Following the German cannabis reform movement is like watching a snowboard jump competition. We launch into the big jump with lofty promises, only to face the difficulty of gaining meaningful, immediate momentum at the bottom of the halfpipe. Nevertheless, we persevere through smaller political moves that set us up for more advanced regulatory jumps, all the while believing that broader cannabis legalization requires sacrifice and the skills to navigate the course properly.
The Cannabis Act is a significant step forward. Although we rarely get exactly what we want, it holds promise for the EU-GMP cannabis producers that have invested heavily in creating a global, pharmaceutical-grade market.
Reforms to Medical Cannabis in Germany
The Cannabis Act proposes reforms to how doctors prescribe cannabis, removing the narcotic designation that stigmatized prescriptions and created liabilities for doctors. If passed, doctors and telemedicine groups will be able to prescribe cannabis for almost any condition without fear of lengthy paperwork or the stigma of controlled substance liabilities.
This framework is reminiscent of early medical programs in the USA and Canada. In these countries, obtaining a prescription for cannabis became steadily easier as patient-driven demand took over. As we can see, the cannabis industries in these nations have flourished.
Home Cannabis Cultivation for German Citizens: A Small Step Forward
Allowing citizens to grow three cannabis plants at home is not monumental. However, it is a strong symbolic statement about how accessible the cannabis plant should be to the broader population and is the first step toward a decriminalization bill.
This Act signals growing national acceptance from politicians and a shift toward treating the plant as a right for all Germans. Though small, this change needs applause from both institutional cannabis producers and the cannabis advocates that have fought so hard to bring it to fruition.
Cannabis Social Clubs in Germany
Social clubs are a completely unproven economic model, reminiscent of “coffee shop” models paired with small legal grows to service the club. These social clubs are a legal version of those around Barcelona and mirror proposals in Malta and Switzerland.
Though novel, the social club model is a positive shift toward a smaller-scale adoption of cannabis. It addresses a niche market for flower connoisseurs and appeals to cannabis entrepreneurs who want to explore their green thumb. The effect on the illicit market is yet to be seen, just like home grows, but progress here sets us up for the next move.
Looking Toward German Dispensaries
Cannabis institutional investors and producers are all looking towards the next step: American- and Canadian-style dispensaries that allow any adult to walk into a store and purchase a high-quality, regulated product. These establishments will likely compete directly with the illicit market and produce the capital necessary to push cannabis toward national legalization. Although not in the current text of the bill, all eyes are on the future as we celebrate our progress thus far.
The Cannabis Act Holds Promise for the Future
There is something for everyone in the latest Cannabis Act, whether you are a home enthusiast, advocate, members-only green thumb enthusiast or large-scale institutional player. This bill leaves little doubt that we are moving through the legalization course. There is much more work to come, but we are moving forward together and have hope for the future of regulated cannabis in Germany.
For U.S. venture capitalists (VCs), the burgeoning European cannabis market provides opportunities to break into the industry on the heels of adult-use legalization. Germany has set its sights on implementing a recreational market by 2024, and the country, along with several other European Union (EU) countries–Malta and Luxembourg–came together in September 2022 to draft a joint statement on why the EU needs a new approach to cannabis use for adult-use production, sale and consumption.
In October 2022, Germany took further steps to solidify its plans for legalization further when its Health Minister Karl Lauterbach presented a cornerstone paper on planned legislation to regulate the controlled distribution and consumption of cannabis among adults. Such actions have signaled to both the EU and the world at large that cannabis legalization in Germany is imminent, and the country is championing the new age of cannabis policy.
With the new German cannabis market soon to be on the horizon, both foreign and domestic VCs are considering how to best leverage investment opportunities into existing cannabis companies within the current medical-only market that will transcend into adult use. For U.S. investors, it’s important to do their due diligence to find the company that will transcend into the next progression of cannabis policy. In addition, European cannabis companies must do their own meticulous research when it comes to aligning with investors to meet both their financial and business goals.
How U.S. VCs Can Evaluate Investment-Worthy European Cannabis Companies
As with any investment, VCs benefit from researching the company and market they are planning to invest in. Regarding the company of interest, it’s important to examine which part of the cannabis market the company is serving: growers, retailers, ancillary products, service providers and biotechnology companies all exist as potential investment options within the space. An investor should look into a company’s annual revenue, evaluating whether it has increased, remained steady or decreased over time. Revenue growth is often provided on a company’s income statement.
In addition to making sure they have a thorough understanding of the business model and its value proposition, investors should also familiarize themselves with the company’s management team to make sure that they are knowledgeable and experienced in both running a company and the cannabis industry. For those interested in entering the German market, VCs should consider the businesses that are currently key players in the country’s medical cannabis industry and that plan to expand their services into the adult-use sector once legalization comes into play.
