Patient numbers in Australia are going in only one way – up. As of last month, the Australian government reported that it had approved a record 3,594 cannabis prescriptions in October 2019 – or about twice as many as it had approved in only July.
As patient numbers have grown, plans have proceeded afoot Down Under to capitalize on the growing willingness in Australia to accept that cannabis is not only medicine – but can now be prescribed by regular GPs – as opposed to specialists. Not to mention exported to a global medical market suddenly looking for high quality product at affordable prices in far afield places.
Leafcann is one of the companies in that elite territory right now. The new approval by the government for the expansion of facilities to both produce and research cannabis will double the company’s facility somewhere in Adelaide (the location is not being disclosed for security reasons). The new facility will also be the first in the world to produce oil from plant genes and distribute the same to patients.
But they are not the only ones. According to the latest market report by Aussie-based Fresh Leaf Analytics, the numbers of patients domestically are set to jump dramatically again next year.
And as the Australian market mushrooms (indeed European farmers are fielding interest from distributors from the region lately), will the Aussies, rather than any EU-based rival, become the first real global competition to the Canadians first in the race on the flower front?
Don’t count on that. There are too many contenders now for quality cannabis all over Europe for low priced medical cannabis from Down Under to be able to do any more than secure a few early harvests. See the activities of Aphria in the UK for example. Or the proclivities of Lexamed and a few other distributors in Germany.
However, what this development clearly shows is that the Aussie market for oil is not only driving large and well-funded production at home, but also having a knock-on effect internationally.
Whatever else is going on, in other words, the Australians are not only gearing up to go big on the weed front domestically, but driving the market for oil just about everywhere. Starting with CBD.
Don’t Bet The Farm On Aussie Production
Looking at what is going on, in fact, by the numbers, it appears that the Australian market is getting going in ways impossible for their northern brethren. In part that has to do with both Australian federal and state legislation.
It also, when you look at the numbers, is still a market dominated by less than THC medical grade product – the vast majority of patients are still only receiving CBD and most of them in oil form. Australian cannabis bound for pharmacies is also so far clocking in far closer to European prices than Canadian – in part because Canadian companies can ship directly to patients. Australia is also following a European distribution model. And recreational is off the table for now (at least until New Zealand does it). In the meantime, the medical business is proceeding apace.
This means two things: CBD oil is going nowhere either in or outside Australia unless it is either GMP or Novel Food certified – and that takes cash up front. Regardless, will the Aussie market look financially like the salad days of Canada’s medical market? Do not count on it. The flameouts of public companies if not volatility of the public sector, not to mention the growing longevity of the legal biz is creating other paths to financing. Including the fact that most savvy investors at any rate understand that price sensitivity is in the room from the beginning.
So yes, there certainly have been and will continue to be large, well-funded, corporate Aussies – indeed that is the shape of the future just about everywhere. But don’t expect the corporate playbook to be the same as the ones played by the Canadians so far.
This year, there were two firsts in a convention already looking to the future with digitalization – itself a huge issue in not only the European medical space, but Germany in particular. There is a national obsession with privacy auf Deutschland that does not exist anywhere else.
Beyond digitalization, however, medical cannabis was also a major theme this year. Many of the largest producers and distributors showed up in force. So did the smaller, newer ones. There are now 19 licensed importers in the country – and quite a few of them showed up in Dusseldorf last week.
Beyond that, the expo also saw the birth of the VCA – the Verband der Cannabis versorgende Apotheken e.V (German Cannabis Pharmacists Association). This is a group of pharmacists who are on the front lines of the medical cannabis revolution on its most complicated, expensive and paper-laden end, determined to make their voices heard.
According to Tobias Loder, the owner of Luxe 99 Apotheke in Cologne and one of the organizers of the VCA, “There is huge interest in our association.”
For those of American extraction, at least, there has yet to be such a conference anywhere in the U.S. simply because of the lack of acceptance at the federal level of cannabis as medicine. In Canada, and elsewhere, national pharmacy chains are already getting into the action.
Germany, however, remains the strange, and as a result, most interesting exception.
In Düsseldorf this year, despite added traffic and a great deal of excitement, cannabis as medicine was, as the press attendant said as he handed out the Cannabis Industry Journal press pass, “par for the course” and “no big deal.” Even though of course, the generation of all the interest and intrigue.
The drug is, while still highly stigmatized, on its way to legitimacy here. And in a decidedly normal, Deutsch weg (way).
The Inside Skinny On What Is Changing For German Pharmacists
As revealed during the Denton’s medical cannabis conference in Berlin in late September (about a day before the news hit the expo floor in fact), things are indeed changing at the last mile of the regulated cannabis path. Why?
Within the next thirty days, doctors will be able to prescribe up to 100 grams of floss (dried cannabis flower) or cannabis oil by the gram per patient prescription. That means that patients can indeed go to the doctor every three months – and that there are in fact more regular users in the system. This is also an indication that the supply chain is also beginning to normalize – although there is a huge demand so far unmet by supply. And as a result, while two of the three bid winners are now getting down to cultivation, imports are still the name of the game.
On this front, things are also changing. Cannabis just came into the country from Portugal. Other countries lining up to import include not only Canadian producers, but those from Spain, Malta, Greece, Australia, South Africa, Columbia and of course, Israel.
This is also a step towards international normalization on the pharma side. Schedule II narcotics in the American system are dispensed every 90 days.
