(edited for publication)
Good afternoon and welcome to another edition of the CannaList Conversations. We’re here today with Peter Homburg. Peter is a partner at Dentons in the Berlin office and is also Head of their Life Science and Cannabis sectors. Peter, welcome. How are you?
I’m fine. Thank you so much for the invitation.
Absolutely. Peter, you are a life science guy who goes way back. How did you manage to transition into cannabis?
I had been in the pharmaceutical and diagnostics industry for many years before joining private practice again. I worked for Behringer Monahan Roche diagnostics for many years as the deputy head of the legal department. I then went into private practice again, first, the Jones Day, where I built up the European Life Sciences practice.
And then now with dentists, where I’m heading the German Life Sciences practice and the European cannabis practice group. When the legalization back in 2017 in Germany took place, it was how we could serve our clients best. And as the main purpose for the legalization of cannabis was medicinal use, it was logical that the life sciences practice, my practice, has taken care of that. Since then, we have been working closely with our life sciences, particularly the cannabis practice groups in Canada and the US, which are pretty big.
And we took it from there. We had clients from Canada early in 2017 who had already started m&a transactions to get a foothold into the German market for medicinal cannabis products. And it was kind of natural that the life sciences guy like me is also working in this field, which is, at this point, pure medicinal cannabis.
You entered the market after 2017; since then, things have been moving fast in Germany, especially in recent months with the announcement that the new government is looking to us to move to adult use. So what are some of the challenges you see in the rollout of this new administration?
The real challenges are those which have not been thought about. The plan to legalize cannabis for recreational use comes naturally with the three parties, the Liberal Party, the Social Democratic Party, and the Green Party. They all have the legalization of cannabis for recreational purposes in their respective election programs. And now, Olaf Scholz became the new chancellor, and the new government started virgin. They have now to implement that it is part of the so-called coalition tree, which is an agreement between the three parties, how they would like to go for the next four years.
And now, the question is, how can they implement the legalization of recreational cannabis in Germany, which is an issue and the I think the real challenges are to overcome the restrictions of the Single Convention on Narcotic Drugs, 1961, which does not allow any kind of transfer of narcotics and cannabis is still within the definition of narcotics under this convention, shall not take place for recreational permits. Yes, for scientific purposes, yes, for medicinal purposes, but not for recreational purposes. No, countries that have legalized cannabis for recreational purposes have their cultivation. They are cultivating cannabis for recreational purposes in their respective countries for domestic use, be it Holland, Canada, the US, some states in the US, at least Uruguay. So that’s a real challenge how the new government should handle this.
Is that a case of changing that language? Or is it a case of finding a workaround? What needs to be done?
Well, changing domestic legal requirements and the legal framework? For example, the German Narcotics Act is not an issue. This can be done that a treaty between more than 150 countries to be changed is a real challenge. It probably will not work. So we have to look into those countries that have legalized the use of cannabis for recreational purposes and how they have done that. And I think a model very close to what the Netherlands has done could work in Germany as well. Always provided that the cannabis for recreational purposes will be grown here because import for recreational purposes and export for recreational purposes from other countries to Germany is a no go under the 9060 months in the convention.
And to grow in Germany, would that be an indoor grow? Because Germany is pretty far north.
Indeed. Yeah. Well, we have, of course, three licensees to grow and cultivate cannabis for medicinal purposes here in Germany. It was a long, tender process involving Riera, Aroer, and Demicon. These three companies have received altogether 13 licenses to cultivate specific quantities of specific lots specific qualities of cannabis for medicinal purposes. It’s only 10.4 metric tonnes in four years, which means 2.6 tons per year, less than 10% property or 15% of the total market need. So, the calculation restrictions on how it should be done are significant. The security measurements, for example, for growing are substantial; it must be indoor growing, and coming back to your question must be indoor growing. And the security measurements are significant. The individual requirements for the cultivation are substantial, for example, avoiding any emissions. So, we have very, very strict regulations, which have been included in the tender documents. They also form the German FDA. And I expect that minute that cannabis for recreational purposes should not be treated differently.
