CBD in Europe: Challenges & Opportunities for Entrepreneurs and Investors
In this special event at Balderton Capital in London, we share our expertise and experience on how to sort the truth from the noise in a fast-growing and fascinating industry.
- What’s going on, regulation-wise, with cannabidiol (CBD), the non-intoxicating and legal compound found in hemp? How should entrepreneurs wanting to build something new or investors looking to capitalize on this opportunity think about the regulatory environment in Europe?
- What to make of the headlines stating “Europe is open”? Where are the real opportunities to create value for customers and shareholders?
The experts and entrepreneurs in conversation with Laurène Tran, Director of ACTIVE, and the lead author of the first policy reports on CBD in France and in Europe include:
- Antonin Cohen, the founder, and CEO of Harmony, an international wellness company
- Frederik Hendriksen, Co-Head of International Expansion at Mile High Labs, one of the world’s largest extractors of CBD
- Eveline Van Keymeulen, Counsel at Allen & Overy and head of the firm’s Life Sciences Regulatory Practice
1/ There’s no such thing as Europe
U.S. diplomat Henry Kissinger is famously said to have asked, “Who do I call if I call Europe?” The question is repeatedly cited as a clever way to suggest pessimism about Europe as a reality. The answer, of course, depends upon what you want to know about Europe! When it comes to CBD, headlines such as “Europe is open” can be misleading for entrepreneurs and investors.
The challenges posed in Europe by a fragmented market
For Frederik Hendriksen who is leading international expansion for Mile High Labs from Belfast and London: “Europe is difficult because you need to look at things on a country-by-country basis. What’s holding back the industry is the fragmentation. We are talking with major retailers. More regulatory clarity will fuel the growth of this industry.”
In the absence of a proper Single Market for hemp-derived CBD products, Eveline Van Keymeulen of Allen & Overy explains the stakes of the first pending case (Case C-663/18) at the Court of Justice of the European Union in which she is involved:
“How strictly can member states hinder free movement of goods ? What are they trying to protect? Is it proportionate? Given the low-risk profile of cannabidiol (CBD) as a substance, can a national government such as France, prohibit an entire industry?”
The continent can’t be viewed as a single jurisdiction, as a diversity of languages and cultures exist across national boundaries. Meaningful European-wide regulations are scarce, and individual states’ CBD frameworks and their interpretations vary drastically.
Inspiring European politicians and competent authorities and striking their responsive chord is necessary for good business.
At ACTIVE, we are proud to attract the most ambitious entrepreneurs who want to launch across several European countries all at once! But they should work at a national level with other entrepreneurs. For non-European companies, in particular, advancing interests in foreign territories is all about diplomacy. You have to be on the ground and get to know the locals to get a better sense of what is going on.
“Why do we work with skin-in-the-game entrepreneurs in each specific market? Local entrepreneurs are the ones on the frontlines who can easily ask for face-to-face meetings with local authorities to double-check what’s possible or not in practice. That’s the kind of rare and valuable information you won’t find everywhere. That’s what we’re building across Europe with ACTIVE”
When it comes to product development, fragmentation is challenging. Antonin Cohen, CEO of Harmony and an industry pioneer who launched the first CBD vaping product in Europe explains: “We have 4 different formulations and 12 types of packaging”. He adds “The problem today is that new companies do not know how to create a safe product.”
For him, “Resilience is the most important quality for an entrepreneur, especially when you start a product nobody has ever done before. 5 years ago, nobody knew about CBD, we had to do a lot of education to users and to authorities to explain the potential of CBD as an ingredient.”
2/ The differentiator will be on the compliance side
CBD as such is not a narcotic, but it is in the cannabis sphere. Our legal expert warns entrepreneurs and investors: “there’s always a reference to a provision that links you to this sphere.”
