By Oren Shuster, CEO, and Director, IM Cannabis Corp.
With over 83 million people, Germany is the most populous country in Europe. It’s also the continent’s strongest economic engine with a $3.8 trillion GDP – the fourth largest after the United States, China, and Japan in 2020. This powerhouse nation is slated to introduce adult-use recreational cannabis legislation in the coming months. The new legal framework will decriminalize certain aspects of cannabis possession and sale and control country-wide consumption through the distribution of licenses, potentially forming a giant new market and taking over Europe’s cannabis capital.
The latest German cannabis-related statistics provided by the Federal Association of Cannabis Business in Germany (Bundesverband der Cannabiswirtschaft), published September 19, 2021, states that the quantity of cannabis flower imported to Germany for medical and scientific purposes increased by over 80% in the first half of 2021, compared to the same period last year. In the first half of 2021, 8.96 tons of cannabis flowers were imported, compared to 4.94 tons in the same period in 2020.
In addition, 980.4 kg of dried cannabis flower for medical consumption was imported in the first half of 2021, which was required to produce extracts. In the same period last year, the amount was 820.3 kg, representing an increase of approximately 19.5%.
If the European Union’s history is any indication, what happens in Germany rarely stays in Germany. Instead, the country’s legal decisions tend to reverberate across Europe. This is why the legalization of adult-use recreational marijuana in Germany will likely redefine the segment’s future across the continent.
Why now?
In a post-Merkel world, with Olaf Scholz serving as the new Chancellor of Germany, the cannabis industry has a new champion in its corner, driving new cannabis policy. His party, the Social Democratic Party of Germany (SPD), is in the Bundestag in a coalition with the Free Democratic Party (FDP) and The Greens – dubbed the “Traffic Light Coalition” – a direct translation of the German word: Ampelkoalition. So far, all Traffic Light parties have agreed to legalize adult-use recreation cannabis.
Note that private cannabis consumption in small amounts is tolerated by German law today. And since 2017, medical use has been legal. However, while the legalization of medical use was a giant step in the right direction, in the last four years, the market did not expand as fast as it could due to a few factors.
First, the hesitancy of physicians to write prescriptions – it takes time to move a traditional establishment in a new direction. German law that requires hefty paperwork to get permissions and insurance coverage has not helped either. Then came Covid-19 and supply chain hurdles, negatively affecting medical consumption. But at the same time, the collective German mindset about marijuana use has rapidly changed. According to Statista, in 2018, around 37% of those aged 15-34 used cannabis. As more and more governments legalize marijuana use, medical or recreational, we see a collective increase in the acceptance of cannabis use.
Key questions remain
The Traffic Light Coalition’s push to legalize recreational adult-use cannabis is a positive development in terms of generating tax income and meeting people’s growing demand for this freedom. But “legalization” can mean different things, in theory, and practice, and we have yet to see the details of a future bill.
EU Good Manufacturing Practices (GMP) requirements are part of Germany’s medical cannabis market and may again come into the picture for the recreational market. These practices include quality system requirements to personnel, outsourced activities, premises, and equipment requirements. They also have documentation, production, defect, and recall procedures. Unfortunately, it takes time, effort, and resources to receive EU-GMP approval, and there aren’t many EU GMP-approved operators in the world.
Suppose EU GMP does not become a requirement for recreational production and sale. In that case, many operators from other parts of the world, including Canada and Latin America, and European operators, will likely enter the market. Many of these cultivators boost low-cost production models, capable of achieving production of as little as 10 cents per gram. That said, the quality of products produced by these cultivators remains a question.
Other aspects impacting the size and pace of growth of the recreational market are import rules, the definition of points of sale – pharmacies or dispensaries – the latter doesn’t exist in Germany, potential limits on personal use (i.e., THC levels or the number of grams a month), health insurance coverage and the licensing requirements. Additional questions remain: How many licenses be available? Will licenses be limited to cannabis-only shops? Will Germany deploy a pilot program in a specific area first, or will the bill cover the entire country right away?
Regardless of the above issues, any potential bill will need approval in both the Bundestag (where the Traffic Light Coalition was formed) and the Bundesrat – the legislative body representing the sixteen states of Germany at the federal level.
A look into the future
Although rapid legislative change seems likely, as the new government will want to demonstrate a strong will and a kept promise, health and other challenges stemming from Covid-19 may impede the pace of legislative activity.
On a more personal note, many international operators, among them IM Cannabis (IMC), are paying close attention to the developments in Germany. As IMC already operates in the German medical market and possesses the required EU GMP license, we believe a legal German adult-use market will result in massive business opportunities. Our goal is to channel further our Israeli expertise, patents, cannabis user data, combined with our vast experience in Canada operating within the legal and sophisticated recreational cannabis market framework, to Germany.
Other European nations will likely follow any German approval. In that case, our German facility will serve the whole European market, preparing for further recreational demand.
About the Author
Oren Shuster is CEO and Director of IM Cannabis (NASDAQ: IMCC, CSE: IMCC) and brings more than two decades of proven entrepreneurial experience in founding and growing med-tech and technology/software companies industries.
Before IM Cannabis, Oren co-founded E-wave with a vision to create an international tech company that provides software solutions for enterprises in digital, IT, HR, and medical technologies. His vision was realized fully, and today, E-wave is a global software house that employs 1,000 professionals with operations in the U.S., Canada, Brazil, India, and Israel. In addition to a successful entrepreneurial track record, he also has held executive positions at companies within the telecom and digital media industries.
