The company, which reported a smaller-than-expected third-quarter loss on Friday, is conducting a “thorough strategic review” of its production facilities as it seeks to cut costs and become profitable, executives said.

“There’s not a lot of market demand for cannabis production facilities,” David Klein, former finance chief of the company’s biggest shareholder Constellation Brands, said in an interview. “There’s a lot of capacity in Canada and no logical buyers.”

More than a year after Canada legalized recreational marijuana, producers are scrambling to turn a profit as lower-than-expected demand and exuberant expansion hit sales and lift costs, while a cash crunch threatens many companies’ survival.

Canopy first needs to ensure it generates as much cash as possible, said Klein, who became Canopy’s CEO last month.

“Then, what we do as a secondary step with the assets… we’ll figure that out over time,” he added.

Canopy shares were up 16.2 per cent at $30.10 in afternoon trade in Toronto, paring its one-year loss to 53%.

Canopy had cash and equivalents of $1.56 billion as of December, down from $2.48 billion at the end of March 2019.

“We will be pretty aggressive in managing capital expenditure going forward,” Klein said. “If we just take those measures, we have cash for the foreseeable future.”

Canopy also plans to expand in the U.S. cannabidiol (CBD) market, he said.

CBD is a non-psychoactive compound in cannabis, and is also derived from hemp, the production and distribution of which the United States legalized in late 2018.

“We’re in the process of building out a sales infrastructure in the U.S. so that we can call on the large retailers and get shelf placements,” Klein said.

The company could move some Canadian resources to the U.S. to enable the expansion, he said.

Canopy executives said they aim to lift gross margin to 40 per cent in the short term, from 34 per cent in the third quarter, and will reduce share-based compensation by as much as 40 per cent from the third quarter’s $56.8 million.

“They’re nowhere close to posting a profit… and their free cash flow is quite negative, but it’s going in the right direction,” said Jason Zandberg, an analyst at PI Financial, who expects Canopy to follow rivals Aurora Cannabis, Tilray and Hexo in cutting jobs.

— Reporting for Reuters by Shariq Khan in Bangalore and Nichola Saminather in Toronto.

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Canada legalized recreational cannabis in October 2018 but profits have proven elusive for most marijuana companies as fewer-than-expected retail stores, higher prices than on the black market and slow overseas growth resulted in oversupply.

“The Aurora story will be much more common in 2020,” said Hap Sneddon, founder and chief portfolio manager at Castlemoore. “I don’t see rationalization. I see companies leaving the business.”

Many producers, including Canopy Growth, Aurora, Tilray and Aphria rapidly expanded at home and overseas as capital flooded into the industry before legalization.

Edmonton-based Aurora announced a writedown on Thursday of as much as $1 billion, 500 job cuts and the departure of its chief executive. Tilray said Tuesday it cut 10 per cent of its workforce, or about 140 jobs.

Lack of profitability is common in new industries, but a prolonged period of higher cash burn unnerves investors.

Aurora must almost quadruple quarterly sales to meet expenses and Tilray nearly double them, according to Reuters and Infor Financial calculations, based on their latest quarterly results, before they announced the cuts.

An Aurora spokeswoman said the company was making “aggressive changes” because its previous cost structure was “misaligned with the current market conditions.” The cuts and existing financing will cover costs until it sees profits, she said.

Tilray, which says it expects profits by the end of fiscal 2020, will bridge the gap with debt until then, a spokeswoman for that company said.

Short sellers made more than $60 million in paper profits on Friday from a fall in Aurora’s Canadian and U.S. shares, according to S3 Partners, a financial analytics firm. Aurora is the third most shorted pot stock tracked by S3 Partners, trailing Canopy and GW Pharma.

The Horizons Marijuana Life Sciences ETF has lost 68 per cent since its Oct. 16, 2018 peak.

While the sector could see some consolidation, the shareholder dilution from issuing new stock to fund deals could upset investors, said Bryden Teich, portfolio manager at Avenue Investment Management, which avoids cannabis stocks due to the challenges facing the industry.

