German cannabis firm shares pop after new government pledges to legalize the drug

Canopy Growth

Tom Franck | CNBC

Shares of German cannabis company SynBiotic rose sharply on Thursday shortly after the incoming government pledged to make the drug legal.

The Munich-based company’s shares were up 33% to 29 euros ($33) on the Frankfurt stock exchange. The company now has a market cap of over 100 million euros.

A deal was reached on Wednesday between the center-left Social Democratic Party, the Greens and the Free Democratic Party that will see them govern together in a three-way coalition for the first time. The so-called “traffic light” coalition agreed on plans to legalize the sale of cannabis for recreational use to adults in licensed shops.

Led by Lars Muller, SynBiotic wants to use cannabis compounds to treat conditions like chronic pain, stress and sleep issues. Cannabis has a number of negative side effects depending on its strength, the frequency it is taken and the individual.

Tech investor Christian Angermayer told CNBC via email Thursday that he owns 45% of SynBiotic’s shares.

“The biggest profiteer [of German cannabis legalization] is my cannabis platform company SynBiotic, which is the only German listed cannabis company — and one of the biggest ones in general,” Angermayer said.

Angermayer has invested in a company called ATAI, which is trying to develop drugs that can be used to treat mental health conditions. ATAI’s shares popped 40% on its Wall Street debut in June but they’ve since halved in value.

Alexander Galitsa, an analyst at investment bank Hauck and Aufhauser, wrote in a note to clients on Thursday that the German cannabis market is poised for “explosive growth” in the coming years.

Galitsa pointed to studies that suggest cannabis legalization could generate between 3.4 billion euros and 4.7 billion euros of annual tax revenue, while also creating an estimated 27,000 new jobs.

“Evidently, this is excellent news for SynBiotic who has already established a strong position in the European cannabinoid market and especially in Germany,” he said.

“Thanks to its first-mover advantage in Germany and a broad coverage of the value chain, SynBiotic is ideally positioned to benefit from the regulatory changes and to establish itself as the European market leader,” Galitsa added.

Recreational use of cannabis in Canada was legalized in late 2018 and the annual revenue has already exceeded 2 billion euros, Galitsa said, before adding that Canada is home to significantly fewer people.