For example, Tilray, founded in 2014, was one of Canada’s first licensed medical producers. When Canada legalized adult-use cannabis several years later, in 2018, Tilray was one of the companies that successfully transitioned to expand its market share in Canada’s medical to the adult-use cannabis industry.
Another consideration for VCs is the reputation of the business and its leaders. Investors should seek out those who have become authorities within the industry and the movers and shakers who are providing key insights into the market. These business leaders should be front and center, discussing everything from current operations and compliance to cannabis policy and legislation to new endeavors and growing their businesses. With recreational cannabis legalization being a completely new endeavor for the EU, it is important for leaders within today’s European medical space to be visionaries for the next phase of cannabis legalization and be guides for creating regulations for this new market to be safe, sustainable and scalable.
In addition to executive teams, VCs should check if the business is meeting the current marketplace’s expectations and is ready to adapt and evolve as needed. This means that the company has access to a steady supply of high-quality cannabis at an affordable price and access to consumers (medical patients) and potential consumers. With adult-use legalization soon to be a reality in Germany, investors must consider which players in the medical-only market will be able to not only survive the transition but grow to become leaders in Germany’s new recreational market and within the EU as a whole.
What Do European Companies Look For in Terms of U.S. VCs
Just as VCs must find the right fit for them in terms of investments, cannabis companies must also align with investors that help them meet their financial and business goals. For cannabis companies, many seek to align themselves with VCs experienced in consumer, technology, and healthcare investments. While there are benefits to working with a VC with a cannabis background, companies should not deter investors who do not meet those specific criteria, as the cannabis market is still a fairly new and ever-transforming industry. In light of this, it’s important that investors approach opportunities with an open mind for both the industry’s current state and its potential.
As with most investments, both VCs and companies should be prepared to agree to a term sheet, a document that outlines the relationship between the investor and the business. An ideal investor would need to be supportive, well-connected, and add value by providing relevant business knowledge. While some investors seek a more hands-on role, in most cases, the VC’s support will not be equal to the business’s micromanagement or control of its day-to-day operations. Generally, those responsibilities would remain with the company’s executive team.
As an investor, it’s important to be supportive of the business; be a cheerleader for the company when things go well, and lift up the business when challenges occur. In addition, offering a network of referrals and strategies to excel is key to being a good asset to the business. Also, having a diverse portfolio of companies with synergistic opportunities can be very beneficial to growing cannabis businesses.
A question many investors ask before entering the space is how much in assets they should have on hand to be considered an eligible investment size. Typically, this depends on the business and its financial needs. Small profitable cannabis businesses that want additional financing may be able to secure a bank loan, if possible, in their home countries or seek a seed investment-focused VC for some capital. Leaders in Germany’s current medical-only market are seeking investors, both from the U.S. and abroad, to partake in Series A/B funding, seeking financial partners that can help them reach a goal of $20-80M USD.
European cannabis companies are within a high-growth market, so U.S. VCs looking to enter through investment do not have to go through a private equity firm. An investor can approach companies through networking or direct outreach. It is also important to note that investors do not have to convert their assets from USD to EUR, as it is done automatically when making investments. For the first time in 20 years, the USD and EUR are about equal, so now is a great time for U.S. investors to consider making the leap into European cannabis.
Canadian cannabis giant Tilray (NASDAQ:TLRY) announced its fiscal second quarter of 2022 results last week. The company reported net revenue of $155 million in Q2 which was an increase of 20% year over year. Tilray attributed these gains to its expansion in verticals that include alcohol as well as hemp-based wellness.
Despite an uptick in sales, Tilray’s gross margin reduced by 7% to $32.8 million as the Canadian cannabis market continues to wrestle with oversupply issues resulting in lower-priced products. Alternatively, Tilray claimed its cost-reduction program is running ahead of schedule and it expects to save $100 million by 2023, up from its earlier forecast of savings of $80 million.
Tilray reported a net income of $6 million in Q2, compared to a year-ago loss of $89 million. The fiscal second quarter was also the 11th consecutive quarter where Tilray reported an adjusted EBITDA. This figure stood at $13.8 million in Q2.
Tilray stock rose by 15% in the two trading days following its Q2 results.
What impacted Tilray in Q2 of fiscal 2022?
Tilray explained its Q2 results were solid as it has successfully built a cannabis and lifestyle brand. Further, the company continues to benefit from its scale, global distribution capabilities as well as operational excellence allowing it to increase sales and maintain profitability despite macro-economic headwinds.
The company enjoys strong brand recognition and is focused on ensuring an adept pricing environment. It also believes marketing adjustments will allow Tilray to aggressively capture market share going forward.
