European cannabis companies dream of Wall Street

A wave of optimism is sweeping through European cannabis startups, while North American companies are also anticipating their potential initial public offerings in the United States following the regulatory changes planned by the Biden administration. European companies are reportedly seeking higher valuations than those that can be traded on the London stock exchanges.

Potential Changes to U.S. Cannabis Regulations

Currently, U.S. law prohibits U.S. companies involved in the cannabis industry from being listed on major U.S. stock exchanges. In Canada, however, where cannabis is permitted by the federal government, companies such as Canopy Growth are allowed to list on the Nasdaq. This difference has made U.S. markets more attractive to European companies, particularly due to the potential reclassification of cannabis under the Controlled Substances Act (Controlled Substances Act).

In May, the Drug Enforcement Administration (DEA) agreed to reclassify cannabis from Schedule 1 to Schedule 3. This reclassification would significantly reduce the regulatory and tax pressures on the sector, which would encourage stock exchanges and banks that are reluctant to take risks to reconsider their stance toward companies in the cannabis industry.

«This is a complete game-changer,» said Boris Jordan, founder of Curaleaf, highlighting the potential impact on the sector.

European Companies Ready to Go Public in the United States

Among the European companies planning initial public offerings in the United States is Grow Group, a London-based medical cannabis distributor. Since its founding in 2017, Grow Group has raised 12 million pounds ($15.6 million) and now aims to go public on the Nasdaq in the first quarter of 2025.

CEO Benjamin Langly is confident the company will achieve a valuation of 100 million pounds, noting signs of improvement in the market: «What we’re seeing now is a relaxation of the market to the point where people are deploying capital and money is flowing back into this sector.»

Another European company, Somai Pharmaceuticals, based in Lisbon, in Portugal, is also targeting the U.S. market. Its CEO, Michael Sassano, is planning an initial public offering on the Nasdaq with a valuation of 250 million euros ($273 million).

Similarly, Wellford Medical, a another London-based company, is considering an initial public offering on the Nasdaq. Co-founder Joshua Roberts expressed optimism: «If the United States [reclassifies], in addition to the legislative change in Germany, this could be the perfect time for us and… investors to ride this wave of sentiment.»

Challenges and Optimism in the Cannabis Market

The optimism among European companies in the cannabis sector is fueled by two major factors: the potential reclassification of cannabis in the United States and the Germany's recent decision to legalize recreational cannabis use for adults. These developments are expected to boost sales and investor confidence in the sector, which has faced regulatory pressures and competition from the black market.

The stock market performance of the cannabis companies have nevertheless always been volatile. For example, the AdvisorShares Pure US Cannabis ETF, a sector-focused fund, is trading well below its all-time high. Individual stocks such as Canopy Growth and Tilray Brands have seen their valuations plummet compared to their peaks in the wake of legalization recreational cannabis in Canada in 2018.

Despite these challenges, there are signs of a recovery. Canopy Growth’s stock has rebounded by 47% since the start of the year, although it remains far from its 2019 highs. The general optimism is reflected in recent stock market trends, with cannabis-related stocks surging 10% since the start of the year, driven in part by expectations of regulatory changes.

Ultimately, the success of these European companies in the U.S. market will depend on the extent to which regulatory changes foster an environment conducive to businesses in the cannabis industry. As Benjamin Langly of Grow Group noted, the easing of regulatory pressures and the influx of capital into the sector are positive signs.

If these trends continue, European cannabis startups could experience substantial growth and higher valuations, making Wall Street a key battleground for their future success. They will still need to become profitable and find their markets—something their North American counterparts do not always manage to do, despite their head start.