The world outside of North America may just be warming up to marijuana legalization, if recent developments in Europe are anything to go by. In April, German lawmakers passed the Cannabis Act, a series of measures that both legalize the recreational cannabis market (to a limited extent) and expand the market for medical marijuana.
Fortunately for Tilray Brands (NASDAQ: TLRY)The Canadian pot company was already a force in the (admittedly limited) German market. That came in handy when the country’s government granted it a new cultivation and distribution license in mid-July. This significantly increases the ability to grow and sell medical marijuana in the rapidly “greening” country. Let’s see if this can turn Tilray’s fortunes around.
Better potential abroad
Unfortunately for Tilray Brands, despite the fact that its native Canada fully legalized marijuana years ago, the domestic pot business presents a mountain of challenges. Among other issues, retail license sales are in shambles, while illicit products are competitive enough to dent the performance of licensed operators.
A disturbingly high number of Canadian cannabis companies, including Tilray, are typically loss-making and have therefore looked abroad for growth opportunities.
Germany is one of the few countries with some sort of legalized cannabis regime, having launched a heavily regulated medical cannabis system in 2017. Given the country’s size and relatively open attitude toward cannabis, it was a sensible place for Tilray to plant its flag, and for years now, its German subsidiary has had a relatively strong presence in that market.
That’s why the company was eager to announce in July that it had been granted a new cultivation license there. German grower Aphria RX received the first new cannabis cultivation license issued under MedCanG, the country’s comprehensive set of medical pot regulations.
Tilray quoted Denise Faltischek, chief strategy officer and head of international affairs, as saying the new license “will provide greater access to some of the highest quality medicinal cannabis produced in Germany.”
The country is clearly eager to offer expanded options to growers. Tilray wasn’t the only company to receive a new license to grow medical marijuana, by the way. Shortly after it made its announcement, rival Aurora Cannabis said it had also received such a license. In addition, Aurora was granted a research and development license to develop new products.
A possible sleeping segment
While recreational marijuana is now technically legal in Germany, don’t expect to see dispensaries popping up in neighborhoods in Berlin, Munich, or Stuttgart. Oddly enough, and unfortunately for eager companies like Tilray or Aurora, the Cannabis Act doesn’t allow for a retail market for marijuana. The closest it comes is the authorization of “cultivation associations,” which are limited in the amount of product they can distribute to their members.
What marijuana businesses desperately need is not just legalization/decriminalization of marijuana, but also a relatively open retail environment in which to sell their wares. Germany’s move is commendable and undeniably a step in the right direction, but in terms of business development, it is a small step at best.
But it could lead to bigger things. In a late July conference call discussing Tilray’s fourth-quarter results, CEO Irwin Simon speculated that the German move “could also have a far-reaching impact on drug policy across Europe,” which he said could help the continent grow into a $45 billion market for the medical segment alone.
Tilray isn’t shy about noting that it remains the market leader in European medical cannabis. Combined with sales in the scattered collection of countries that make up its international segment, the company’s net sales from sales outside of Canada increased 22% year-over-year to more than $53 million in fiscal 2024, which ended May 31, 2024. The latter figure represented 14% of total cannabis sales. Foreign sales are already a significant part of the company’s business.
Fourteen percent isn’t a big number, and the company will continue to struggle to thrive in the increasingly challenging Canadian market, so investors may want to resign themselves to continued losses for Tilray. German medical marijuana, however, looks promising — both as a market in its own right and as a wedge that could potentially open up new medical markets in Europe.
Given all this, the new German license isn’t a game changer for the company just yet. However, it will be an important aspect of the business for investors to keep an eye on, especially if the company grows as fast as management hopes.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
Is This News a Game Changer for Tilray? was originally published by The Motley Fool