Companies that have grown more slowly, such as Organigram Holdings, can better control costs, and those with big investors, like Canopy, have a cash cushion, said Neil Selfe, chief executive of investment bank Infor Financial.

Oversupply causing a lack of demand for production and processing facilities would weigh on sales, making shutdowns and writedowns more likely, said Alan Brochstein, founder of cannabis-sector information provider 420 Investor.

— Nichola Saminather is a Reuters correspondent covering the Canadian financial and cannabis sectors from Toronto; additional reporting by Noel Randwich.

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“By reducing headcount and cost, Tilray will be better positioned to achieve profitability and be one of the clear winners in the cannabis industry,” the company said in an e-mailed statement. “The tough decision to eliminate roles has not been taken lightly.”

With costs that are multiples higher than revenues, Canadian cannabis companies face bleak prospects for turning profits as sales lag and investors flee the sector, analysts have warned.

“I expect to see many (licensed producers) announce significant job cuts in the near future,” Jason Sandberg, research analyst at PI Financial, said by email. “Too many companies had been relying on capital infusions, which have dried up, and not internally generated cash flow.”

Toronto-based Tilray’s adjusted quarterly loss before interest, taxes, depreciation and amortization in the September quarter tripled to $23.5 million, as sales and marketing costs spiked nearly five-fold. The company has said it expects to achieve positive EBITDA in the December quarter.

— Nichola Saminather is a Reuters correspondent covering Canada’s financial services and cannabis sectors in Toronto.

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Medical marijuana has been legal in Canada since 2001, and recreational use since October 2018, but derivatives — products from cannabis extracts, such as edibles — were only approved for sales this week for both medical and recreational use.

“If you’re looking to launch a product into markets like Denmark or Germany, you are required to be selling it in the medical market in Canada first,” said Deepak Anand, chief executive of Materia Ventures, a Europe-focused cannabis distribution company.

Aurora executive Cam Battley acknowledged this was a consideration in boosting its medical menu.

Canada’s second-biggest marijuana producer added gummies, mints and vapes to its medical menu on Monday. Aurora declined to give the value of medical sales so far but said it had to replenish gummies supplies on its website and saw an uptick in patient registrations.

Aurora, like its rivals, will also sell recreational edibles, which have shipped but must make their way to store shelves through government-controlled wholesalers in most provinces. In contrast, companies can ship medical marijuana products directly to registered patients now.

Large Canadian provinces such as Ontario, Quebec and Alberta will not begin sales until at least January.

Of the 51 companies that Health Canada allows to supply derivatives for recreational use, 47 can also sell them in the medical market but few are doing so now.

A spokeswoman for No. 4 producer Aphria said it will add three vape products specifically for patients in January as part of its medical brand. Canada’s other major cannabis firms, Canopy Growth and Tilray, said they are focusing on existing medical products but that could change in future.

Aurora’s method “is one way to get a little bit of a head start on sales,” said Andrew Kessner, an analyst at William O’Neil and Co. “And selling anything to medical patients is higher margin.”

— Reporting for Reuters by Nichola Saminather in Toronto.

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So-called cannabis 2.0 — legalization of marijuana derivatives including edibles, beverages, extracts and vape pens — takes effect on Thursday, with sales seen beginning in mid-December.

While that’s expected to help sagging share prices, the crucial factor for a turnaround is a significant increase in the number of stores selling the products, investors, companies and analysts said.

Share prices in the Horizons Marijuana Life Sciences Index ETF have slumped as companies’ revenues missed expectations. Cannabis producers, investors and analysts have blamed Canadian regulations that have slowed the opening of new retail outlets, strangled sales and imposed higher costs.

Investment bank and advisory firm Seaport Global figures Canada needs about 1,055 stores to realize the cannabis market’s true potential.

About half that number currently exist, with about 300 of those stores in Alberta, which has looser regulations than the rest of the country, while the most populous provinces of Ontario and Quebec have lagged far behind.

