Will Europe Miss the Cannabis Opportunity, Too?

European Straits #119

Dear all,

Let me tell you an author’s secret: (Almost) no one reads books. However, authors find solace in the fact that they’re often invited to talk about what’s in their book—and then people buy it anyway!

So if you have something to share, writing a book is useful for two reasons. First, it forces you to clear up your ideas and turn them into a compelling story. Then the book becomes a passport for you to travel around and talk about what’s inside it.

This is what I’ve been doing following the publishing of my book Hedge in 2018. I’ve been invited to talk about it literally all around the world, from various European countries to Israel to the US to Asia. For that last one, I was in Singapore earlier this year, and I’m about to spend 10 days in China thanks to an invitation from the Institut français for talks in Beijing, Wuhan, Shenzhen, and Guangzhou.

This kind of travelling is exhausting (and I’m going to take a long-awaited pause soon), but it’s highly valuable. What I usually explain is that for us at The Family, the world is divided in three:

  • 🇪🇺 Europe is our playing field, so travelling across the continent serves the goals of building up our brand, opening doors, and networking with interesting people—whom I then connect to the portfolio- and investor-facing sides of the firm.

  • 🇺🇸 The US is less of a playing field (even if we do take part in some deals there), but because Silicon Valley’s influence on Europe is huge, there are a lot of branding and networking opportunities: the more The Family is known and respected in the US, the stronger our position is in Europe.

  • 🌏 As for Asia, it’s neither a playing field nor an influence hub (yet), and so the goal for me when I’m there is mostly to learn and draw conclusions. Indeed I'm now convinced that Europe has a lot to learn from the East: rather than clumsily emulating Silicon Valley (which, by the way, has never worked), maybe we Europeans should get inspiration from Asian economies and their unique approaches to developing their own technology sector.

I intend to share my Chinese findings (well, more the results of two years of studying China, its history and its development) when I’m back, so stay tuned 🇨🇳!

Cannabis startups

I’ve long been convinced that regulation is a key lever to improving Europe’s positioning in the global digital economy. And no, it’s not what you think: my idea is not that Europe should be tougher on tech companies in general and that this will miraculously translate into a more competitive landscape.

As a matter of fact, I think that GDPR and other efforts such as the copyright directive or imposing digital taxes are ill-conceived because they’re not designed to support local startups. Policymakers and interest groups aren’t thinking about how to help European tech thrive. Rather they want to help preserve the status quo and keep foreign tech companies at bay. And this is the problem we have in Europe: we regulate in bad faith, for the benefit of domestic incumbents; we don’t regulate in good faith in order to help tech entrepreneurs succeed in the current paradigm shift.

It’s a major problem for two reasons. First, while we keep on favoring the status quo, other regions are racing ahead. In the US, it’s not that they don’t have backward-looking regulations. It’s just that startups and large tech companies can play on unique features of the US political economy, such as the common law system, the banality of litigation, and the federal system that leaves room for local experimentation. In China, things are even more straightforward: what Kai-Fu Lee dubs “techno-utilitarian policy” is all about waiting until you understand what’s going on and eventually throwing the government’s support behind emerging giants.

The other reason why it’s a problem is that European entrepreneurs tend to embrace industries that are more heavily regulated. In the US, the first generations of ambitious entrepreneurs took great care in tackling entrepreneurial challenges in industries that were less regulated. And in China, as it’s still a developing country, there are not that many legacy regulations standing in the way of discovering innovative business models.

None of this is very new, and you would think that Europe would have learned its lesson by now, but you would be wrong. The truth is that the more time goes by, the more backward-looking Europe is. And we’re losing crucial battles as a result. While European entrepreneurs are held back by the hostility of the regulatory environment, their US and Chinese counterparts continue to make their way into regulated industries, building up the leverage needed to force the regulatory changes. This will allow them, thanks to that favorable context, to take up dominant positions on the European market.

Cannabis is the latest example of that pattern that comes to mind. I can’t say I’m an expert on the topic, as I don’t think I ever even smoked (although my wife is convinced she saw me try once—but I have no recollection of that 😂). In fact, like many things, cannabis first came onto my radar through American politics—when the state of Colorado voted to legalize recreational marijuana in 2012.

I’ve been following the situation ever since, with an interest in the economic (and real estate) boom that legalization has triggered, and an ongoing reflection on what the rise of the cannabis business teaches us about regulating in a time of paradigm shift. I also became familiar with the byproducts of cannabis: cannabidiol (CBD), a non-narcotic, non-psychotropic compound found in hemp plants, and tetrahydrocannabinol (THC), which is the psychotropic compound that makes us high.