So we won’t move to an outdoor grow or anything like that.
Outdoors, I think not because of the climate. That is clear. The greenhouse is still an issue because of the air quality; I do not expect that the quality will change. Compared to Minnesota cannabis, I believe that the quality requirements for recreational cannabis will be very similar to that.
And does medicinal cannabis provide a roadmap for recreational use, or are we looking at a different structure?
A different structure, the rollout for business purposes, cannabis medicine purposes different, very restrictive to be farmers going to purchase all the requirements for the farm from those three cultivators and then distributors with the pharmacists.
And what is your expectation about timing? I mean, we’ve heard all the hype. But this could be years away, right?
Yeah, well, let’s see, the government or the three parties building the government right now as a coalition have plans to implement the respective changes by mid-next year legally? So probably this could be possible. Because if we domestically change our laws, that’s fine. The question is, how do we get recreational cannabis into Germany? And that’s the issue.
You can make it legal. But maybe another year or two before you have the product available in the market?
Yeah, definitely. I don’t. I don’t believe that. At least in the market, there were rumors to make medicinal cannabis available in Germany, known for recreational purposes as an OTC over-the-counter product. This will not work. The legal framework for OTC’s is very, very tight. And it doesn’t fit into that definition. Because these products are not sold as ready-made pharmaceuticals, preparing a final or final product is a spontaneous mixture. So the pharmacist has to do some manufacturing steps to the cannabis; for example, flowers are the extracts before they can hand it over to the patient. And this doesn’t allow to change the extemporaneous mixture product into an OTC product.
And as you indicated, there’s a fair amount of exports have gone into the medicinal product. So that would prevent it from being used for recreational use. Because you said, you’re importing a fair amount of products suitable for medicinal purposes that can’t be used for adult use.
That’s correct. Yes, free ratio purposes. I think that’s clear from the regulatory framework right now. And of course, also from the 1961 convention.
Is this a threat to this? Or is this an opportunity for German companies to step up?
It is not a short-term solution; it is not a short-term business; it will take at least a year or even longer before we will see recreational cannabis coming to the German market. And we’ll see how creative the new government will be in changing the respective domestic laws, how they will overcome the international treaties, and how they will serve the market with money for recreational cannabis. They plan how they want to do it and how they got to sell it to customers under which conditions. So the kind of coffee shop example from Holland could be adopted here, though, it will be kind of specialized shops, dispensaries were selling this recreational cannabis under the strict control of the government. I think that’s clear; though it should not be sold to minors, it should not. It should have a certain quality. And of course, the security measurements of these shops should be clear.
Will Germany follow what they’ve done in the Netherlands as well – where they’ve tried to limit the tourist factor of the product?
Yeah, I believe that’s something they have to do because otherwise, we will have a kind of cannabis tourism in the middle of the heart of Europe. You know, what’s happened, to the Netherlands, a significant number of tourists were traveling to the Netherlands to purchase condoms there, which is now under strict control, you have to be a Dutch citizen to purchase in the respective shops, you cannot use it outside the shops, you have to do that, maybe at home, but not in public. So there are restrictions on that. And from formal structure, I would say it’s exciting what the Dutch did; they decriminalized cannabis, but not legalized, or not allowed the use of cannabis for medicine for recreational purposes. So it’s a; I would say they’ve used kind of a little gray zone of the 1961 single convention. So very intelligently, I would say Germany should consider following that route.
And will they also consider allowing people to grow their own?
I don’t believe that homegrown is an alternative.
Why is that? You can’t just say that and leave it there.