“We would probably give the first year a C minus,” said Seaport Global analyst Brett Hundley, giving the industry performance a barely passing grade.

The slow roll-out of stores “creates a real problem for Canadian licensed producers, because they’ve expanded rapidly with cultivation and production facilities and have nowhere to go,” he added.

Lacklustre results from cannabis producers “will continue and potentially worsen,” Hundley cautioned.

Canada’s biggest cannabis companies including Canopy Growth and Aurora Cannabis reported larger-than-expected losses in the latest quarter and pushed back their timelines to profitability, blaming their woes on the need for more stores to sell their wares.

Regulations for the new marijuana products market, which include restricting each package to 10 milligrams of THC — the psychoactive compound in cannabis — will add to companies’ costs, said Ryan Greer, co-chairman of the Canadian Chamber of Commerce’s National Cannabis Working Group, which is made up of Canadian marijuana companies.

With each province responsible for its own retail rules and taxes, the fragmented approach to regulating the industry will continue to raise costs and create distortions in the market, Greer said.

Investors spooked

One such distortion is evident in prices, with consumer paying far higher prices for legal weed, according to industry experts.

“Too high a level of taxation at the inception of a legal consumer system can be a disincentive for consumers to make that move from black market to legal market,” said Aurora chief corporate officer Cam Battley.

Challenges facing the industry and disappointing financial results have spooked investors who had piled into the sector amid initial euphoria in the run-up to legalization of recreational cannabis last Oct. 17.

“Now, this year these companies are coming more under the microscope by investors and people are saying, ‘hey, when are you going to start making money?'” said Andrew Kessner, analyst at William O’Neill + Co.

For a new sector and industry, the current investor sentiment is a bump in the road, Loui Anastasopoulos, TMX Group’s president of capital formation for equity markets, told Reuters in an interview.

“Valuations got ahead of themselves and this is a reset … but we do expect capital will flow back into the industry,” Anastasopoulos said.

Emily Paxhia, co-founder of Poseidon Asset Management, echoed those comments, adding that “future capital is going to expect a more prudent approach.”

An investment in excess of $4 billion in Canopy led brewer Constellation Brands to report a quarterly loss this month. But Canopy CEO Mark Zekulin remains optimistic about the long-term prospects for the industry.

“It takes a lot of capital money, a lot of operating money, bringing these large facilities up to scale,” Zekulin told Reuters.

“But at the end of the day,” he said, “the multi-100-billion-dollar cannabis opportunity that existed yesterday still exists today.”

— Reporting for Reuters by Nichola Saminather in Toronto, Shariq Khan in Bangalore and Siddharth Cavale in London.

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The U.S. Centers for Disease Control and Prevention (CDC) said on Friday that an investigation into 805 confirmed or probable cases of vaping-related respiratory illnesses suggested that products containing THC, the psychoactive element in cannabis, likely played a role.

The heightened health concerns come at a time when Canadian cannabis companies, whose share prices have tumbled over disappointing sales and supply and quality hiccups, are investing millions of dollars into marijuana derivatives, including vape products.

While keeping a wary eye on U.S. developments, they are betting that already strict Canadian regulations will ensure the safety of their products.

The Horizons Marijuana Life Sciences Index ETF has dropped 54 per cent since its Oct. 16 peak, the day before adult recreational use of cannabis flower and THC and CBD oils were legalized. CBD does not contain the compound that gets people high.

The vaping concerns have contributed to recent declines, and will continue to hurt shares, said Bruce Campbell, portfolio manager at Stonecastle Investment Management, which invests in cannabis stocks.

“It’s a case of ‘shoot first, ask questions later’,” he said. “(Investors) probably do some quick back-of-the-envelope math and say, ‘we’re not going to see the sales we expected, so we’re out’.”

Analysts estimate that in some established U.S. markets, vape sales are down as much as 30 per cent, with many marijuana consumers reverting to use of less profitable flower and oil products.