Germany is the largest medical cannabis market in Europe where Tilray has a 20% share. It’s well-positioned to capture the adult use cannabis market as well in Europe, if and when cannabis is legalized in this region.
Tilray, similar to most other producers aggressively acquired companies in the past. Its acquisition of the U.S.-based SweetWater Brewing and Manitoba Harvest provides it a foothold in the world’s largest cannabis market. These two companies have invested in product innovation to enhance awareness and distribution.
Further, SweetWater and Manitoba Harvest are profitable and provide Tilray an opportunity to launch THC-based products in the U.S. when pot is legalized at the federal level.
What next for TLRY stock?
During its earnings call, Tilray disclosed its new parent name called Tilray Brands. It reflects the company’s evolutions from a Canadian licensed producer to a global consumer packaged goods company with a leading portfolio of cannabis and lifestyle CPG brands.
Tilray aims to post annual sales of $4 billion by 2024 which is quite optimistic given analysts expect revenue to grow to $980 million in fiscal 2022 and $1.2 billion in fiscal 2023. In order for Tilray to reach its lofty goals, it will have to acquire other licensed producers resulting in shareholder dilution.
Germany is expected to legalize marijuana at the federal level, making it the largest country to do so in terms of population. Tilray already has an EU GMP-certified facility operating in Germany which can increase production capacity to accommodate demand from the adult use segment.
Bottom Line: Is Tilray Stock a Buy Post Fiscal Q2 Results?
While Tilray’s stock gained pace, following its Q2 results, investors should understand that it was estimated to report revenue of $171 million in the quarter. Despite the cost synergies enjoyed by Tilray, the adult-use market in Canada is crowded as well as highly fragmented and should consolidate in the upcoming years which will allow companies to improve the bottom line.
Tilray stock is valued at a market cap of $3.2 billion which suggests its forward price to sales multiple is over 3x. Unlike most cannabis producers in the U.S. Tilray continues to post an adjusted loss making it a high-risk bet at current multiples.
THC as of February of 2019, certainly in the recreational sense, was not much seen in either Switzerland or much of Europe. Even in Holland, the coffee shops were getting more regulated along with the supply chain for them. In Spain, the cannabis clubs thrived in a grey area. But outside of these two very narrow exceptions, the biggest, most valuable part of the cannabis market (medical and THC) was just as fraught with similar kinds of issues. And those were occurring not in Spain, Holland or even Switzerland, but just across the border, in Germany.
In fact, the real news on the industry side in Europe, as it had been for the past few years, was not the consumer CBD market, however intriguing and potentially valuable it was in the foreseeable future, but the medical, and “other” cannabinoid universe that included THC. And the real triggering event for the beginning of the European march towards reform was certainly influenced by what happened both in the United States and Canada as much as Israel. Where it landed first and most definitively was not Holland, circa 2014, or even Switzerland or Spain soon thereafter, but rather Deutschland.
The Canadian market without a doubt, also created an impetus for European reform to begin to roll right as German legislators changed the laws about medical cannabis in 2017. But even this was a cannabis industry looking to foreign markets that they presumably knew were developing (if not had a direct hand in doing so, including in Berlin, come tender-writing time).
Divorced from inside knowledge about moving international affairs, why did Germany – certainly as opposed to its certainly more “liberal” DACH trading partner Switzerland- suddenly turn up in the summer of 2016 as the “next” hot thing for Canadian cannabis companies?
The answer is in part political, certainly economic, and absolutely strategic.
Germany is in the EU, unlike Switzerland, and is a G7 country.6 It also was, by 2016, certainly much closer to legalizing federally authorized and insurer-reimbursed medical use cannabis. This was because sick patients had by this time successfully sued the government for access (including home grow). And the government, citing concerns about the black market and unregulated cannabis production (see Canada) wanted another option.
Not to mention was a market, certainly in 2016, helped with a little CETA inspired “juice.”
The international trade treaty between Canada and the EU (if not the other big treaty, the pharmaceutically focused Mutual Recognition Agreement (MRA) with the U.S.) has been in the back of the room throughout the entire cannabis discussion during the expansion of the Canadian industry across Europe. It is still unclear at this writing if the juxtaposition of CETA and the start of the Canadian cannabis trade had anything to do with lengthening the process of the German cultivation bid – but given how political the plant had also become, this was at this point more than a reasonable assumption to make.
As a result so far at least, since the beginning of the real German cannabis market in 2016 (namely the beginning of an import market from not just Holland but Canada) and Europe beyond that, Canadian companies have played an outsize role (starting with bankrolling operations in the first place). The growth of the Canadian market as well as developments within it absolutely spawned if not sparked the change if not beginning of the changeover within Europe by starting, of all places, with Germany.
