If politicians can set aside their differences to successfully pass German adult-use cannabis, Europe will become a competitive rival to the U.S. market within five years.
By Michael Sassano, CEO of Somai Pharmaceuticals
The new German coalition has indicated one of its many priorities is the legalization of cannabis for adult use. Those familiar with the United States’ cannabis policy climate will recognize a similar struggle underway in Germany between liberal and conservative political positions. Interestingly, both liberals and conservatives in countries like the U.S. and Germany want legalization, but differ on how to enact it.
Let’s look at the state of adult-use cannabis in Germany and examine the international examples that would best inform market entrant strategy for this burgeoning industry.
Politic Divides Must Not Muddle Market Priorities
The German liberal coalition — consisting of the Social Democrats (SPD), the Green Party, and the Free Democrats (FDP) — have the legalization of adult-use cannabis on their docket as well as an entire suite of progressive initiatives such as phasing out coal by 2030, increasing voters’ rights, raising the minimum wage, and streamlining immigration. In addition to this ambitious set of initiatives, the creation of rules and regulations for the adult-use cannabis market could take six months or more.
Additionally, the Angela Merkel-led center-right Christian Democrat Union (CDU) is still very strong and will likely put up opposition to legalizing cannabis, making implementation more difficult. Doubtless, all parties will rally to provide input for the control and taxing of the cannabis trade, as a good working framework will be vital to successfully combating the well-established illicit market and for filling government tax coffers.
In addition to establishing tax brackets and revising efforts to combat illicit markets, Germany must consider market supply and what that market will look like. For example, will Germany adopt cannabis coffee houses like the Netherlands? Will Germany need to lean on other European Union Good Manufacturing Practice-registered (EU-GMP) cannabis producers to satisfy market demand and make up for the lack of growers and producers in the country? An examination of the trials and tribulations of other international adult-use cannabis markets readily suggests solutions to these queries.
Germany Must Learn from North American Cannabis Mistakes
Germany and Europe have a great opportunity to learn from Canadian and U.S. mistakes, and to create an improved infrastructural plan. Canada’s approach to rolling out adult-use legalization by using the national mail, and the implementation of Canada 2.0 to open dispensaries and distribute products has done little if anything to quell illicit market sales.
Meanwhile, south of the border the U.S. has failed largely to introduce cannabis consumption lounges or Dutch-inspired coffee shops into the distribution model. This hinders the social acceptance of cannabis by normalizing consumption, much as already takes place with the drinking of alcohol at bars and taverns.
Additionally, the U.S. undermines its legitimacy by lacking governmental GMP and health oversight for cannabis products and their production due to broad federal illegality. Germany is in a position to learn from these errors and instead position the winning combination of EU-GMP registered products and social consumption lounges to its citizens to combat the illicit market successfully.
Adult-Use Cannabis in the EU Needs Germany to Fan the Flames
Germany will need to convince Europe at large that the trade, sale, and use of recreational cannabis are within the best interests of multiple EU countries. To successfully import products from other EU member-states and get the German adult-use market off the ground, the EU Parliament must be involved.
The European Monitoring Centre for Drugs and Drug Addiction (EMCDDA), an agency of the EU, notes in the European Drug Report 2021, “Europe is also a producing region for cannabis and synthetic drugs; cannabis production is mostly for European consumption.”
EU countries could kill three birds with one stone: increase citizen safety, eliminate illicit operations, and accrue regional wealth by enabling EU members to produce legal cannabis and become leaders in the global adult-use market.
Convincing fellow EU countries is only a stepping-stone for Germany in a broader battle for the cannabis trade, however. While Germany’s voice is strong within the EU, among the United Nations (U.N.) they command less power. A U.N. commission reclassified cannabis a little over a year ago for therapeutic and medical use, but the margin was thin, with a vote of 27 in favor and 25 against the measure. While the tides of the EU and U.N. appear to be shifting, the change is sluggish compared to the rate at which individual countries have been able to pivot and greet the new market head-on.
Not all is bleak, however. Just as separate states like Colorado, Washington, and California have spurred further legalization efforts across the U.S., so separate countries in the European bloc will look to one another for inspiration. Smaller nations where cannabis is newly legal like Malta, Luxembourg, and Switzerland spark a fire for larger countries like Germany and Portugal, which could fan the flames into full European market participation.
Sooner or Later, Europe Will Be Green
Estimates place Germany’s annual projected cannabis revenue at 3.4 billion euros, while simultaneously creating 27,000 new jobs and reducing police and judicial costs by 1.3 billion euros. These are serious numbers with big market potential.
If politicians can set aside their differences to successfully pass German adult-use cannabis, Europe will become a competitive rival to the U.S. market within five years. A powerful economic leader like Germany is the best chance for Europe to advance in this space.
Projections estimate the European cannabis market will be worth €403.4 million by the end of 2021 and will grow at a compound annual growth rate (CAGR) of 67.4% from 2021 to reach €3.2 billion by 2025. If Germany wants a piece of that income in a post-COVID Europe, they must act now or be left out of the countless benefits.