While a shift away from Canada’s illicit cannabis vape market into legal dried flower is positive from a public health standpoint, prolonged uncertainty could hurt legal vape sales.

“These illnesses… occurred using non-regulated products,” said Jason Zandberg, research analyst at investment dealer PI Financial.

Investigators have pointed to vaping products containing THC or vitamin E acetate, a thickening agent often mixed with THC oil in the illicit market, as possible causes of the rash of serious lung problems.

“In theory, it should promote the legal market,” Zandberg said. “But if you don’t have very aggressive education behind these products, a good portion of the population doesn’t see the difference.”

The regulations that take effect on Oct. 17 take into account the emerging health risks associated with cannabis vaping. They prohibit additives including vitamins and colouring agents, Health Canada, which regulates cannabis producers, said in an email.

The health agency added that it is monitoring the situation, and will take additional action if needed.

“The Canadian government should come out as soon as possible one way or other and either double down on vape products or remove them from the derivatives market. You have to give the industry clarity,” said Brett Hundley, a cannabis analyst at Seaport Global.

If the government suddenly removes vape products from the roster of expanded legal cannabis offerings, including edibles and extracts, “that’s going to reverberate back through the supply chain and it’s going to lead to a whole host of near-term issues” for these companies, Hundley said.

Cannabis companies are trusting that adhering to Health Canada’s rules will provide reassurance for investors and consumers.

A spokesman for Canopy Growth Corp., Canada’s biggest cannabis producer, in an email, pointed to the importance of the regulatory frameworks for cannabis vape products that Canada has in place.

Hexo Corp., another Canadian company with a variety of cannabis products, said it is focused on ensuring it is compliant with Health Canada’s regulations. Hexo is double testing its vape products, James McMillan, vice-president of business development, said in a phone interview.

— Reporting for Reuters by Nichola Saminather in Toronto.

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The alliance, the latest in a string of deals by global alcohol and tobacco giants in Canada’s cannabis sector, comes amid booming demand for cannabis and a long-term decline in alcohol consumption and smoking.

AB InBev’s Labatt Breweries of Canada, which makes such brands as Blue, 50, Alexander Keith’s, Kokanee and Budweiser, will work with Tilray’s Canadian cannabis subsidiary, High Park Co., which develops and sells cannabis products in Canada, the companies said in a statement.

Canada, which became the world’s first major country to fully legalize the recreational use of cannabis in October, is expected to approve cannabis-based products including beverages and edibles in October 2019.

“It’s too early to know how big cannabinoid-based beverages will be but we think it’s a massive opportunity and it’s something we’re interested in investing aggressively in,” Tilray CEO Brendan Kennedy told Reuters Wednesday.

AB InBev and Tilray said they each plan to invest up to $50 million to research drinks with cannabidiol (CBD), a component of cannabis that does not cause intoxication, and tetrahydrocannabinol (THC), the substance that makes people high (all figures US$).

Discussions about commercialization are likely to follow, and Tilray’s objective is to have beverages ready when they become legal in Canada, Kennedy said.

A gradual increase in legalized recreational use of cannabis for adults in U.S. states and in medical cannabis around the world has sparked investment and partnership deals for Canadian companies.

On Tuesday, Tilray said it will work with Sandoz, a unit of Swiss drug company Novartis, to develop and distribute medical marijuana worldwide.

Tilray is also exploring opportunities to make acquisitions in 2019, both within and outside the cannabis space, Kennedy said.

In the cannabis industry’s largest investment, Corona beer maker Constellation Brands added $4 billion to its $200 million investment in Canopy Growth in August to help fund the Canadian cannabis producer’s global expansion.

In a more modest deal that same month, Molson Coors, the No. 2 beer maker in North America, struck a Canadian joint venture with marijuana producer Hexo Corp. to make cannabis drinks.

In the tobacco industry’s first major foray into cannabis, Altria Group said this month it would invest $1.8 billion in Cronos Group for up to 55 per cent of the Canadian cannabis producer.