But again, why Germany? And why the coalescence of the industry as well as other Euro hot spots outside its borders since then?
There are several explanations for this.
One is absolutely timing and strategic positioning.
Germany had, since 2015, begun the slow process of dealing with the medical cannabis issue on a federal basis, informed if not greatly influenced not only by what was happening in events abroad in Canada and the U.S. but also Israel. At home, there was also pressure to begin to address the issue. Albeit highly uncomfortably and at least in the eyes of the majority of centrist legislators, as far at a distance as possible.
Namely, patient lawsuits against insurers began to turn in favor of patients. Technically, between the turn of the century and 2016, patients could buy cannabis in pharmacies with a doctor’s prescription in Germany. But it was hugely expensive and beyond that a cumbersome process. Only 800 patients in fact, by 2017 had both managed to find doctors willing to prescribe the drug and could afford the €1,500 (about $1,700) a month to pay for it.
Everyone else, despite nobody’s willingness to admit it, found their supplies in the grey (non-profit patient collective) or black (street and largely criminally connected) market.
Günther Weiglein, a patient from Wurzburg, a small town in Bavaria, changed all of that.
In 2015, he won his court case against his insurer, claiming that even though he qualified as a patient, he could not afford the cannabis for sale in pharmacies. With that, he and a few patients temporarily won the right to grow their own (with permission).
Weiglein is the epitome of the German “everyman.” Blond, stocky and in his fifties, he has suffered chronic pain since a devastating motorcycle crash more than two decades ago. He has also taken to the cannabis cause with a dedication and singularity of purpose that sets him apart even from most other patient activists (in Germany or elsewhere). He is fiercely independent. And not afraid of expressing his desire for a “freedom” that has not yet come.
However, in 2015, there seemed to be several intriguing possibilities.
Indeed, at the time, it seemed possible, in fact, that Germany seemed poised to tilt in the direction of Canada – namely that patient home grow would be enshrined as a kind of constitutional right.
However, it did not turn out that way. Desperate to stem the pan European black market, which is far more directly connected to terrorism of the religious extremist and Mafia kind in these waters and to avoid a situation where Berlin became the next Amsterdam, the German parliament decided on a strange compromise.
On one level, it seems so predictably orderly and German. If cannabis is a medicine, then Germans should be able to access the same through national health insurance.
In fact, however, the process has been one that is tortured and has been ever since, not to mention compounded the difficulties of just about everyone connected to the market. From patients to producers.
“In practice it has so far not evolved quite so smoothly.”Here is why. The government decided that, as of passage of a new law which took effect in March 2017, the German government would regulate the industry via BfArM, the German equivalent of the American Food and Drug Administration (FDA), and issue formal federal cultivation licenses.
This makes sense from a regulatory perspective too. Cannabis can be used as a medical drug. Even if its definition as a “narcotic” – even on the medical side – leaves a lot to be desired.
This is especially true on the CBD part of the equation. It is even more particularly relevant for those who use THC regularly for not only chronic pain, but as an anti-convulsive or anti-inflammatory agent.
However unlike Canada, the German federal government also chose to revoke patient grow rights while mandating that insurers cover the cost of the drug if prescribed by a doctor. In practice also spawning a specialty distributor market that is still forming.
All very nice in theory. In this abstract world, these rules make sense for a pharmacized plant if not drug beyond that. This is the route all other medicines in Germany take to get into the market if not prescribed in the first place.
In practice it has so far not evolved quite so smoothly. Indeed, while understandable for many reasons from stemming the black market to setting standards, this rapid switch from patient or collective grown cannabis to requiring patients to interact with both a doctor and a pharmacy (beyond the insurer) with no other alternative also creates its own serious problems. For everyone along the supply chain. But most seriously and problematically for both patients and doctors.
As a strange year heads to a final, painful finish, there have been some major (and some less so) changes afoot in the global world of cannabis regulation. These developments have also undoubtedly been influenced by recent events, such as the recent elections in the United States, state votes for adult use reform in the U.S. and the overall global temperature towards reform. And while all are broadly positive, they have not actually accomplished very much altogether.
Here is a brief overview of the same.
The UN Vote On Cannabis Despite a wide celebration in the cannabis press, along with proclamations of an unprecedented victory by large Canadian companies who are more interested in keeping their stock prices high than anything else, the December 2 vote on cannabis was actually fairly indecisive.
Following the WHO recommendations to reschedule cannabis, the UN voted in favor of the symbolic move. Despite removing cannabinoids from Schedule IV globally, a regulatory label designed for highly addictive, prescription drugs (like Valium), the actual results on the ground for the average company and patient will be inconclusive.
