NewsFears Supply Issues Will Leave Germany’s Adult-Use Cannabis Market...

Fears Supply Issues Will Leave Germany’s Adult-Use Cannabis Market In Starting Blocks

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FURTHER details on Germany’s proposed adult-use cannabis market are to be published soon, and they will be avidly consumed with much uncertainty currently surrounding the proposed reforms.

The German government’s main priority is public health and safety, and protecting minors; thereby eliminating the illicit market.

And, in order to do this the Government will have to ensure there is enough legal cannabis to meet demand, at the right price.

Herein lies what appears to be a major challenge, for even now, after almost 10 years, Uruguay – the first regulated adult-use – sees illicit and home-grown cannabis capturing almost three-quarters of the market.

Likewise, in Canada over 50% still comes from the black market.

The retail price of cannabis will play a large part in propagating this shift, but perhaps the biggest potential stumbling block will be securing adequate supplies.

All Products Must Be Grown In Germany?

An estimated four million Germans consume over 800 tonnes of illicit cannabis a year.

Germany has so far issued licences to cultivate medical cannabis to Aurora, Demecan and Tilray. These licence holders currently produce only small quantities whilst cumulatively capable of producing around 80m tonnes a year.

In a recent paper domestic cultivator Demecan argued that, due to legal constraints outlined below, its adult-use market would have to be supplied solely by German-based producers, such as itself.

This also appears to be the emerging position of the Traffic Light Coalition with leaked drafts of its proposals published, today, indicating the country will be reliant on domestic cultivation

In 2021, respected German cannabis lawyer Kai-Friedrich Niermann co-authored a paper on legalisation with Burkhard Blienert, the Federal Drugs Commissioner – who is currently drafting its cannabis laws, 

Mr Niermann believes that overcoming the market supply obstacles will be impossible within a timeframe of early 2024 for the enactment of legislation.

He told BusinessCann: “Due to the complicated legal situation with international treaties and EU law, it is not possible to import into Germany for the time being, so all products must also be grown and processed in Germany

The decisive factor next year will therefore be product availability, and it is foreseeable that the market will build up very slowly. Because without products, there is no need for licensed stores.”

International And EU Treaties

One proposed solution would be to secure supplies from Canada where its licensed producers have huge stocks of unsold cannabis.

Since 2018 almost 500 million tonnes of packaged dried cannabis have been destroyed, because of over-production and quality issues.

However, in order to access overseas supplies Germany will have to negotiate its way through the international drug treaties and its responsibilities as a member of the European Union (EU).

Germany is a signatory of the 1961 United Nations Single Convention on Narcotic Drugs (SCND) as well as EU treaties including the Schengen agreement – Article 71 – and the 2004 Council Framework, which prohibits the legalisation of the whole value chain of cannabis. 

Adult-use legalization in Germany would essentially conflict with the restrictions outlined by the SCND and by violating EU law, the European Court of Justice (ECJ) may prevent it from moving forward with adult-use.

The Legal Options

However, Niklas Kouparanis, CEO and Co-founder, of German cannabis company Bloomwell Group believes there are a number of ways in which Germany can overcome these hurdles.

One of these is to withdraw from the SCND – and then re-enter with a ‘cannabis reservation’ emulating both Canada and Uruguay.

Once this has been done then, he argues, cannabis will no longer be an ‘unallowed’ substance in Germany under EU auspices, which encompass the SCND.

Secondly, it could brand the whole adult-use market as a nationwide ‘scientific’ pilot project.

And, thirdly, the possibility of a bi-party, inter se modification which allows member states of the UN to sign agreements with each other which overcome UN rules.

He said: “For example Canada is one of the biggest suppliers of medical cannabis for Germany. It has legalised cannabis so if both countries signed an inter se modification this would allow for the import and export of cannabis.” 

Matt Lawson, Regulatory Barrister and Co-Founder of The Canna Consultants believes this ‘inter se’ avenue is the ‘most attractive’

He said:  “It does not have the flaws of the first two options, however, what it does require are two committed and willing trading partners who are able to agree on the details which will govern the relationship.  

“The history of international trade is littered with examples of what were perceived to be ‘easy’ agreements to make, which never got done because, as they say, the devil is in the detail.”

‘Legalisation Could Go Wrong’

Mr Kouparanis highlighted the downsides for indoor, domestic cannabis cultivation with energy prices rising significantly as supplies from Russia are turned off.

“With prices going up, producing (indoor) cannabis in Germany will become very expensive, and we already need to import cannabis for the medical market. 

“It took us four years to get supplies up and running for the medical market and we currently produce around 2.7 tonnes annually. 

“For adult-use we are talking about supplying a market that will initially be at least 400 tonnes. We need imports to satisfy demand and if we cannot satisfy demand then legalisation will go wrong.

“Its very important to satisfy demand otherwise we will not drain the illicit market and will not achieve our objectives, if these frameworks are in place and the industry is prepared, then we have a good chance to satisfy demand.”

Imports – ‘The Only Way Forward

Steve Oliver, Co-Founder of The Canna Consultants, believes that attempting to shift cannabis users to domestic supplies is ‘bound to fail’.

“The cost of full, indoor cultivation will never be able to compete with the costs of either indoor illegal cultivation or outdoor legal cultivation or legal cultivation under supplemental-light conditions, and Germany’s climate is unsuitable for the latter to be the sole sources of supply,” he said.

Mr Niermann believes that for its adult-use programme to be a success it has to secure overseas supplies.

“In order to allow imports to Germany, international trade agreements must be concluded with exporting, like-minded countries, either bilaterally or multilaterally. 

“Such negotiations usually take at least two years, but can take even longer or fail completely – see the EU’s free trade agreements with the USA and Canada.

 “From a legal point of view, you can raise many concerns, but also just as many arguments that trade agreements of individual states (even if they are members of the EU), with which the trade of cannabis for recreational purposes is agreed, are possible.”

“The federal government knows that this is the only way imports to Germany will be possible in the long term.”

Whilst acknowledging the significant opportunities the German adult-use market has to offer Luis Merchan, Chairman and Chief Executive Officer of NASDAQ-listed Flora Growth says it remains focused, for now, on its medical market.

“Germany’s medical market continues to grow and is the epicentre of cannabis activity in the EU. 

“Given that there are many hurdles to overcome on recreational legalization, let alone international regulations that need to be amended in order for recreational cannabis to be imported into a country like Germany, we remain focused on the opportunity that exists today – cannabis for pharmaceutical use. 

“So while many may make plans based solely on recreational use, we see that as upside if and when that regulation passes.”

Germany’s draft legislation is due to be published by Mr Blienert over the coming weeks with assent expected next year in order to launch the legal market in 2024.

The cannabis industry is now expectantly waiting to see what steps will be taken to supply, what is slated as eventually being, the world’s biggest legal cannabis market with a potential value of $4.6bn.

Peter
Peter
Peter McCusker is an experienced news and business editor, who believes it’s time to fully embrace the multiple, proven, medical benefits of the cannabis plant.

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