It helped that Antonin Cohen, founder of CBD startup Harmony, joined The Family in 2014. Antonin has been involved in the field for quite some time. As early as 2009, he started to study the usage of cannabinoids and co-founded the first non-profit organization dedicated to cannabis science in France. When we met in 2013, he was already creating CBD product prototypes while being employed by a startup in the travel industry. Then in 2014, he launched the first CBD product in Europe, an e-cigarette containing CBD but no nicotine, designed to help people quit smoking.

Today, we’re proud to have Harmony in our portfolio as it’s become the leading CBD brand in Europe. The company employs 40 persons of 13 nationalities, distributed in 26 countries and 3 continents (Harmony is headquartered in Barcelona and has offices in Paris and Lima).

But it hasn’t been easy. From France, Antonin soon moved to Prague because he needed a cheaper place to bootstrap operations and to get closer to the laboratory he was partnering with to extract CBD from hemp. Then he moved to Barcelona because it was too difficult to attract talent to Prague and it was time to expand. This is one of the things that makes Harmony so interesting: it has made the most of what various cities in Europe have to offer—a true pan-European startup!

Another thing that makes Harmony prototypically European is the widespread uncertainty that it has faced on the regulatory front. While many countries retain rules that make THC (the addictive compound) illegal, CBD (the non-addictive compound) is not regulated at the European level. As a result, each country has its own interpretation of the only framework that exists—that is, EU regulation of the cultivation of hemp through the common organisation of the EU agricultural market.

Meanwhile, as in every industry, the rest of the world is moving faster than us. The case is widely being made that CBD and THC are two different things (which should be obvious by now—but anyway); that legalizing and regulating CBD and its many applications translates into local economic growth and massive job creation; that better use of CBD can lead to improvement on the wellness and, in some cases, therapeutic fronts.

As a result, the clock is ticking. Large industrial players are currently positioning themselves at the global level after having warmed up in the US, Canada, China, and Israel. Governments are reconsidering obsolete rules to make room for a thriving CBD industry both for wellness and medical purposes. Investors are in FOMO mode: Constellation (the brewer of Corona) just invested $4 billion (yes, you read that right) in Canadian cannabis group Canopy, while Y Combinator has now backed cannabis startups over their last two batches (check them out: Rev Genomics, Meadow, FlowerCompany, and Nabis).

What’s more, CBD startups are the result of the current paradigm shift, because the rise of computing and networks makes it easier to design, market, and distribute such products while better measuring their impact. It means that an industry that didn’t exist in the past could become very big and prosperous in the very near future—at least in regions that create the regulatory environment for it to prosper. Other regions are making the appropriate moves. Europe, meanwhile, is stuck in its all-too-usual problems: looking backward, fragmentation, and lack of ambition.

Lack of ambition—that is, except for Harmony and The Family! Here’s proof:

  • Harmony is growing fast—and it’s hiring! Here are 20 open positions if you’re interested.

  • ACTIVE, a pan-European trade association for cannabinoids and terpenes that we support, is doing a great job uniting companies, scientists, thought leaders, and investors in Europe. Check out their website and their content on Medium.

  • This Monday, we hosted the first ACTIVE event in our Paris office: a roundtable chaired by my former colleague Laurène Tran, who’s now executive director of ACTIVE, with Eveline Van Keymeulen, counsel at Allen & Overy and head of the firm’s Life Sciences and Cannabis practice, Ludovic Mendes, a member of the French parliament, and Antonin himself. ACTIVE is planning a program of public ​events​ in Paris, Barcelona, London, Berlin, Rome, and Brussels to engage with a broad community of influencers and key stakeholders with their unique pan-European content (policy and legal analysis). Here’s the white paper that was just released (in 🇫🇷): Le chanvre et ses dérivés, un nouveau vecteur de croissance pour la France.

By the way, maybe you’re bored in your current job and you’d like to join the cannabis and hemp game? Check out Laurène’s article: Medical Cannabis & Hemp Wellness/CBD in Europe — Join the Field and Make a Name for Yourself.

📹 We’ve just uploaded some short videos about my book Hedge. Please watch and share!

💡 My cofounder, Oussama Ammar, wrote about what so many first-time entrepreneurs get wrong about their startup idea: Startup ideas 101.

🇫🇷 Erika Batista, who heads our Paris office, wrote about why Europe’s tech scene can be a great career move for people looking to get out of Silicon Valley: Why moving to Paris should be your next career move.

🤑 Our AAA program director, Pietro Invernizzi, does a great job of pulling together startup & VC knowledge from Twitter’s top thinkers and operators. Here’s his latest tweetstorm: The 10 most interesting VC/startup-related tweetstorms.

Here are more readings about the rise of cannabis startups:

Warm regards (from London, UK),

Nicolas