The first issue is that the UN did not remove cannabinoids themselves, or the plant, from Schedule I designation. This essentially means that countries and regions will be on the front lines to create more local, sovereign policies. This is not likely to change for at least the next several years (more likely decade) as the globe comes to terms with not just a reality post-COVID-19, but one which is very much pro-cannabis.
In the meantime, however, the ruling will make it easier for research to be conducted, for patient access (for the long term), and more difficult for insurers to turn down in jurisdictions where the supposed “danger” of cannabis has been used as an excuse to deny coverage. See Germany as a perfect example of the same.
It is also a boon for the CBD business, no matter where it is. Between this decision and the recent victory in Europe about whether CBD is a narcotic or not (see below), this is another nail in the coffin for those who want to use semantic excuses to restrain the obvious global desire for cannabinoids, with or without THC.
That said, the vote is significant in that it is a test of the current trends and views towards big issues within the overall discussion, beginning with decriminalization and a reform of current criminal and social justice issues inherent in the same. The Biden Administration, while plagued with a multitude of issues, beginning with the pandemic and its immediate aftershocks, will not be able to push both off the radar. Given the intersection of minority rights’ issues, the growing legality of the drug and acceptance thereof, as well as the growing non-partisan position on cannabis use of both the medical and adult use kind, and the economy, expect issues like banking to also have a hope of reform in the next several years.
Cannabis may be taking a back seat to COVID, in other words, but as the legalization of the industry is bound up, inextricably, in economic issues now front and center for every economy, it will be in the headlines a great deal. This makes it an unavoidable issue for the majority of the next four years and on a federal level.
Prognosis in other words? It’s a good next federal step that is safe, but far from enough.
The European Commission (EC) Has Finally Seen The Light On CBD
This combined with the UN rescheduling, will actually be the huge boost the CBD industry has been waiting for here, with one big and still major overhanging caveat – namely whether the plant is a “novel” one or not. It is unlikely as the situation continues to cook, that Cannabis Sativa L, when it hits a court of law, will ever be actually found as such. It has inhabited the region and been used by its residents for thousands of years.
However, beyond this, important regulatory guidance will need to fall somewhere on the matter of processing and extraction. It is in fact in the processing and extraction part of the debate that this discussion about Novel Food actually means something, beyond the political jockeying and hay made so far.
Beyond this of course, the marketing of CBD now allowed by this decision, will absolutely move the topic of cannabinoids front and center in the overall public sphere. That linked with sovereign experiments on adult use markets of the THC kind (see Holland, Luxembourg and Denmark as well as Portugal and Spain right after that), is far from a null sum game.
Legal Challenges Of Note
Against this changing regulatory schemata, court cases and legal decisions remain very important as they also add flavor to how regulations are interpreted and followed. The most important court case in Europe right now is the one now waiting to be decided in the Court of Human Rights at Strasbourg regarding the human rights implications of accessing the plant.
Beyond that, in Germany, recent case law at a regional social benefits court (LSG) has begun to establish that the cannabis discussion is ultimately between doctors and their patients. While this still does not solve the problem of doctor reluctance to prescribe the drug, barriers are indeed coming down thanks to legal challenges.
Bottom line, the industry has been handed a nice whiff of confidence, but there is a still high and thorny bramble remaining to get through – and it will not happen overnight, or indeed even over the next several years.
Cannabis reform is proceeding globally right now in some interesting places, and in an oddly syncopated schedule yet again.
Namely, in the last few weeks, change has been moving forward not only in the U.S., but Europe too. That this effort in the EU came literally weeks before the American presidential election where as of now, no matter who will occupy the White House, even more states move into the adult use camp is also surely no accident. Particularly given the results.
In South Dakota’s case, voters agreed to legalize both a medical and recreational market in a single election. In New Jersey, the referendum that passed authorized a market that is moving quickly to get implemented. This is equally intriguing. Namely that to the average person right now, no matter where they are, the continued delays and gridlock to get going, no matter the problems along the way, are increasingly unpopular politically. That too, is showing up at the ballot box.
Indeed, cannabis reform is now absolutely one of the most pressing and yet unaddressed issues in several countries at present. See New Zealand (where the voter mandate for adult use reform failed during their Presidential election last week).
Europe Seems To Be Following New Zealand’s Caution As Germany Delays Further Reform But…
Last week, a proposal on adult use cannabis reform failed in the German Bundestag (Parliament). With the exception of the far right Alternativ für Deutschland (AfD), every other political party agrees that there needs to be forward motion on the topic, but nobody seems to want to fully address it. This is no surprise. Indeed, the recent appointment of a former German minister last month to a Swiss cannabis company seems, certainly in retrospect, to presage the same. As well as the many protest votes on the topic emanating from Berlin, one way or the other.