— Reporting for Reuters by Susan Taylor and Nichola Saminather in Toronto.

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The move by the Wakefield, Massachusetts-based company, which also owns cannabis cultivation operations, comes ahead of going public on Monday in what will be one of Canada’s largest reverse takeovers. Documents available to potential investors listed the target issue size as $150 million.

Curaleaf’s strong showing comes as cannabis stocks are taking a beating over concerns that the sector is overvalued. The Horizons Marijuana Life Sciences Index ETF tumbled 6.1 percent on Wednesday, leaving it 30 percent down from an all-time high it hit the day before Canada legalized recreational cannabis on Oct. 17.

Curaleaf will raise the equity through a private placement that converts to a public company.

The cannabis industry saw a flurry of capital raisings and mergers ahead of the legalization of recreational marijuana in Canada.

The offer is set to be priced at C$11.45 per subscription receipt, near the top end of the previously disclosed range of C$8.56-C$11.47 per receipt, according to one of the people. A subscription receipt can be exchanged for the underlying security upon the deal’s closing.

Curaleaf’s fundraising is among the biggest equity offerings in the sector and has attracted more than 100 institutional investors, one of the sources said.

The offer is expected to be priced as early as Wednesday, the people said.

An external spokesman for Curaleaf declined to comment. The sources declined to be named as the matter is not public.

Reverse takeovers (RTOs) allow companies to go public by rolling into a listed shell corporation and typically have a faster timeline than a traditional initial public offering.

RTOs have emerged as the preferred route for most U.S. cannabis companies seeking to go public.

Curaleaf’s listing will be the biggest-ever RTO on the Canadian Securities Exchange (CSE), the exchange said.

Curaleaf, which owned 28 dispensaries in nine U.S. states as of Sept. 7, is turning to Canada as a federal prohibition of cannabis in the U.S. makes raising capital there a challenge. It expects to increase the number of dispensaries in its network to 41 by the end of the year.

Currently, 49 companies with U.S. cannabis interests are listed on the CSE, out of a total 106 marijuana issuers, according to data from the exchange. U.S. cannabis listings on the CSE by RTO this year include retail chain MedMen Enterprises and Green Thumb Industries.

Even though marijuana remains illegal under U.S. federal law, the United States is the world’s biggest cannabis market, with California alone expected to have sales of $5.1 billion this year, according to Arcview Market Research. Companies are eager to get a slice of that pie.

Investment banks GMP Securities and Canaccord Genuity are leading the offering.

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The day was historic for the country as Canadian adults can now legally smoke recreational marijuana after nearly a century-long ban. But provinces and businesses have struggled to prepare, and legalization was pushed back from a July start to enable setting up distribution and sales networks.

Despite the early problems, the move is a political win for Prime Minister Justin Trudeau, who vowed to legalize cannabis during his 2015 election campaign. The pledge was aimed at taking profits away from organized crime and regulating the production, distribution and consumption of a product that millions of Canadians consume illegally.

“The prohibition on marijuana has not worked in this country,” Trudeau told reporters in Ottawa. “Young Canadians have the highest usage of marijuana anywhere in the world… criminal organizations and street gangs make over $6 billion a year on the sale of marijuana across the country… That needs to stop and that’s exactly what we have done.”

The federal government and many provinces have been cautious, starting with limited stores and products, including no edible cannabis products for a year, and tight control over supply.

In many parts of the country, particularly those with few stores, much of the legal sales action was online, as consumers flocked to websites run by provincial governments and licensed retailers to buy legally, despite a few days’ wait for delivery and extra charges.

The online stores using Shopify’s e-commerce software across the country were processing more than 100 orders a minute, and had millions of visitors in the first 12 hours, an external spokeswoman said. Some websites ran out of popular products.

“What changes is that now I can use it openly, without people coming and challenging my right to use it,” said Peter Hasek, a music teacher who grows the plant at home and was attending an end-of-prohibition party at a downtown Toronto coffee shop.

