The world outside North America might just be warming up to marijuana legalization, if recent developments in Europe are any indication. This past April, German legislators passed the Cannabis Act -- a set of measures both legalizing (to a limited extent) the recreational cannabis market, and expanding the market for medical pot.
Happily for Tilray Brands (NASDAQ: TLRY) , the Canadian weed company was already a force on the (admittedly limited) German market. That served the company well when, in mid-July, the country's government awarded a new cultivation and distribution license. This greatly expands its ability to grow and sell medical pot in the rapidly "greening" nation. Let's figure out if this can turn Tilray's fortunes around.
Better potential overseas
Unhappily 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 problems, retail licensing is a mess, while illegal product is competitive enough to dent the performance of licensed operators.
So a disturbingly high number of Canadian cannabis companies -- Tilray included -- are habitually loss-making, and have thus been looking abroad for growth opportunities.
Germany is one of the few locales with any sort of legalized pot regime at all, having launched a highly regulated medical cannabis system in 2017. Given the country's size and relatively open-minded attitude toward cannabis, it was a sensible place for Tilray to plant its flag, and for years its German operation has had a comparatively strong presence on that market.
That's why the company was eager to announce in July that it won a new cultivation license there. Its German cultivation subsidiary, Aphria RX, received the first new cannabis growing license to be issued under MedCanG, the country's expanded set of medical pot regulations.
Tilray quoted its chief strategy officer and head of international, Denise Faltischek, as saying the new permit "will provide greater access to some of the highest quality medical cannabis produced in Germany."
The country is clearly eager to provide expanded opportunities for growers. In fact, Tilray wasn't the only company earning a new medical weed cultivation license. Shortly after it made its announcement, rival Aurora Cannabis said that it was also awarded such a permit. In addition, Aurora was granted a research and development license to develop new products.
A possible sleeper segment
Even though recreational marijuana is now technically legal in Germany, don't expect to see dispensaries in neighborhoods in Berlin, Munich, or Stuttgart. Oddly, and unfortunately for eager companies like Tilray or Aurora, the Cannabis Act provides no scope for a retail marijuana market. The closest it comes is its sanctioning of "cultivation associations," which are limited to the amount of product they can distribute to members.
What marijuana companies need badly is not only marijuana legalization/decriminalization, but a relatively open retail environment in which they can sell their wares. Germany's move is laudable and unarguably a step in the right direction, yet in terms of business development, it's only a baby step at best.
But it could lead to bigger things. In a conference call at the end of July discussing Tilray's fourth-quarter results, CEO Irwin Simon speculated that Germany's move could "also have a far-reaching impact on the drug policy throughout Europe." According to him, this might help the continent balloon into a $45 billion market for the medical segment alone.
Tilray isn't shy to mention that it continues to be the market leader in European medical weed. Combined with sales in the scattered collection of nations that comprise its international segment, the company's net revenue from sales outside Canada rose 22% year over year to over $53 million in its fiscal 2024, which ended May 31, 2024. The latter figure formed 14% of total cannabis revenue. Foreign sales already matter greatly to the company.
Fourteen percent isn't a big number, and the company will keep struggling to do well in the ever-challenging Canadian market, so investors can resign themselves to continued bottom-line losses for Tilray. German medical pot, though, looks very promising -- both as a market unto itself, and a wedge potentially prying open new medical markets in Europe.
Given all that, for now the new German licensing is not a game changer for the company. It will, however, be an important aspect of the company's business for investors to watch, particularly if it starts growing as much as management hopes.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy .
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