The rules about pharmacy mark-ups are also in flux. One of the reasons, for example, that medical cannabis has been so expensive is that, up until now, at least, pharmacists were required to mark up such product 100%. That is also changing. In fact, the Federal Union of German Associations of Pharmacists (ABDA) and the National Association of Statutory Health Insurance Funds (GKV Spitzenenverand) have had to agree on a new surcharge that is expected to see significant and immediate savings of a projected 25 million euros.
It is not a casual argument or discussion. One of the reasons that the German pharmacy vertical has remained so strong and resistant to buyouts and consolidations is that by law, owners are limited to no more than three (and in so far one case discovered by CIJ in Bavaria) four brick and mortar pharmacies. The reduction in this preparation surcharge means that pharmacies will have to find ways to become more efficient. That is also a concern for the VCA, who, among other things, are looking to reduce their own overhead costs while gearing up to serve more patients.
Digitalization, innovation and more, in other words, is on the table. And German pharmacists, for one, are not only on the front line – but stepping up to the challenge.
The German cannabis cultivation bid may be mostly done and dusted (although the last four lots are now up for legal challenge) but the drama is only intensifying on the ground in Germany. Namely, where is the cannabis being consumed on the ground now actually coming from?
For the past several years (in fact since 2016 when a Frankfurt-based start-up called Medcann imported the first Canadian medical cannabis into the German market in partnership with Canopy Growth), the conventional wisdom has been that Holland and Canada were the only two countries allowed to import medical cannabis into the country.
As is usually the case in the cannabis industry, when it comes to such things, there were also multiple and highly creative explanations about this strange state of affairs that sounded oddly exotic enough to be plausible. This is after all, the international cannabis business.
These explanations also usually referenced conventional industry “lore” including such tall tales as these two countries were not signatories to an international drug treaty (not true), to being European (nope) or even a member of the EU (also completely false).
Yet there was always something strange with such urban legends – perpetuated by insiders across the German industry. Starting with a deliberate vagueness about details. Especially as in the summer of 2017 when Tilray announced grow facilities in Portugal, and by the end of it, Canopy was moving into Spain, and later by early 2018 Denmark and more. Italybegan to appear on the radar of multiple big Canadian companies. Clearly all these big companies seemed to know something that those outside did not. See Greece. Not to mention the teeth-gnashing of the Israelis– repeatedly shut out of the German market by not being allowed to export by their own government until Christmas Day, 2018.
The mystery deepened in March in fact, as a furore rocked the German-based cannabis industry over the last weeks. Farmako, a new, Frankfurt-based distributor, not only announced that it was importing 50 tonnes of cannabis into the country– and from Poland (where production of such bulk has not even been seeded) – but then gave additional details on a Bloomberg appearance that appeared to indicate that in fact the medical cannabis they were already selling (sourced from other places) had come from Macedonia.
Certification, and most certainly paperwork are the name of the gameIn fact, no such transfer of cannabis had occurred from the Macedonian side (yet), although the firm in question at the other end of the deal was subjected to considerable harassment in the German canna-specialty press in the meantime.
The news, that occurred right at a time when Tilray is clearly training pharmacists for the German market, the first bid is concluding, Greece issues even more cultivation licenses, Canadian companies are clearing still stepping up their production game, and South Africa is also getting into the formal licensing act, with all sorts of interesting things afoot in Uruguay, also set off what appears to be an official investigation of the firms involved at the governmental level.
Insiders are tight lipped and nobody is willing to talk on record. However, the distribution firm, Farmako, has subsequently reported that in the month of March, they became the top selling cannabis specialty distributor in Germany. And since they are not out of business, it is also clear that while their PR may have been a little premature if not easily misunderstood, the broader message is very obvious.
What is also very clear at this point, in other words, is that the German door for cannabis and the international industry appears to be opening to product sourced from many places. Further by extension, the German government is in the process of recognizing foreign GMP certification processes from multiple countries all over the world as being equal to its own – at least on the cannabis front.
In fact, this has been going on relatively quietly for the past six months or so.
What Are The Standards, Certifications, and Qualifications?
A press release from January of this year, issued from an Australian firm called MCA, announced they had accepted the first letter of intent to ship to a German firm (in 2020). The company is currently accepting pre-orders as it finishes construction and achieves EU GMP certification. The same (female founded) firm was also present at the ICBC in Berlin this year in March, reporting that German demand from a universe of local distributors was already greater than they could fill. The news that their first sale went to German firm Lexamed, the controversial German wheelchair distributor who helped bring down the first German bid, was also largely unremarked upon at the time by most of the industry press and in fact, ever since.
In truth, it appears that the countries and companies that have the right to import to Germany must first have their own national GMP certification recognized as being equal to German standards – or a so-called Mutual Recognition Agreement (or MRA) must exist between the importer and exporter nations. It still means that to be really EU-GMP compliant, inspectors have to walk your cultivation floors. But first your country has to have the MRA. And that is a matter for lawyers and regulators to decide.
In the Australian case, the GMP equivalence for cannabis production apparently became reality within the last six months although no one is giving exact dates. In the case of Macedonia, this is pending, with German inspectors now apparently scheduled to begin inspecting domestic cultivation facilities within the next month to six weeks.
The biggest news, of course, which makes even more sense on the heels of Canopy’s latest “record breaking” U.S. acquisition, is that the EU and the U.S. will enter into an MRA in July that was finally agreed to in February of this year. This will also mean that cannabis “medicines” potentially even beyond CBD, produced via U.S. GMP processes, will be allowed to enter Europe if not Germany in the near future – and from the U.S. for the first time. Ahead of federal legalization in the U.S.
