Cannabis Business Europe 2022 – Key takeaways for the upcoming recreational legalization
The hottest topic at the Cannabis Business Europe 2022 last week in Frankfurt has been expectedly the upcoming legalization of recreational cannabis in Germany. Thanks to worldclassbusinessleaders for the organization of this insightful event. Thought leaders of the industry seem to agree on the legalization timeline; a draft proposal will be ready by the end of 2022, and implementation of the law by the end of 2023 / the beginning of 2024.
Regarding estimations for the new market demand, the expectations vary a bit. The total black market in Germany is estimated at 800 tons of flowers per year. In contrast, the Düsseldorf Institute for Competition and Economics estimates there will be a demand for 400 tons of flowers per year upon legalization. Cornelius Maurer, the founder of the medical cannabis company Demecan, expects a total sales growth of cannabis flowers of 28% from 2021 to 2028 if the legalization goes through.
According to their internal analysis, by 2028, 0.6% of the population (511 thousand) will be medical patients, and 5% of the population (4.2 million) will be recreational users. These numbers are expected to double in the long term. Based on an estimate of demand of 400 tons per year, Peter Homberg, who is heading the European cannabis sector group at Dentons, calculates a fiscal effect in a total of 4.7 billion Euros, summing up the cannabis tax, value added tax, trade tax, corporate tax, social security revenue, saved police and court costs. However, he points out that lawmakers still must comply with international conventions and EU law.
The products demanded in medical and recreational markets are not the same. Top sellers in the German medical market in 2021 are flowers (41%), full-spectrum extracts (10%), Dronabinol (17%), finished medical products (29%), and others (3%). In the recreational markets in Canada and the US, we can see an average of flowers (50%), pre-rolls (10%), vape (20%), concentrates 7% and edibles and ingestible (13%), according to the founder of Demecan. A question here is if all product categories will be allowed from the beginning or only a few, such as flowers and pre-rolls, will be allowed at first. Then, more categories will be added after an evaluation phase, similar to the Canadian model?
Another open aspect is the distribution of recreational cannabis products in Germany itself. Finn Hänsel, CEO of the Sanity Group, assumes that pharmacies may start supplying the recreational market. After an initial phase, we may have a hybrid distribution model of pharmacies and dispensaries. This model will ensure high product availability, which may reduce the size of the black market. However, the challenge will be separating the medical and recreational markets, especially within the pharmacies.
An additional important question is the sourcing and production of the products. Which countries will be allowed to supply the German recreational market? Do medical standards fully apply, or will there be new standards? After internal brainstorming, Finn says that they assume global sourcing of products will be possible, but only from countries with established domestic recreational markets. The quality standards may be EUGMP or a new Standard GACP +. As the health ministry implements the new legislation, the quality standards will likely remain high.
In conclusion, there are still many open questions to be addressed. Besides setting a framework for products, quality standards, and international trade laws, lawmakers must also consider fair taxation and whether Cannabis will still be a narcotic or if they regulate cannabis products similar to tobacco and alcohol products. Most importantly, within the legalization efforts, we must foster education about the plant and advocate for responsible consumption.
This article was written by Daniel Kunisch, Founder of Trade Green Consulting. TGC connects medical cannabis and wellness companies in the global supply chain.