To him, that is more important than access to legal product, he said.

Not your typical stoners

Ontario, home to Canada’s most populous city, Toronto, will have no stores until April 2019 due to a change in the province’s retail model by a new provincial government.

British Columbia will have both private and government stores, but has yet to issue any private licenses. In Vancouver, the City Cannabis Co. dispensary, which is licensed by the city and awaiting provincial retail approval, was still operating, despite a government suggestion earlier this week that existing “gray market” shops close until fully licensed.

Consultants in pressed black aprons served a mostly older clientele browsing varieties of dried cannabis and bottles of tinctures.

“Most of our customers are professionals, not your typical stoners,” said general manager Alex Orantes.

In Kamloops, at British Columbia’s only legal shop open and run by the government, a line started forming at 6 a.m., CBC reported.

Marijuana enthusiasts in St. John’s, N.L. kicked off legal sales at midnight, with over 100 people lining up outside a Tweed-branded store owned by Canopy Growth Corp .

Canopy CEO Bruce Linton rang in the first sales to residents Ian Power and Nikki Rose.

Shares of Canadian cannabis companies retreated on Wednesday after rallying in the run-up to legalization. Canopy and Aurora Cannabis, the world’s two biggest cannabis producers, closed down 4.3 per cent and 2.9 per cent, respectively, after touching all-time highs on Tuesday.

Even in provinces with more shops, many shelves are expected to soon be empty because of a shortage of product. A study by the University of Waterloo and the C.D. Howe Institute economic policy think tank found legal supply will satisfy less than 60 per cent of demand in the early months, although that will change as production increases.

Police ‘not champing at the bit’

Separately, Public Safety Minister Ralph Goodale on Wednesday said the government would waive the fee and waiting period when people who have been convicted of possession of up to 30 grams of marijuana apply for pardons, after they’ve served their sentences. The legislation will be introduced by the end of the year, he said.

Law enforcement of those driving under the influence of marijuana could be patchy. In August, Canada approved a device to detect levels of tetrahydrocannabinol (THC), the psychoactive element in cannabis, in a driver’s saliva.

But many large police departments will forego the $5,000 device, Adam Palmer, president of the Canadian Association of Chiefs of Police, told reporters on Monday.

Draeger Safety Canada, which makes the device, has shipped some units, but a two-week federal funding delay has put further orders on hold. It expects demand for between 300 and 500 units through March, managing director Rob Clark said.

Canada has invested $274 million to enforce new laws and some provinces have allocated their own funding, but Palmer said police will not crack down on illegal stores right away.

“When the law changes on the 17th, we’re not going to see a big change overnight,” Palmer said. “Police aren’t … champing at the bit to go out and start raiding stores.”

— Reporting for Reuters by Nichola Saminather in Toronto and Julie Gordon in Vancouver; additional reporting by Chris Wattie in St. John’s, Rod Nickel in Winnipeg and David Ljunggren in Ottawa.

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For some time companies including Canopy Growth, Aurora Cannabis and Tilray Inc. have been signing export deals with European governments, buying local companies, even opening production facilities in the region.

This year, they have also stepped up pitching their businesses to European funds at conferences and road shows, betting their size and first-mover advantage will help replace fickle retail investors with more stable institutions.

Canada was one of the first countries to approve medical marijuana in 2001, and legal recreational sales will begin in October.

Until now, though, Canadian firms have had little success in drawing institutional investors because of high valuations and lingering concerns about the future and legitimacy of the industry — particularly in the United States.

Executives say institutions are moving cautiously and acknowledge it will take time before their efforts translate into substantial investments, but cite some early results.

For example, while Tilray’s Nasdaq initial public offering in July primarily went to North American investors, 12 per cent of the $153 million offer was taken up by funds from London, Frankfurt, Sydney and Hong Kong.

Brendan Kennedy, CEO of Tilray and executive chairman of private-equity firm Privateer Holdings, which remains Tilray’s majority owner, said he met with more than 200 institutions, many in Europe, ahead of the listing.