It also means that Israeli and American firms will be allowed to enter the European and thus German market for the first time (on the ground with product) by at latest, the third quarter of this year.
Caused By The Bid….and Likely Shorter Term Outcomes
What the events of the last several weeks make clear is that the bid is not only insufficient for demand, but the authorities are officially, if quietly recognizing the same. There are already rumours about the next cultivation tenders in Germany, and there is a high likelihood that other countries (see Poland in particular) may also follow suit shortly.
Further, the difficulties in making sure that not only countries but the companies based in the same remain compliant with EU and further German sanctified EU- GMP processes (for one) is likely to be an issue that continues to bubble. Why? It is a problem already in the broader pharmaceutical market here.
The Plusses and Minuses of The News
The first thing that is also obvious is that even Wayland cannot source the entire German market with the product it has begun to grow here no matter who ends up with the last four cultivation licenses this time around. Further, that the other winning bid firms (Aphria and Aurora as known at this point) without cultivation on the ground, are sourcing from somewhere that is also probably at this point, not even Canada. No matter how much expansion is going on in Canada, in other words, what is now entering the German market may bear a Canadian brand but could just have easily been sourced from almost anywhere in the world.
That also means that enterprising firms (see Australian MCA) can skip the Canadian introduction to the German market and sell directly to local producers before they even have crops on the ground, as well as the burgeoning German cannabis distributors across the country.
For such firms now wanting to enter the market, however, it is not all clear sailing. The events of the last few weeks clearly show that the government is watching, including reading English language industry press, and willing to pursue any firms it deems are breaking the rules on both sides of national borders.
Certification, and most certainly paperwork are the name of the game, as well as greater accuracy in company intentions (even if in the near term).
Disclaimer: Nysk, the Macedonian firm referred to in this story, is a sponsor of the MedPayRx pilot to market program
According to a press release, Helix TCS and its subsidiary, BiotrackTHC, are expanding internationally at a rapid pace. The seed-to-sale traceability software solution now has customers in the United Kingdom, Canada, Colombia, Jamaica, Australia and New Zealand, in addition to the United States.
According to Zachary Venegas, executive chairman and CEO of Helix TCS, Inc., Vicente Fox will help serve as a strategic advisor for their continued expansion abroad. “”We are honored to welcome former President Fox to our Board of Directors and to benefit from his strategic vision and global network,” says Venegas. “His addition is a significant multiplier in our further expansion into key production markets that we expect to become dominant cannabis export hubs that will require our full suite of services.”
According to Venegas, they are prepared to meet the needs of a globalizing cannabis economy. “As international markets develop and more countries create a legal cannabis industry, our technology and service solutions will continue to reach new markets quickly to meet the needs of businesses and regulators in any regulatory environment,” says Venegas. “We are very excited to see the progress of legal cannabis on the global stage and we look forward to continuing to play a vital role in enabling a transparent and secure supply chain.”
This collection of leaders in the European cannabis market is by no means completely neutral. Much less comprehensive. It is however, German and European centric, because these people, by definition and geography, are now sitting at the nexus of a global, and even within Europe, international industry. Europe for that reason, will be the place, and for some time, where the global cannabis industry comes to make deals across borders, meet the high levels of compliance required here that is setting global standards and push the medical revolution forward for (at least) the next five to ten years.
For that reason, the people listed below carry influence far beyond one country or even region, by definition. But they are also not the only people redefining an industry.
Most notably, of course by their exclusion, are women, although there are some exceptions to that and women are increasingly establishing their place at high executive levels although not yet founder or cofounder or, auf Deutsch, Geschäftsfüherin– (Managing Director) at any of the establishing global companies with European presence. That said, they are beginning to make their appearance in every place and career path within the industry.
Movers and Shakers
Dr. Pierre Debs, Ph.D. An American expat with a German Ph.D., and twenty five plus years’ experience in stem cell research, including endocannabinoid system function. Debs is also the often uncredited individual who opened the current medical market in Germany in particular, but with immediate impact throughout Europe. As the scrappy start up MedCann, Debs, his cofounders and a skeleton team based just south of Frankfurt, not only got into the game first, they beat other established companies to obtain the first import license for Canadian flower in the summer of 2016. Including and most notably Tilray. MedCann GmbH at that point became the only other company besides Bedrocan, the perennial Dutch provider for the last twenty years to be able to provide medicinal, GMP-certified flower to the German market. That market distinction of course, did not last long as other companies quickly jumped into the ring but as the medical brand of Canopy, Debs has continued to lead industry development across Europe. Today, as the Geschäftsführerof Spektrum Cannabis GmbH (as MedCann was renamed after its purchase by Canopy sometime in Q4 2016-Q1 2017) and as Canopy Growth Corp Managing Director Europe, Debs has not only established but currently oversees operations in multiple European countries as Canopy Cannabis expands its global medical brand. From, it should also be added, its swanky new digs in central Frankfurt.
Tjalling Erkelens, Bedrocan founder and CEO. Bedrocan is the legacy cannabis player here in a game that is rapidly changing as it expands. The first exporter of medical cannabis in the world, the family owned company currently produces five different cannabis strains bound for the medical market, and is expected to be the beneficiary of the newly expanded import quota into Germany from Holland for medical grade flower, as well as place well in the German cultivation bid.