In law, there’s no such thing as a CBD product
Another challenge is that you have to check for compliance in every member state and for every single product. It’s all about taking controlled risks. Eveline Van Keymeulen whose practice is split between Brussels and Paris advises entrepreneurs:
“Make sure you follow the market you’re interested in. Follow what’s happening, what local authorities are doing. It’s important you monitor all that. You can’t do everything by yourself. Get involved in trade associations. They get a lot of information, and will be able to inform you.”
In the USA, Mile High Labs raised $100M, and more notable $35M on the back of the Farm Bill. They employ a team of 35 people just for compliance. The Colorado-born company is very well-positioned on both continents. Frederik Hendriksen whose company, Mile High Labs, is currently processing a Novel Food application to stay 100% compliant both in the UK and in the European Union:
“When like us, you move to a pharma facility from day one you have all the right tools in place to produce quality products. This resonates well with the largest retailers we’re talking with”
Meanwhile, the lack of specific and coherent regulation creates 2 types of risks: public health and competitiveness
- for the final user because new companies don’t know how to create a safe product.
- for entrepreneurs because legal uncertainty doesn’t inspire confidence to make an investment in European companies.
If it’s true that the next differentiator will be on the compliance side, today it’s hard for entrepreneurs to stay on the right side of the law, especially when there are no specific and coherent regulations for CBD products. In line with this, a major issue is that the building blocks of product development from testing, packaging, and labeling have not been standardized.
Laurène Tran makes it clear:
“As an industry, our next milestone should be to come up with self-regulatory proposals. The most forward-looking entrepreneurs should get together and shape such proposals.”
3/ The biggest value in the future is to create a brand that people love
Today, CBD is the brand
When he started, Antonin Cohen could play on the fact that CBD as an ingredient was a differentiator. He believes this time will soon be over.
“The biggest value in the future is to create a brand that people love. When you talk about CBD today, most people don’t have a brand they love. That’s why at Harmony, we care about all the ingredients to make a great product.”
Frederik Hendriksen also shares the perspective that the biggest opportunity is on the brand side. He reminds the audience:
“In the UK, the top CBD oil brand only represents 4% market share. It’s up for grabs on the brand side! There’s so much room for product innovation.”
In fact, Mile High Labs is already anticipating the next step:
“We are planning to launch an incubator. We will do early-stage investments: give some money, and bring entrepreneurs on our platform to utilize our capabilities to help them grow.”
There are many models of success
All panelists agree that there’s more than “one CBD industry,” therefore there will be many different models of success.
- CBD as a raw material is becoming a commodity. It will be used in pharma or in wellness products
- The biggest consumer goods companies are going to leverage CBD as a key ingredient and deploy their savoir-faire in branding with large-scale distribution
- Smaller-scale companies will create beloved brands and produce premium products locally
4/ This is only the start of the journey for all of us
Eveline Van Keymeulen, Counsel at Allen & Overy and head of the firm’s Life Sciences Regulatory Practice
It is about compliance and it will stay about compliance. It’s not a YES/NO answer. When you do it, be aware. What kind of risks is your company prepared to take?
Frederik Hendriksen, Co-Head of International Expansion at Mile High Labs
There are many milestones we still need to reach as an industry for governments to get comfortable with CBD.
Antonin Cohen, the founder, and CEO of Harmony
We need more North American companies coming here to help us.
But if we don’t get European entrepreneurs and investors together, Europe will be late to the party. Let’s learn from the US and team up to develop a sustainable market!
Laurène Tran, Director of ACTIVE
We hope that our partners on stage tonight are the future market leaders! But we are still a fragmented industry and the regulatory landscape is very uncertain. To unlock new markets, and stabilize demand, we need more long-term players to invest resources to support the industry as a whole.
There are many ways to help. You can distribute the content we are producing to educate the public and share your expertise at our events. You can go one step further and invest in our future reports and self-regulation projects.
Let’s meet again at our next event at the European Parliament on Thursday December 12th! We will present our ACTIVE report: CBD in Europe — Making the Single Market Real.