However, in the aftermath of what is expected to be a widely influential medical case here (namely the regional approvers may not interfere with a doctor’s right to prescribe to qualified patients), it may be that the government wants more time to grow its medical program while Denmark, Holland and Luxembourg (if not Spain) figure out the logistics on the ground.
Given that France has finally committed to a national medical trial to begin no later than the second quarter of next year, and further one where it punts the majority of the cost onto the industry itself, this would create a solid “medical cannabis” bloc in Europe’s most affluent states. Not to mention the first real, nationally authorized patient trial in Europe that is not commercial.
But even this is not the whole story. While dickering about the certifications and scheduling of the plant go on now at the highest international levels, let alone federal ones domestically, hemp products are clearly entering the consumer market here – from upscale CBD stores in city centers to hemp seed oil and hemp-infused mayonnaise appearing on the shelves of German mainstream grocery stores. Not to mention hemp infused alcohol of at least the vodka, gin and rum varieties.
And then of course there is Italy.
The Italian Market May Be The Dark Horse In Europe Everyone Has Been Waiting For
Within literally the month of October, all in public view, the Italian government circled on the topic of legalizing the CBD/hemp market. As of last week, the Ministry of Health finally decided that cannabidiol sourced from hemp is not a narcotic.
Given the fact that home grow now is not illegal, and medical cannabis is technically available, it would seem that Italy is positioning its hemp market to survive if not thrive at least domestically and further thread the needle of industry continuity against fluid and further rapidly changing European and international regulation right now.
In the meantime, like Germany, however, the country is clearly angling to create an industry infrastructure – and further beyond the pharmaceutical vertical – via “other” channels before taking the final plunge. Cannabis Lite fits that bill perfectly.
What Does This Mean For 2021 And Beyond?
No matter the official denials, it is very clear that recreational cannabis reform at the American and Canadian ballot box is moving the conversation forward globally, even if at a different pace.
With the WHO now poised to weigh in on the issue, more American states signing up, an expanding medical market across the world and adult use upstarts everywhere, 2021 is absolutely sure to be a meaningful year just about everywhere on the cannabis front.
The COVID-19 pandemic has certainly impacted the cannabis industry, no matter where you are. However, the impact of a global virus outbreak and subsequent economic recession has had a mixed impact overall on the industry, and further against a backdrop where the entire conversation of reform is also now an international one.
While the big international decisions were slowed down deliberately, as a result of the pandemic, there is a clear indication almost everywhere that this might also have been taken to allow countries to catch up to the inevitable.
Even in the world of cannabis there is a level of diplomacy. The good news of course is that as a result, the topic of reform is now on official agendas, and those are now moving forward with an air of authority.
As a result, here is a look at some of the most significant events that will impact the discussion long after this fall.
The WHO Vote In December Is A Massive Global Benchmark
There is little indication that the global health organization will punt on their reclassification discussion in December. This starts with the fact that Germany, ever cognizant of things like health management leadership is moving ahead with its medical program, full steam ahead.
Further, there are indications all across Europe that the individual countries where cannabis reform has clearly landed are having an impact on their neighbors, if not a more global discussion. European countries like France are quietly announcing medical trials to begin before the end of the first quarter of next year. And Italy just added hemp to its official list of medical plants. Bureaucracies do not move unless they have to, and in this case, they are clearly in transit on the cannabis conversation well beyond the interdiction only phase.
The New Zealand Recreational Vote Is Also Highly Important
Whether the Kiwis actually take this ground-breaking recreational decision across the finish line is almost immaterial at this point. The ballot measure is being decided during a national election within a week and further set against another one (the U.S.) where it is clearly not on the agenda in the immediate future.
That said, of course if the measure does pass, and there is late breaking evidence to suggest that it might, the bar, beyond whatever the UN decides, will have clearly been set.
With recreational reform, New Zealand will also join the ranks of Canada and Uruguay when it comes to this issue. If not, Luxembourg will most likely take this spot at the end of next year if plans continue to unfold as so far promised in country.
Without it, the country will join the many who are implementing plans to integrate the drug into formal medical infrastructure, which is far from a “loss,” at any level. That said it is a sign that individual countries, rather than regional or international bodies, will lead on the issue of reform and will continue to, no matter what the WHO does.
Regional Reform Is Shaping Up In Europe
Beyond this, of course, there are also signs that the issue of cannabis access, no matter what bucket it is being lumped into, is headed for a showdown in Europe on a regional level that has never been seen before.
The state of the Spanish industry now has a date with the European Court of Human Rights at Strasbourg over basic access issues. If that is decided for the plaintiffs, it will mean that not only will Spain be forced to formalize its own cannabis laws, but so will countries across Europe.