Gerhard Müller. The unassuming Chair of the Audit Committee of Wayland Group, the cannabis company formerly known as Maricann. Müller is less often in the English-speaking press than Ben Ward, company CEO. However, Müller is a force to be reckoned with as Wayland begins to unfold its usually understated strategy in Germany and Europe from its Munich HQ base. Müller is the former head of Ernst and Young’s GSA Tech Practice, also adding household names like Birgit Homburger and Christopher Peterka to Wayland’s German Advisory Board. Also of note is GM for Wayland Germany Josef Späth now tasked with bringing his connections and previous experience as a top, internationally experienced clean tech architect and engineer to the build out of Wayland’s infrastructure. This includes previous work with NASA Jet Propulsion Lab alumni to develop new techniques for harvesting and processing of cannabis. German ingenuity and engineering at its best!
Patrick Hoffmann, CEO of Aurora Deutschland (formerly Pedianos). This firm too, was one of the early start-ups to get into the distribution and cultivation game and so far they have proven to be adept at navigating the complex path to winning cultivation rights. Aurora placed in the top ten finalists for the last German cultivation bid. As Pedianos, the firm won the first distribution and cultivation deal for Italy, sourced via Berlin. They have already proven to be highly skilled at finding market advantages in an exploding European market puzzle.
David Henn, CEO of Cannamedical Pharma. The millennial at the front of the cannabis import and distribution craze in Germany, founded his start up in November 2016. Henn then obtained one of the first issued licenses for trading and ex-im of medical cannabis just as the law changed in Germany officially to mandate insurance coverage of medical cannabis by prescription. Since then, the fiercely independent entrepreneur has turned down multiple acquisition offers from companies in Canada, Israel and Australia. The Cologne-based company supplies a growing network of German pharmacies and entered into off-take agreements with major companies in Europe, Canada and Australia. Bolstered by its cash flow in the existing distribution business, Cannamedical is continually expanding and has already established European subsidiaries that are in the progress of obtaining additional production and distribution licenses for the company.
Peter Homburg. Partner, Denton’s Law Firm. Peter has already had an established career as a high-powered partner and the head of the firm’s Life Sciences Division. Yet like many people of different paths and persuasions, he began to explore the world of the legal end of the business several years ago. These days, albeit based in Frankfurt, he has helped establish the firm’s reputation internationally as a leading law firm in the cannabis space.
Rob Reid. Reid wears several influential hats based out of his offices in London. As the director of publicly listed, SOL Investments Corp (formerly Scythian), he invests in the U.S.-based cannabis industry. He is also the co-founder of European Cannabis Holdings (ECH), which is investing in a portfolio of private medical cannabis companies on this side of the pond. He is also the co-founder of Prohibition Partners, the increasingly prolific market intelligence and consultancy firm, and Cannabis Europa, a conference and networking platform. Finally, he is involved in a number of cultivation JVs around the world.
Marla Luther. As co-director for Tilray Europe (along with Sean Carney) and based in Berlin, Marla has the most senior leadership title of any woman in the cultivation and distribution industry in Europe. She has also been in the position for the last several years.
Alex Rogers. As the founder of the International Cannabis Business Conference (ICBC), Alex has established perhaps the first truly international cannabis conference brand catering to the professional end of the regulated industry but retaining the soul of the advocacy movement. The Berlin conference going into its third year in 2019, literally reset the standards if not stage for the next upgrade of the industry conference concept. Within a year of its first international conference in Berlin, Alex and his team had also established conferences in Canada and are establishing the B2B conference of Spannabis under their rubric in Barcelona as of next year.
The Canadian cannabis community has just gotten a new member. Tree of Knowledge, Inc. just became Canada’s newest public cannabis company. The company is also planning on raising $10 million in private placement capital. According to the company’s most current pitch deck, the planned use of proceeds includes $6.5 million for new capex expenditures in Canada and Macedonia plus new product development. The rest is slated for patient and doctor outreach including via social media, new hires and working capital.
Who Is Tree of Knowledge Inc.?
Founded originally in Washington State in 2015, today TOK has a global market presence with CBD products on three continents and is already positioning itself to run with the big boys on the international scene, just on its CBD footprint. In the online marketplace, they are doing business as EVR CBD. That includes state markets in the United States, Europe, South America, Australia and China.
The company also has a distinguished board that includes doctors to former professional sports stars. As of April, the company engaged in a reverse merger with Courtland Capital, a Nevada subsidiary company.
And as of July 2018, the company purchased 5% of NYSK Holdings – a rapidly establishing Macedonian start-up with an eye to the European market – starting with Germany.
Who Is NYSK Holdings?
NYSK Holdings is absolutely on an upward trajectory. The company, founded by Americans with strong ties to the home country along with local partners, broke ground in Skopje, Macedonia last year.
Company principals have been exploring entry into the European market ever since (Macedonia may be in the Balkans, but it is technically not part of the EU). Significantly, this also means that producers there are used to meeting European specs for import purposes, if not hopeful EU inclusion.
Like other EU partners in the west however, (notably Spain and Portugal) labour rates are also much lower than in Germany. This creates a new avenue into the EU and the German market, which is now going to be an import-dominant one until 2020.
What is even more interesting about NYSK? They produce GMP-certified product – both THC and CBD. They have been looking for partners for most of this year. They also had a booth at the ICBC in Berlin, an experience that they found highly satisfactory.
Their strategic importance to TOK is also large. NYSK brings, for the first time, THC products and high-tech processing capacity adjacent to the European Union to a firm with a global footprint.
They might, in other words, have been Europe’s most under-priced production facility. Don’t expect that to last long.