I don’t know whether you know the history behind the legalization of cannabis for medicinal purposes. Before the globalization in 2017, I would say between 600 to 800, maybe even a little more patients who had a specific extension from the German FDA and allowed them to use cannabis to treat the disease. So it was not an actual large patient population. One of those patients said that if I am allowed to use it, I should grow it. And the Germans are very good and cease and desist orders. And he got one immediately for two, which stops him from growing. And he went to court. And in 2016, he won before the highest administrative court. They said yes, you could grow. And that triggered the change of law already then in March 2017, a very, very fast legalization process with changes of various permissions and different laws. And with upholding actually, the stop of home grow by granting licenses to domestic growers, who are then serving the German market. So taking the reservation that history, I do not believe that home grow really would be allowed.
Is that to maintain standardization or quality standards?
It’s uncontrollable; you’re going to 100% lose control. And that is something which all three parties of the current government do not want. They want the use of medical cannabis for recreational purposes but in a controlled way, which means they are looking for the respective measurements to control that, and they will have I wouldn’t say 100% You never say 100%. But I don’t believe that they really would allow home grow.
And do the parties look at this beyond adult-use, but are they looking at this as an economic development opportunity? Oh, yes,
The Green Party is calculating significant taxes on cannabis to be grown, or sorry, to be grown in Germany and then sold for recreational purposes; they were already calculating the tax income, which is significant for that market. And they were discussing what would be the right price to be competitive to the black market. However, the major advantage in a competitive black market is that you have a controlled quantity; the consumers know what he gets. And then that’s, I would say, a significant advantage.
Provided that it’s priced competitively with what we can get in the black market.
The point is that currently, cannabis on the black market has significant side products. And for whatever reason, and that they are endangering the consumer’s health significantly. And that’s something that also has triggered the motivation to think about legalization, the use of recreational cannabis, control the quality, and put the consumer into a more or less safer environment than buying it on the black market.
Speaking of control, I saw that you posted a few weeks ago about the recall of Medicinal Products; what was that about?
Now, we have very strict quality control regulations. In particular, of course, about the sale of cannabis, flower, or extracts, there’s the German monography that provides for the product’s respective specifications and in which way the quality is going to be controlled. And these products put on the market have differences in THC content.
So, suppose you are a distributor in Germany. In that case, you apply for a distribution license for a specific product with a particular trade name and specific specifications and that that product has possibly THC content of 20%. So, which is a high THC content. Now, the German monograph allows for deviation of plus or minus 10%, which means be it should not be less than 80%. Still, more than 22% but this lot of cannabis products had 17.9% THC content, and that has triggered the record for the first time actually because we know that they are birth on the market which may even differ more than 10% from the respective application at the granted licenses Distribution License. So that means the German authorities are looking increasingly closer to the quality of the product market in Germany, and all distributors and cultivators should be aware of that.
And what about other products that are coming into the market? Some questionable CBD products, and how is that being addressed?
The CBD market is different from the medicinal cannabis market. The CBD market in Germany and Europe is relatively limited compared to the US and Canada. However, from the data to the US, we have three large areas where you can sell CBD products: cosmetics, food supplements, and three medicine products. And when the European Commission makes clear that any kind of product food supplement which contains CBD now falls under the novel food directive, which was clear from the first from from from the first day actually if you read the respective directive, it was clear that CBD is a content which in sub foods or food supplement would need registration.
Some distributors change their product level to become the kind of, let’s say, aromatherapy. So trying to get out of the food supplement area is very difficult to argue from my point of view. The authorities do not currently have the respective power or staff to go against every product. But as you may have heard – we had a significant recall of one of our supermarket chains a little, we had to take our off the shelves, many products, containing CBD and, or hemp. And this has been triggered by the closer control of the authorities on the CBD market. And I expect that to be even tighter in 2022.
While they’re looking to open up the market, as you said, there will be a tremendous amount of control over how that happens.