What that will mean for nascent recreational reform is also unclear, but at minimum, it spells good news for those who want to participate in the industry in a new way, and with a non-profit model so far not given much official traction across Europe so far.
Dr. Philipp Rösler, the former federal Minister of Economics and Technology and Vice Chancellor of Germany from 2011-2013 has just joined the board of Swiss cannabis company Pure Holding AG.
The move is interesting for a number of reasons, not the least of which is that it signals how political currents are moving in Germany, if not Europe beyond that.
To American eyes, Pure Holding looks like a very organized, corporate farm and cannabis manufacturer, organized to produce and test high quality cannabis, extracts and white label products for the coming storm of interest – no matter where European regulatory winds may temporarily go on hemp extracts.
Geopolitics At Play The fact that the farm is on the Swiss side of the border is also a signal that many Germans (at least) expect the EU to drag its feet on what kind of animal even low-THC and THC-free cannabinoids are while consumers vote with their pocket books across the continent and buy online imports.
The fact that Rösler is politically associated with the Free Democratic Party (FDP) of which he was also chair, is another indication that Germans in general are deeply upset about the slow movement of the CDU party (the Christian Democratic Union) on this issue (just like many others).
The FDP, like all other parties (except the extreme right wing Alternativ für Deutschland or Afd) has been much more forward about cannabis reform. That said, the party currently at the helm of the ruling coalition (CDU) has also been repeatedly accused of dragging its feet on the issue – no matter that medical cannabis was approved here as a therapy mandated for coverage by public health insurers.
The difficulties however that most patients have had to go through is not over. Reform has come here, but still for most, in name only.
The fact that Rössler was also a cardiothoracic surgeon before his stint in national politics is also a sign that the medical community is taking notice of the health effects of cannabis. That he was also federal minister of health of Germany (between 2009 and 2011 in Angela Merkel’s second cabinet) is also a clear indication that the topic of more cannabis reform is on the agenda at home in Germany, including Europe beyond that.
Even if, right now, certainly compared to what is developing in the UK, on a much slower boat to at least commercially accessible, low THC reform.
The Current Debacle Over Hemp In The EU
It is unclear what the fate of hemp is in the EU at present. With the region’s administrators coming to a legally non-binding and decidedly non-scientific holding pattern on “CBD,” (namely that it is a narcotic) it could very well be that the Swiss, English and importers from the rest of the world bring in flower, extracts and products that the region cannot keep out, but is not quite copacetic about embracing, just yet.
That said, with major health food producers now stocking hemp seed extract on the stores of major German grocery stores, it is clear that the worm is turning, one former politician and now board member at a time.
Why The Fuss Over Hemp At All?
The bigger debate is actually a scientific one. It boils down to parsing cannabinoids from the same plant correctly, while also understanding the role that they play together.
That this is now happening, roughly twenty years after the discovery of the human endocannabinoid system – and the recognition that the human body itself creates cannabinoids that are mimicked by external phyto (or plant sourced) cannabinoids, is a victory, even if a late one.
It also signals that at a high level, the debate about cannabis as a drug if not a tool for maintaining overall body wellness, is not abating, but indeed proceeding even as the debate stymies politically at a country-by-country if not regional level.
What Will Reform In The EU Look Like?
While the analogy is not exactly the same, and for a variety of reasons starting with the fact that European countries are sovereign and independent states of Europe and not part of a single federal country, it appears that cannabis reform will look very similar to the progress of the same as it has unfolded so far in the United States.
It is official. BfArM, the German version of the Food and Drug Administration and the federal agency with oversight of the national cannabis program, has approved Spanish medical cannabis imports into the country. Indeed, three German companies are now finalizing their paperwork to allow the transfer to be completed.
As Cannabis Industry Journal has learned, at least one of the companies on the Spanish side of the equation is the ever-interesting Alcaliber (Linneo Health). So far, the privately funded company has made smart, strategic business moves through a challenging transition period. With one of the few EU GMP-recognized licenses in Spain, it is a logical choice for German distributors in search of foreign-produced, but up-to-snuff product.
This is a positive and widely predicted turn of events as Germany begins to institutionalize its cannabis program at the next level. As of this fall, three producers will begin to distribute domestically grown cannabis in Germany. However, there is a clear need for a vibrant import market here and there will be for a long time to come.
Domestically grown cannabis, by design at least so far, was never intended to serve the entire base of medical cannabis patients in Germany. And Spain has been, from the beginning of the discussion, along with Portugal, Greece, Poland, Eastern Europe and of course Italy, an attractive market to produce high quality cannabis for export to (at minimum) Germany.