What Is Interesting About The Move
One glance at TOK’s founders, board, andadvisors is enough to establish that this is a company of mostly older Gen X and younger Boomer heavy hitters from other industries who are pooling resources and knowledge to step into a global medical cannabis space. Smartly.
For example, the focus on dosing control, trials and an operational, GMP-certified production facility in Macedonia, plus their Canadian footprint, makes TOK and their partners well suited for “European invasion.” So does their first product – a CBD-based sleep aid.
This creates, in other words, a company with Canadian and Macedonian production, American entry and global reach, including into countries other cannabis companies have so far not breached (see China), with an interesting, low-cost, lower risk entry profile. Their expanded market entry is also occurring right at a time when Europe, including the about to be Brexited UK, is now moving forward on medical reform sans very much local production.
Perhaps this comes from the experience of the principals. TOK Cofounder Michael Caridi started his involvement in the cannabis industry in Washington State in 2014 after a successful real estate and promotions career on the East Coast (New York) and experience in ex-im. However, Caridi rapidly grew disillusioned with the state’s focus if not an obsessionon a more recreational space than medical users. He and Brian Main, now president of US operations, founded TOK a year later. Current CEO, John-Paul Gaillard, has a history that includes the creator of the Marlboro Classics brand and a stint as the CEO of Nestle Nespresso who put the idea on the map if not kitchen counters globally.
No newbies here when it comes to global market strategies, penetration and experience.
The International Cannabis Business Conference (ICBC) in Berlin is now officially over. The speeches have been made, the parties have been attended. The hard-working crew behind it all has wrapped up, checked out and is off to Vancouver. And most of all, the marathon of meetings and deal discussions that were the mark of this budding and certainly by now established market are done. Even if there are still details to be ironed out in all the new business in the coming months.
As always, the dilemma for conference attendees was how to spend the limited time in this concentrated cannabis gathering. With all of the networking and excitement, people still wanted to hear the experts who spoke on topics ranging from cannabis financing to actually doing business in Germany to new medical advances. Traffic in the expo section was also heavy, as attendees visited the wide range of vendors. Producers and distributors of both plant and derived product were present, along with vape companies brave enough to compete with Storz and Bickel on their own turf, various tech solutions and of course, international consultants.
As the dust clears and the contracts get signed, what are the takeaways from the second edition of the ICBC in Berlin?
Germany Is Going Green
The simplest takeaway? The ICBC Berlin is not a market to be missed in the future for the global cannabis executive. Even if you are an American firm (and for the most part still largely excluded from a rapidly expanding worldwide trade that is establishing itself now with authority), you need to be here. The contacts you make are global, and you do not want to be left out. For foreign investors interested in this market, it is a must. For everyone else, this is a meet and greet, not to mention education, barnone. The German medical and even prosumer CBD market is attracting the world.
Yes, there have been ups and downs even in the last three weeks that include the crashing of the German bid along with news stateside that the Trump Administration is going to hang Jeff Sessions out to dry for Russia with his latest “Make American States Great For Cannabis Again” contortion.
But here on the other side of the Atlantic, it is clear that the federal cannabinoid horse has left the barn. There are now rumorsfloating that the bid is not yet entirely dead (now apparently in a legal purgatory of appeals and even potentially “bid amendments”) that nobody is willing to go on record to discuss. Beyond that, however, as was clear from the frenzied deal-makingon the floor and off it at the ICBC, the market is open, distributors are finding new channels to move product, and patients demanding access are not leaving the streets.
Far from it. In fact, the budding nascent umbrella national non-profit campaign designed to open access for patients and educate doctors, The German Patients Roundtable, had a huge second meeting during the conference, with both German and international attendees from countries including Israel and South Africa.
The CBD and THC genie cannot be stuffed back into the local bottle. And everyone knows it. This is federal medical reform, and even better, covered under German national public health insurance. Despite the hiccups and challenges that still remain, this is open blue water for a medical market that has never existed anywhere to date.
Anyone with a GMP facility, Euro cleared export rights and crop or product ready to ship will be welcome here in a market that at this point, cannot get enough plant or oil. Edibles are still a to-come discussion.
To the extent that this is also negative, it is very clear that the market is still highly inefficient. Producers who do have productare not being found by those on the ground who want to sell it to patients. That will also begin to change. But for now, many on the ground are playing a digitalized Rolodex game of “who do you know” that still consists of personal emails between conference-met colleagues if not LinkedIn contacts and impromptu (and freebie) favors. Those who hope to gain an income merely by connecting the source of product and outlets the old fashioned way are also about to be left in the dust by a market that will not be held back and activist businesses who are eyeing both the United States and Canada right now (if not Israel and Australia), and translating all of that into both euros and German.
It is also very clear that the savvy Germans who were largely left out of the bid proceedings last time do not mean to sit this party out – and are angling to get into the game however they can. This is taking some interesting forms, but processing and testing are going to be huge issues of the market here for a long time to come. And so is home-grown, high-quality CBD. The German government is even offering tax credits for growing certain kinds of hempright now. Sound familiar Kentucky?
Trends and Takeaways
It is not just the Canadians who are going to get market share. The Canadian LPs are still in a good position to dominate the early market but it is clear that there is still room for others to enter. Whether the government allows an appeal of the court’s decision to hold up, there is a quick bid “redo” for the top 10 finalists, or a second bid, the market has now arrived and is in its second year.