But the point is, what kind of impact might that have on the CBD market? Well, I think there’s an interesting decision of the European Court of Justice; we clearly said CBD is an opioid. And that is a decision which has to be followed by all local authorities and all local governments of the European Union’s member states. So we hopefully will see some changes in respect of laws, which takes out CBD from the list of narcotics; for example, it still didn’t happen in the German narcotics act. So as of today, CBD is still considered under the current legal framework and aquatic in Germany. But this may change, and this will probably open the markets a bit more for CBD products. The same applies to the cosmetic field; we have much tighter rules and regulations on the marketing of cosmetics containing CBD in Germany, then, actually with if you look into the cosmetic directive of the European Union. So I believe that the European Court of Justice decision will change that environment, not immediately, but slowly; I would say, in 2022, we’ll see some changes for that market as well.
And while we’re welcome standardization across Europe, we don’t even see that in Germany because my understanding is different jurisdictions are treating this differently.
That’s true to a certain extent, yes. And actually, the European Court of Justice decision was triggered by an import of CBD products from the Czech Republic into France. And the two responsible managing directors of the company who, in France who has imported the products, were charged, and they went against that. They said that CBD is not a narcotic, and it should be clearly stated that we should not be charged for any miss doing. We did everything. Right. And as I said, Finally, is decided beside by the European Court of Justice, and you’re right, we need to harmonize that within the European Union, how to treat medicinal cannabis, how to treat CBD products, and of course, also the third large field industrial hemp products.
And I know with the announcement of the government’s position, we’ve seen a lot of activity in the cannabis industry, such as M&A activity. So what do you think 2022 is going to look like?
We will see a kind of concentration in the cannabis market; we currently have a number of smaller companies with a foothold in the market and may obtain the respective licenses. But some bigger ones would like to get a larger share of the market, and from my point of view, we will see kind of concentration process we will see m&a transactions we will see combinations mergers in that field in Germany, probably very soon.
And do you anticipate that Big Cannabis will sort of taking over? The small players won’t meet the standards and meet the controls. And this will only limit that field to big players?
It’s a question of market power. And that isn’t easy to foresee, but the big ones have an advantage because they have the financial resources and know-how to move forward to the end, and of course, quality-wise, they have very strict measurements in place. So they can guarantee the quality, and the question has to do with the smaller distributors in Germany, for example, getting their cannabis from? So we will see some new cultivators, we will see cultivators from Portugal, we will see cultivators from Malta, and do not forget Denmark, which is already cultivating, and Greece.
So it will be limited to the medicinal side of the business.
Correct. It currently Yes, I think that’s clear. Export for recreational purposes is 100% forbidden for the member states of the 1961 single convention. So, it is all planned for the medicinal market, which is growing. And, of course, rightfully ignoring. The minister is an extraordinary addition to the currently available pharmaceuticals in various fields. For example, chronic pain helps patients treat their disease, maybe with fewer side effects, very much depending on the individual. Of course, every individual reacts differently to a kind of cannabis treatment. But I know several patients who have changed from heavy painkillers to cannabis, and it has the respective effect. And I think that’s justifying what the German government did back in 2017 to legalize cannabis investment purposes.
And how difficult is it to obtain medicinal cannabis? I know in the US there was sort of like, you go to your doctor telling me how to headache, and it gives you a card. What’s it like in Germany?
That’s different; everything is different.
Yeah. We have the competitor health insurance in Germany. So it means if you are a patient, and you get a prescription for cannabis, for example, from your doctor, you need to apply for your health insurance to be reimbursed. To be very frank, this is a painful process because you and your physician have to fill a relatively difficult form and send it to the respective insurance company. They are looking at that and then either granting not granting the reimbursement. Currently, 60% Of all the applications are granted 40% are not granted reimbursement. So that’s the first hurdle number still, right? Right? Yes, the hurdle is even before you have to convince your physician that that is a treatment you should get because there are other pharmaceuticals available, which could be used to treat your disease and have the same effect. So to a certain extent, the doctors are not obliged but should look into whether cannabis would be the right medical product for treating that disease. So there is a discretion of the physicians, but the physician is still very cautious in prescribing cannabis for two reasons. One, of course, the legal situation, it has to be at least I would say the last possible treatment after further treatments of this with other pharmaceuticals. But then, of course, they are not trained to prescribe cannabis. So the the the needs, and that’s the industry seeing here, education, education of how different cannabis products work, what kind of impact they have, to make the physicians feel more confident to prescribe it.