The European Ex Im Market Is Opening
While the Canadians still have an outsize impact on this market, that is clearly a period of time that is coming to an end. Indeed, Canadian produced cannabis is being turned down at the German border for quality issues linked to certification.
This is not a new issue. It has haunted the German market since 2017 and the beginning of the discussion about the German cultivation bid. But now it is official. Beyond Holland, and even Canada, in other words, lower cost cannabis is now entering the German market and from other European countries.
While Portugal and Denmark beat Spain to the punch, however, this is likely to be an impactful development for not only patients, but the entire price discussion. Distributors are clearly on the front lines of not only obtaining high quality cannabis (from somewhere), but meeting a price that is increasingly on the downward slide, just from the pressures of domestic production and the price structure created around the same by the German government.
Producers have been feeling the pinch, no matter where they are based, for at least the last 12 months.
The Impact On The Spanish Cannabis Discussion
It is unlikely that this development will not be duplicated by other Spanish companies vying for entry into the European and German markets. Spain has a thriving grey market cannabis economy in the form of Cannabis Clubs. It also, like Holland, has allowed a semi legitimate market as well as a distribution network to spring up around the same.
However, the times are also clearly changing. Holland is in the midst of regulating even its coffee shop cultivation economy as it becomes one of the most important exporters of medical cannabis to Germany. Expect the same trend in Spain, especially as Europe increasingly comes to the same conclusion as everywhere else. The regulated medical cannabis industry is great for economic development, especially for countries like Spain, with great weather and perhaps an overreliance on the tourism industry.
The Other European Producers Now In View Beyond Spain, Portugal and Denmark have the right to import medical cannabis to Germany. This list is expected to continue to expand as patient numbers grow. Because of the price restraints now placed on the entire market by the German government, however, entering the country with an attractively priced product that will pass muster, not only with regulators but doctors and insurers, is now absolutely the name of the game.
And that is of course, before the recreational and CBD topic even enters the discussion – and both are clearly on the agenda now, across Europe.
As Germany begins to enter a summer where life seems ever more normal, there are fairly major shakeups underway in the German cannabis market. These are structural but will have a profound impact on the entire market going forward.
A Mass Of Distribution Licenses It is an interesting metric to understand that before 2015, there were no specialty cannabis importer/distributors in Germany. As of July 2020, there are rumors that this number has now shot to close to 80 (either licensed or in the process to become licensed). That is a huge number. So was the last amazing number (40) as of the beginning of this year. Just the previous estimate would mean, literally, 1 specialty cannabis distributor for every 2 million Germans. That obviously is not sustainable. What it does indicate is the huge surge of interest in medical cannabis not to mention acceptance, as well as the amount of money actually now beginning to slosh around in the domestic market.
And that spells good news for both patients and insurers. The rest of the industry, however, will be under further pressure to reduce cultivation and operation costs to meet the challenge.How many of these distributors will survive is another question, particularly in an environment where the government is looking for just one to fulfil the needs of all of Germany’s pharmacies from what is grown domestically. This does not of course mean the end of specialty distribution. Indeed, far from it. There is not enough cannabis entering the market, presumably this fall, that is grown here to even come close to meeting demand.
No surprises here. This has been one of the enduring criticisms of the entire process, if not the bid itself since 2017.
However, one thing this does mean is that distribution fees, like pharmacy fees for processing the plant before them, are finally hitting a price adjustment phase.
This is also going to be good not only for patients, but also health insurers.
For all the standardization of the industry, including fees and mark-ups, one of the strangest things about the German cannabis market is how widely cannabis prices can differ even between pharmacies. This is as true of flower as it is of dronabinol.
The Wholesale Price Of Medical Cannabis Is Dropping Again, no surprise here, the government will end up buying more cannabis than contracted for under the original bid. This was actually anticipated in the language of the contract that currently exists between the government and the three bid winners. Namely, an automatic 50% reduction in price is mandated for any cannabis sold beyond the 120% agreed upon qualities.
The growers domestically, in other words, who won the bid will be under a severe price restriction. This may have been the ultimate strategy of the government to begin with (namely to attract foreign capital and expertise but then begin to reign in the sky-high prices of medical cannabis so far.)
This means that the price of €2.30 a gram will undoubtedly fall. Where it will float is anyone’s guess, but right now it appears on course to hit about €1.87. Or about the same price that other governments across Europe (notably Italy) had previously negotiated with the big Canadian cannabis companies (notably on this one, Aurora’s military contract in Italy).
Implications For The Import Market With domestic producers under the gun, this also means that all imports will begin to feel the price squeeze too. And that will also have a significant impact on point of sale cannabis prices.
And that spells good news for both patients and insurers. The rest of the industry, however, will be under further pressure to reduce cultivation and operation costs to meet the challenge.
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