CBD is going to be an important path to other kinds of provision and cultivation. Despite the widespread misconceptions about Germany being a “CBD only” market (it is not), it is clear that a consumer CBD only strategy will be an interesting path into the market here but not one for the faint of heart. The Canadian companies in particular are beginning to move into the realm of big pharma (their market caps certainly are). But it is also clear that more local competition is hip to the same. And as a result, even this part of the market will be a highly competitive one.
German firms are first at this gate, beyond the big Canadian LPs, but they are not the only ones now in the market. See Dutch, Austrian and Swiss firms, many with pharmaceutical company credits and market entry already under their belt. Not to mention producers from both Greece and the Baltics. Everyone on the import side is eyeing the opening market and stalled bid as a fantastic opportunity. Look for products from these locales as testing and certification protocols become more effective.
Central to all of these developments? The conference is theplacefor the global cannabis industry to meet and get to know one another, put together by Alex Rogers and a seasoned, international team behind the ICBC.
Disclaimer: Marguerite Arnold has just raised the first funds for her blockchain-based company, MedPayRx in Germany (and via traditional investment funding, not an ICO). She will also be speaking about the impact of blockchain on the cannabis industry in Berlin in April at the International Cannabis Business Conference.
You have probably heard of cryptocurrencies, tokens and smart contracts. You might have also heard, even if you did not understand the significance, that IBM recently suggested that the Canadian government use their form of blockchain, called Hyperledger, to track the recreational cannabusiness. Or that a large LP called Aurora is also looking at this space (as are other licensed producers large and small). Or maybe you have seen an item in the mainstream news about an ICO for a cannabis company that is now also going terribly wrong.
What on earth is going on?
These are all related issues, even if highly confusing and disjointed. Blockchain technology and cryptocurrency are hot right now and getting hotter – both in the mainstream world and in the cannabis industry globally. But for all its fans, the drumbeat for caution is also growing louder the more mainstream this technology (and the legitimate cannabis industry) becomes.
The many problems the entire cannabis vertical has with banking has make this current development almost inevitableOn the technology and finance side, that is why so many big names right now are urging caution. Nouriel Roubini, professor at NYU’s Stern School of Business, is just the latest to do so – and for reasons that everything to do with history. Including recent history ten years ago, when the world stood on the brink of a financial disaster thanks to unchained derivatives. The biggest worry in fact, right now, is about the financial implications of widespread adoption of the technology, beyond the tech itself and how it may (and may not) be legitimately used. Which itself is a huge question.
So why all the fuss?
This is revolutionary technology which is also being introduced into the market at a time when decentralized processing for automation is on the horizon. But also because blockchain can be used to create tokens or digital coins that act like financial instruments. And once created, such tokens can be issued much like money or even stock, to raise additional funds – for both start-ups and ongoing enterprises. The best thing though? This technology was invented to create a decentralized form of value exchange and trust-less, anonymized auditing and verification. No traditional financial institutions or even governments needed, wanted or should apply (at least in theory).
The many problems the entire cannabis vertical has with banking has make this current development almost inevitable. Not to mention accessing investment cash (although this is certainly changing outside the United States). Compliance issues in every direction are another wrinkle this tech will help solve. Starting with tracking product but also rapidly expanding to uses including protecting users’ privacy and facilitating access to high-quality, inspected product for qualified users and buyers. Not to mention other areas that are literally space-age but coming fast. Look for cool stuff coming soon involving both AI (artificial intelligence) and IoT (internet of things).
It is a fascinating, complex space. However, one aspect of this world, in particular, Initial Coin Offerings – or ICOs are getting attention right now. Why? They can be an incredibly efficient way to raise money for companies – both ones currently in business and start-ups with little more than a whitepaper or business plan and perhaps a working prototype. More and more of the successful ICOs are, however, for an existing company or are even attached to an asset, including a license, a prototype or a fund of money (or other combinations). They also rely on blockchain and alternative currency or tokens (sometimes also referred to as smart contracts) to work.
From a technology perspective, you can “mint” new coins relatively easily these days, sourced from a variety of different kinds of blockchain. Or even combinations thereof. You also can issue tokens or altcoins without an ICO.
In a world where there is vastly expanding cannabis opportunity, and many of these hopeful entrepreneurs are both digitally astute but without access to traditional capital, what could be better?
From a financial and investor perspective, ICOs are a hybrid form of an IPO meets social media. “Coins,” “tokens” and “smart contracts” –or cyber currency collectively– are digital forms of cash, contracts, membership cards, discounts or even authorizations for identity. There are many ways tokens can be used, in other words. This by way of saying there are also important differences too. Not all tokens are the same. Not all are used as “money.” Some are but have assets assigned to them (like real estate). Others, particularly smart contract tokens, are strictly functional (pay funds when product is delivered and verified). The one caveat here is that the exchange of any token or altcoin will also cost money. Why? It is the electricity cost of computer processing the request for transfer. Plus access and service fees. There is no such thing as a “free” token. How tokens are priced, sold, bought, maintain value and for what purposes, is a debate if not process function that will not be solved anytime soon. Starting with the fact that some blockchains are more energy efficient (and sourced from green energy) than others.
To add to all of this confusion, not all ICOs function the same way. Some do give investors ownership in the company or specific portfolios that even include real-world assets. Others offer to use pooled funds to buy assets (like real estate or an expensive license). Many rely on the “coin” issued as a kind of discount scheme, reward mechanism and in many cases, direct discounted payment for future goods and services, of both the digital and real world kind. Many offer banking services directly, including in the very near future, the ability to exchange cyber cash for the fiat variety at even remote ATMs. Sound futuristic? It is coming and soon.