“Some of the investors who participated in the IPO, they would’ve been unimaginable eight years ago, of course, but a year ago as well,” Kennedy told Reuters.

One of those to take part, albeit with a symbolic stake, was global investment house Fidelity International, which bought around 0.15 per cent of Tilray shares across several funds.

Canopy’s latest financing deal, a $500 million convertible debt offering in June, was only pitched to institutions and drew about 60, mostly new investors, with a third coming from Europe, CEO Bruce Linton told Reuters.

A significant shift toward a more institutional and diverse investor base, however, has yet to happen.

A Reuters analysis of publicly available shareholder data shows Canopy has just four Europe-based active investors that use a common long-term investing strategy, in contrast to 102 for Goldcorp, a similarly valued Toronto-listed stock.

Still, investors, organizers and executives say this year’s events mark a step up both in turnout and a shift to institutions compared with recent years when European conferences would primarily draw retail investors.

Michael Barnes, professor of neurological rehabilitation at the University of Newcastle and chief medical officer at Scythian Biosciences, said plans to relax rules later this year in Britain, home to many of Europe’s top investors, could unlock institutional demand.

“I think we’re close to a tipping point.”

In February, Canadian financial services firm Canaccord Genuity hosted Britain’s first medical cannabis conference in London aimed solely at investors and attended by more than 100 fund managers, family office representatives and wealthy individuals. Three months later, another conference organized by advisory firm Prohibition Partners with Canaccord as one of the lead sponsors drew 450 participants, according to the organizer.

“A couple of months in cannabis is like two years in most industries,” said Tristan Gervais, who leads Canaccord Genuity’s cannabis investment banking and corporate broking in Britain and Europe.

Different kind of cash

On the face of it, Canadian cannabis firms do not need cash. In anticipation of a surge in sales after October and more medical marijuana approvals worldwide, the valuations of the five biggest Canadian companies have soared to about $43 billion, even though most have yet to turn a profit. Yet most shares are held by retail investors, which brings price volatility that complicates planning and expansion.

“It’s smart strategy to… bring in institutions who will be with us as we expand,” said Cam Battley, Aurora’s chief commercial officer.

Aurora last year bought Pedanios, which supplies marijuana to German pharmacies, and also operates in Denmark and Italy. Canopy has operations and partnerships in Germany, Spain and Denmark.

For now, North American investors remain the main source of institutional capital.

Despite a federal ban, the U.S. is also by far the biggest legal market, accounting for almost 90 per cent of the $9.5 billion in global sales in 2017, according to research firms Arcview Group and BDS Analytics.

But Europe, projected to become the world’s largest medical cannabis market by 2028, could become a key source of funding.

Over 20 European countries allow medical marijuana, providing incentives to invest in Canadian firms, which account for the majority of operating licenses in Europe and about 70 per cent of its imports, according to Prohibition Partners.

The group predicts annual sales in Europe will reach 116 billion euros (C$175.9 billion) by 2028, with growth of 40 per cent a year.

Prohibition Partners’ founder Stephen Murphy said the Cannabis Europa conference attracted alongside fund managers also executives from sectors such as pharmaceuticals, healthcare and insurance.

Constellation Brands, a U.S. producer and marketer of beer, wine and spirits, set a high bar when it raised its stake in Canopy by $4 billion in August.

Among European investors to take their first step this year is Felix Wintle, fund manager of the London-based 15-million-pound (C$25.56 million) VT Tyndall North American Fund.

Wintle said the fund had about three per cent of its portfolio invested in Canopy Growth and Tilray, though lofty valuations made it tough to justify buying more.

“It’s a fascinating time for the sector because … you’re coming off prohibition, basically,” he said. “You don’t often get opportunities like this.”

— Reporting for Reuters by Nichola Saminather in Toronto and Simon Jessop in London; additional reporting by Joshua Franklin in New York.

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