Aleafia (ALEF) Expands Into Germany with Joint Venture

Aleafia Health Inc. is expanding into the lucrative German medicinal cannabis market by setting up a joint venture with pharmaceutical wholesaler Acnos Pharma GmbH.

Aleafia’s wholly-owned subsidiary, Emblem, is the majority shareholder with 60% of the JV, and Aachen and Berlin-based firm Acnos owns the remaining 40%. It will purchase Aleafia Health branded cannabis oils and distribute them to German pharmacies.

Acnos has access to 110 distribution centres and supplies 20,000 pharmacies across the country, while it also wholesales pharmaceutical products throughout Europe.

Aleafia chairman Julian Fantino referred to Germany as the world’s largest medicinal marijuana market and spoke of his excitement about shipping health and wellness products to Europe. “By leaning on our own core competencies of producing high-margin value added products and leveraging the local supply chain expertise of our outstanding partners, we have significantly strengthened our international footprint and done so faster and at a fraction of the cost of an acquisition.”

An Underperforming Stock

Aleafia has a much smaller market cap than several rivals that will produce a similar amount of cannabis per year.

Aleafia completed the C$175 million acquisition of Emblem in March 2019 and that created a combined entity with 40 clinics that have treated more than 60,000 patients in Canada. It followed up the purchase with a TSX listing on March 19 and the share price stood at C$2.39 then.

The stock has been steadily decreasing ever since then and it opened at just C$1.39 on Monday, May 6. It cannot seem to inspire any confidence among investors, despite its clear potential to become a major player in the Canadian cannabis industry.

Its production capacity will stand at 138,000kg of cannabis flower per year when expansions are complete at its various facilities this summer. It will also have annual extraction capacity of 50,000kg at another facility that will be ready in June, allowing it to produce a number of concentrates in-house to meet growing demand.

The acquisition of Emblem seemed like a sensible move in a consolidating cannabis industry, and the new entity has a much smaller market cap than several rivals that will produce a similar amount of cannabis per year. However, it has a relatively small cash balance that it could burn through and investors may fear a dilutive raise.

Despite its underperformance, the firm remains ambitious and Acnos is a strong operator to team up with as it seeks to capture a slice of the German market.

Piling into Germany

The European medicinal cannabis market is forecast to hit €58 billion ($65.6 billion) by 2028, according to Prohibition Partners, and Germany is leading the charge. It has the biggest economy on the continent and the fourth biggest in the world, so the opportunity is significant.

Canadian cannabis firms have been piling into Germany this year and TerrAscend recently announced it would begin sales there. Zenabis has just secured a deal to export to Germany and to import CBD from the European nation, while FSD Pharma is actively targeting expansion in Germany

Germany is completely reliant on imports right now to serve demand for medicinal marijuana. It has just embarked upon a domestic cultivation scheme, with three Canadian firms – Aurora, Aphria, and Wayland – awarded the coveted licenses, but production will be small and imports will remain important.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Martin Green
Martin Green is an experienced journalist with a strong focus on the cannabis, alcohol, and gambling industries. He is particularly interested in the political issues affecting the global marijuana trade, and he has a keen focus on regulation changes and legal topics. He holds a BA English Literature, MA Creative Writing and a National Qualification in Journalism diploma. He has worked in journalism since 2009 and written for a broad range of newspapers, business titles and magazines, including The Sun, The Metro, The Journal, Livestrong, Drinks Retailing News, Harpers, Sportsbook Review, Vital Football, Essex Live and Surrey Live. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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