Most ICOs in the market now, however, rely on the following supposition: Issue a token with a unique name. Put up an ICO website. Encourage investors from anyplace on the planet with an internet connection, to use either crypto or fiat currency to buy tokens in the issuing startup as an investment that will give the new company funds to operate and build out services or the application (whatever that is). Also, plan to use the tokens for an exchange of some kind in the future (either for other coins or a good or service). Watch the value of the coin increase (for whatever reason) while informing investors (or contributors) that this is not really a security but a “utility” token that is expected but not guaranteed to become more valuable. Retire early with the prospect of having brokers of expensive real estate in places like London and Dubai come calling.The public tide of opinion, even if regulations are slow to move, is on the side of reform if not outright advocacy.
That will not be the case for the vast majority of ICOs, however, no matter what returns, goods or services they offer. Even if they also have vibrant communities already using their services (whatever those are). It will not be the case for most of the cryptocurrencies upon which such ICOs are based (most at the moment are based on Ethereum, NEO, Hyperledger or combinations of the three). There will be more of those too. And not every blockchain will make it (cryptocurrencies and tokens are based on an origin protocol or blockchain much like computer operating systems are either PC or Mac or mobile phones are Android or Apple). Some speak to one another well. Most do not “exchange” easily – even between themselves – let alone back into good old cash. And while nobody wants to be the Betamax of blockchain, there will, inevitably, be quite a few of them. When that happens, any economic value of the coins and even contractual relationships created with them disappear as well. Add in extreme price volatility in the current market pricing of these tokens, and you begin to get a sense of the risk profile involved in all of this.
The real hurdle, not to mention expense, comes when transferring back from the world of crypto to the one of fiat (regular money). Being a Bitcoin billionaire (there are about 1,000 individuals who own about 40% of the entire global Bitcoin issuance) is no fun if you have no place to spend it.
A Rapidly Changing Marketplace
In the past 18 months, cryptocurrency and ICOs have gotten increasing attention because of the increasing value of all kinds of cyber currency (far beyond Bitcoin). The total market cap for all forms of cryptocurrency itself zoomed past $700 billion at the turn of the year. That is impossible to ignore. You might have heard of some of these currencies too. There is ETH, Litecoin, Bitcoin Cash, Dash, even Dogecoin (created originally as a joke on an internet dog meme). Right now, in fact, at some of the most expansive exchanges, there are literally hundreds of these coins which are constantly bought and sold if not exchanged and used.
And then there are the sums ICOs are bringing in some cases, flagrantly flaunting regulatory agencies and doing end runs on the global banking system that cannot keep up with them. The top ICO of 2017, a company called Block.one and registered in the Cayman Islands, so far holds the record at $700 million and counting. Filecoin, the second largest ICO last year, raised $262 million in one month from August to September. And then, of course, there is the cannabis industry-specific case of Paragon – now headed for class-action lawsuit litigation over their $70 million pre-and ICO sale intentions.
It would be logical to assume, given the eye-watering sums potentially involved not to mention the large role a smart digital media footprint has to do with an ICO’s success, beyond its service or technology offerings, that this would be a perfect place for cannapreneurs to turn for funding. The global market is opening for cannabis reform at the same time the crypto craze meets Fintech Upheaval is occurring – in fact, these two things are happening almost simultaneously.
Thanks to regulatory realities and an ongoing stigma, there is still no institutional investment in the industry in the United States (that is rapidly changing other places). These are two new industries and dreams are large.
In the legit cannabis space, so are the expenses.
The price of opening a dispensary in most U.S. states tops a million dollars right now. In Europe, the price of entry is even more expensive. A GMP compliant grow facility in Western Europe, plus the money for lawyer’s fees and negotiations for the license itself will set you back anywhere from $20 million and up, depending on the location. Even staying afloat in the industry once the doors are opened is a challenge. And loans, even for outstanding invoices, are still tough to come by in an industry where banking services of the simple business account kind are a challenge. Particularly in the United States.
The public tide of opinion, even if regulations are slow to move, is on the side of reform if not outright advocacy. Why shouldn’t a reform-group-rooted ICO aspire to own or provide ongoing business financing to a community-minded canna farm in California, Canada, Germany, Israel or Australia? Or even Greece?
However, right now, with some noted exceptions, the cannabis business remains at minimum, a dangerous place to consider issuing altcoins that act like financial instruments or raise money with them. Why and how?
Today, Tikun Olam announced their expansion into the Washington, D.C. market. Partnering with the cultivator, Alternative Solutions, they will license them to grow, manufacture and distribute Tikun-branded products.
Tikun Olam is an international cannabis company with roots in Israel, where they are working in clinical trials to produce strains targeting a handful of medical conditions. The company has made serious investments in the United States market previously, with operations in Delaware, Washington and Nevada, and has plans to enter the Rhode Island, Maryland, Massachusetts and Illinois markets in 2018.
The five-year licensing deal signed with Alternative Solutions is the latest development in their expansion plans in North America. They also have similar partnerships developing around the world, including in Canada, Australia, United Kingdom and South Africa.
Tikun plans on having their full line of products ready for distribution with Alternative Solutions in the Washington, D.C. market some time in 2018. “Alternative Solutions is thrilled to be Tikun Olam’s exclusive partner in DC,” says Matt Lawson-Baker, chief operating officer of Alternative Solutions. “We look forward to making Tikun’s products available at all DC dispensaries, giving access to these clinically proven strains to the more than 5,600 registered MMJ patients in Washington DC.”
