a resurgence of interest, particularly from venture capital, prompting the decision to pursue a Nasdaq listing over the London Stock Exchange for a higher valuation.

Somai Pharmaceuticals, based in Lisbon, specializes in the extraction, development, and distribution of medical cannabis products. CEO Michael Sassano is seeking a €250 million valuation for a Nasdaq IPO, with a secondary listing on the Toronto Stock Exchange or the LSE.

Wellford Medical, another London-based entity involved in manufacturing and distributing medical cannabis across the UK and Germany, is also eyeing Nasdaq. Co-founder Joshua Roberts believes that the US reclassification, combined with Germany's legislative changes, presents an ideal moment for investment.

The US Drug Enforcement Administration (DEA) recently announced its intent to reclassify cannabis, which is currently listed among the most dangerous drugs federally but legal for recreational use in 24 states and for medical use in 38.

If reclassified, the tax burden on state-legal cannabis businesses could significantly decrease, potentially reducing effective tax rates from 70% or more. Additionally, clinical research on marijuana would likely become easier to conduct.

In Germany, cannabis possession and small-scale home cultivation were decriminalized in April, removing it from the national narcotics list. This change follows the legalization of medical cannabis in 2017, making Germany the largest medical cannabis market in Europe.

The companies planning IPOs acknowledge the importance of rebuilding investor confidence after previous boom and bust cycles in the cannabis industry. Michael Sassano from Somai Pharmaceuticals pointed out the lingering taboo surrounding cannabis. The initial surge and subsequent slump in Canadian marijuana stocks post-legalization for recreational use in 2018 exemplify the volatility.

Oversupply and cheaper black market alternatives led to a significant drop in share prices, which have not recovered.Canopy Growth, once Canada’s most valuable marijuana company, and Tilray Brands of the US have each seen a 98% decline in market value from their peaks in 2019 and 2018, respectively.

New York-based Curaleaf, the world’s largest cannabis company, has seen shares drop 75% from their peak in 2021. Founder and executive chair Boris Jordan attributes this primarily to strict regulations, emphasizing the need for clear governmental decisions on the legality and regulatory environment for cannabis.

As the US considers looser cannabis regulations and Germany progresses with decriminalization, European cannabis companies are poised to seize new opportunities. Successful IPOs on Nasdaq could signal a revitalization in the sector, provided investor confidence is restored and regulatory frameworks support industry growth.

Do you believe reclassifying cannabis in the US will significantly boost the global cannabis market?