The other element is the products need to go through trials so that there’s evidence-based so that the doctors can look at evidence-based trials that demonstrate that, yes, this does have an impact on whatever you’re suffering from.
Yeah, we’ll have to differentiate between these casual trials and those clinical trials, which would end up reaching marketing authorization as a finished product. This might be difficult; if you look into the different clinical trials, clinical trials to A to B and connected write three, you have to define the endpoints very clearly. As I said, cannabis treatments usually have a very personal effect on the patient, which means you have to be very selective in your patient portfolio. And you have to see at least that the endpoints you have defined in that clinical trial can be reached. If not, your clinical trial would fail you would not get marketing authorization. So, it is a discussion that at the last ICPC conference with many physicians here in Berlin, it is difficult to define what kind of clinical trials which way and for which treatment and for which doses, for example, should be used. So, it is, I would say you have to carefully consider whether you do this real clinical trials for marketing authorization; I agree with you clinical trials, that say casual ones, which have, which shows that there is an effect is something which would convince physicians to prescribe the product more frequently.
And when your clients are coming to you, are they coming to you for m&a activity, or do they come in for you to deal with? Why do they seek you out all the legislation, jury, and paperwork? What do you you know, what do you see?
We have an extensive portfolio of legal advice for this specific cannabis industry, of course, starting with m&a transactions. Also, for financing rounds, but not to forget the regulatory field, which is a significant field because it’s a moving target. Now that we have changed, I would say, we have changes in various areas every two, three weeks. And that’s what our clients like us. So we are really at the forefront here. I have a team of eight people. And we are working, I would say more than 50% Only on cannabis-related related matters, and have gained over time, not only in an excellent knowledge about the legal framework but also have established respective contacts to the respective authorities, either state in Germany or of course, also with a farm.
And then, with your other offices, you have the opportunity to go in and out of Germany and other jurisdictions.
Dentons is relatively large. With 12,000 lawyers now, in effect, many lawyers have 140 different locations in over 70 years. We are nearly every country in Europe, except for the north countries, like Denmark, Sweden, Finland. And so but we have offices, of course, important, sorry, in Spain and Italy. And yes, I also have colleagues in these jurisdictions who are following the local changes of the laws for cannabis, and you will see changes in the other European countries as soon also next year. And if Germany decides to legalize cannabis for recreational purposes, we would see other countries looking into that. We had already put effect to impact from 2017 on medicinal purposes. We probably see that also then for recreational use. So, yeah,
once the dominoes start to fall. Right?
So beyond the challenges that we’re facing, in actually implementing adult-use or recreational use, what do you see going on in 2022?
We need, and I have, together with my colleagues, established an Association, the European cannabis Association, to harmonize the legal framework for medicinal cannabis within the European Union. It cannot be the case that every country within the European Union treats medicinal cannabis differently. For example, Germany has demonstrated that it can control it can, without any doubts, allow the use of medicine candidates to control it and get it to the patient. This is not possible in other countries. If the patient now travels to France, he has difficulties using his medicinal cannabis products, but you won’t get it there, which needs harmonization very quickly. We need to have a European Directive on medicinal cannabis, which applies to all European countries or countries within the European Union. And to the ECA and my colleagues, we are working on harmonizing the respective legal framework and the quality framework because every country is different in interpreting the EU GMP. We need that also concerning the business conduct. We need to have roots of how and how cannabis the cannabis industry should conduct its business within the European Union.
Well, Peter, we very much appreciate your time today and your insights. We will add some links to Dentons and the organizations you mentioned to get more information. We again appreciate your time and keep up the good fight.
Thank you very much. It was my pleasure. Absolutely.
Thank you, sir. Bye