Bernard Sucher, chief executive officer of Tikun Olam, says he is excited to get working with Alternative Solutions. “Its cultivation and manufacturing operations will make it possible for Tikun to serve every single patient in a single jurisdiction–a first for us and something we hope to accomplish within every U.S. state. “
As of early September, Canopy and Spektrum also announced their next strategic European move. They have just entered into a supply license agreement with Alcaliber, S.A., a leading Spanish pharmaceutical company. Alcaliber specializes in research, as well as the development, breeding and preparation of plant-based and other raw materials into narcotic medicine. More significantly, it is already a leading company in the global pharmaceutical and narcotic space.
According to Bruce Linton, chairman and chief executive officer of Canopy Growth, the partnership opens a lot of doors. “This agreement gives us additional resources to aggressively enter the European market where federally permitted by law, while we continue to work to establish our own complimentary production footprint for cannabis cultivation, value-add oil extraction and Softgel production in the European Union,” says Linton.
Alcaliber is one of the largest producers of morphine in the world (27% of global production) and supplies 18% of its codeine. Cannabis is also considered a narcotic drug in Europe. This kind of track record is exactly what governments are looking for as they figure out how to integrate cannabinoids as medical products into existing pharmaceutical production and distribution. They are equally excited about the possibilities this partnership brings, according to Jose Antonio de la Puente, chief executive officer of Alcaliber. “There is a clear demand for pharmaceutical cannabis produced in accordance with pharmaceutical standards and the expertise we have developed manufacturing narcotic derivatives for over 40 years,” says de la Puente.
The agreement is also the first of its kind between a Canadian cannabis company and a separate, established, international pharmaceutical company. The fact that Alcaliber is located in Spain (albeit Madrid and not Barcelona) makes this new alliance even more interesting, and for several reasons. Not just in Europe or even Canada for that matter.
In the EU? GW Pharmaceuticals, the only other existing pharmaceutical manufacturer and grower of cannabis in Europe, and based in the UK, just got major European if not global competition.
And then of course, there is what is going on Down Under. Australian and Tasmanian companies moving into the game now (with pharma connections, background in opioids and a global footprint) as the medical market in Australia begins to take shape, are about to go head to head with the Canadian-Spanish-German alliance now forming on the other side of the world.
Cross-Continental Plays Are Now Forming
Just as in the U.S., Europe is turning out to be literally a state-by-state chess game of legalization, regulation and supply. Unlike the U.S., however, European countries are bound by both European law and in some cases, sub-regional agreements – like what exists in the so-called Schengen States.
However, even here, the new world is graduating into federal and regional law. And how that will play out in Europe, where the focus is still largely on medical use, is going to be interesting.
What does this mean for Canada’s largest LP? A strong, multi-country presence in the medical cannabis space that, strategically, is par to none other. There are other Canadian LPs who are planning production facilities in other EU countries of course. And some Canadian companies who appear to see Europe as one giant export market. Germany is just one of them. However, the German-Spanish connection is interesting for several reasons: The two most interesting markets globally right now from both a strictly medical perspective with a clear pathway to much broader acceptance as it transitions into some kind of recreational reform, are Spain and Germany. While the former has not signed up for full-boat medical acceptance, the recent independent assertion by the Catalonian government that they would formalize the cannabis club system is seen here as one more step towards the inevitable. So are ongoing and significant Spanish medical cannabis trials.
This move also gives Canopy and Spektrum something else: access to much cheaper Spanish labour and production. This means that no matter where they grow their crops in Europe, or process them, the company now has a two-country supply system for a multi-country medical market that is just waking up. And that is highly valuable right now.
It gives Canopy direct market entry into several European states, with federally approved, medical grade cannabis and medical products. Those who are coming to the rest of Europe from a Spanish base only, will not at this juncture meet strict medical growing requirements for the German market for starters. On the Spanish side of things, this also means that cannabis clubs might be pressured to stop growing their own (at least outside of Catalonia) and rely on more corporate entities to actually grow and process the plant.
What Does This Mean For Euro Industry Development?
Canopy, strategically, has been at the forefront of interesting strategic plays in the global industry for at least the last 18 months to 2 years. They have eschewed the American market (unlike other Canadian competitors) in lieu of other game elsewhere. However their current expansion strategy, geolocationally, has clearly also been at least 12 to 18 months ahead of just about everyone else.
The cross-country chessboard game is also something that other Auslander (foreign or international) companies are clearly trying to play, particularly in Europe. This is true of both actual cannabis production and distribution entities as much as tech. The hop-scotching of both Leafly and Weedmaps across the continent in search of a business strategy that makes sense is just another face of this. Advertising rules in Europe, including online, and especially for cannabis, are a lot different from say, California state law.
However what Canopy appears to be doing is establishing both a brand and production presence in a way that guarantees not only European entry, but potentially dominance in the medical market as the market here continues to expand and open up.
What they are also doing with this announcement is telling the German government, for one, that they can supply patients in the EU with EU-sourced product, even if not grown or produced in Germany itself. This alone will help keep prices down as German cannabis production gets underway over the next several years.
It will also help Canopy deal with what is expected to be at least supply pressure as of next year as the Canadian recreational market gets underway. There is a very good chance that Spanish grown cannabis might end up not only in the rest of Europe but will also be shipped back to Canada if the supply problems there are severe enough.
Whatever the end result, this is an interesting alliance, and coming at an interesting time for not only the German cannabis industry, but a regional market as well. And further, it is also clearly a play with not only hemispheric implications but global ones.
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