What Must Be Done To Enact Germany’s New Cannabis Law And What Will Its Adult-Use Market Look Like?

With Germany’s Government-in-waiting set to deliver adult-use cannabis, BusinessCann explores the delivery challenges and how the legislation may be shaped.

BACK in 2015 the German Green Party published its Cannabis Control Act (CCA).

Although it made no progress in the Bundestag at the time, it is now emerging as the blueprint for the creation of Europe’s first adult-use cannabis market – and only the third in the world following Uruguay in 2013 and Canada in 2018.

The main motivation for the Greens is to place ‘health and youth protection at the centre of drug policy’.

This chimes with its Coalition partners the Social Democrats (SPD) whose senior politician, health expert Karl Lauterbach, recently said legalising cannabis would protect users from ‘dangerous impurities’.

The third member of the so-called ‘traffic-light coalition’, the Free Democrat Party (FDP) fought the election on a pro-cannabis platform and the three, with their 416 cumulative seats, will have a healthy majority of almost 50 seats.

Cannabis Control Act 

The three parties have been locked in talks for almost two months now and on Wednesday announced their policy agenda, it was light on details but in relation to cannabis read as follows;

“We’re introducing the controlled distribution of cannabis to adults for consumption in licensed stores. This will control the quality, prevent the transfer of contaminated substances and guarantee the protection of minors. We will evaluate the law after four years for social impact.” 

Over the summer the Recreational THC Report 2021 for Germany was released by Cannabis Lawyer Kai-Friedrich Niermann and Burkhard Blienert, Political Advisor, former German MP and former drug policy spokesman of the SPD Bundestag.

It highlights that whilst migrating from a black market to a legalised commercial product presents a significant challenge, the CCA is a progressive base from which to begin as it aims to comprehensively ‘regulate all aspects of the controlled distribution of cannabis to adults based on a free market model’.

Supplying The Market

In 2018, Professor Dr Justus Haucap, a leading German economist in the field of regulated markets, estimated there were some 4.6m consumers in the black market, consuming around 500 tonnes of cannabis a year.

The ‘THC Report’ believes this to be an under-estimation with the market needing an annual supply of some 800 tonnes. Around twenty tonnes a year is currently required for its medical cannabis programme.

Report co-author Mr Niermann speculated that with only Canada and Uruguay theoretically able to export for recreational use, this will present a dilemma for the German authorities.

He says: “Whilst adult-use will undoubtedly boost the domestic supply chain this will be energy-intensive and expensive cannabis.

“And, whether it makes any sense is questionable, as domestic farmers hardly have the technical know-how to immediately enter into the cultivation of high-proof THC varieties.”

However, he went on to say that as the medical market develops over Europe and elsewhere there will be the potential to secure supplies from countries with medical cannabis programmes and distributed cultivation licences – Colombia, Lesotho, Greece, North Macedonia and others.

“They should be able to quickly meet the legal requirements to make an export to what will be Europe’s largest possible cannabis market,” he added.

Retail Footprint

The ‘THC Report’ highlights how one of the high-profile issues facing the authorities is establishing a comprehensive, national, licensed store footprint. It says as many as possible should be issued in the first wave.

“The most likely bottleneck will certainly be the retail sector estimating costs which could range from €250,000 to over €1m including premises, products, staff training and employment,” says Mr Niermann.

He says the new Government still has to tackle issues which were unresolved in the CCA such as its approach to advertising, mail-order and the powers of the states with regard to regulating the minimum distances between stores – so called zoning.

Pricing And Taxes

The current price on the black market for one gramme of cannabis is between €8 and €10, ‘sometimes even higher, depending on the region and accessibility’, says Mr Niermann.

The CCA recommends a tax take of €4 per gramme for ground flowers, €5 per gramme for hashish and €6 per gramme of extracted oil.

However the THC Report authors say such a ‘high’ tax take would stymie the growth of the legal market.

“With a tax of €4 provided for in the Cannabis Control Act, with production costs of €1, with wholesale costs of €2 and with costs for specialist stores of €3 per gramme, this would result in a gramme price of €10 in total, plus 19% VAT, i.e. €11.90 gross in total.

“It is therefore all the more important to initially set the cannabis tax at a lower level in order to allow the industry to initially achieve correspondingly adequate margins and thus to be able to compete with the black market. If necessary, the cannabis tax can be increased at a later date,” it says.

Personal Possession, Cultivation, Derivatives & Jobs

The 2015 CCA proposes that adults – over 18 – are allowed to possess up to 30g of cannabis and cultivate up to three female flowering cannabis plants for personal or communal personal use in the area of the cultivator’s pacified property.

It also proposes opening up the market to all derivatives such as vapes, edibles, pre-rolls and beverages with rigorous testing for strength and potential contamination required.

The 2015 version does not rule out the potential for in-store consumption in tandem with culinary offerings and alcohol.

Earlier this month Prof Haucap updated his research into the market saying cannabis reform could raise tax income of €3.34bn as well as cost savings for the police and the judiciary of €1.36bn.

He went onto say it would create 27,000 full-time jobs based on the entire cannabis production industry supply chain from cultivation to sales.

Will It Pass The Upper House?

Whilst some commentators have expressed concerns that the liberalisation may be hampered by the upper house – the Bundesrat; a more conservative chamber – Mr Niermann says that as ‘narcotic law is a federal issue, it can be decided by the federal government in Bundestag alone’.

International Obligations

With Germany having legalised cannabis it will find itself outside the remit of the Single Conventions on Narcotic Drugs of March 30, 1961 & 1971 and must therefore find a solution as to how it can meet its obligations under international law.

Uruguay invoked the protection of human rights in legalising recreational cannabis, arguing that prohibition has led to violence, exploitation, and significant human rights violations.

However, it has subsequently been warned several times by the International Narcotics Control Board (INCB) and threatened with sanctions.

Canada, too, has been threatened with measures by the INCB, which were never implemented. In maintaining a state medical cannabis programme that meets the requirements of the Single Convention and supplies much of the world, ‘the INCB has kept a low profile’ say the THC Report authors.

A further path is to denounce the Single Convention and subsequently re-enter with a ‘cannabis reservation’. The CCA suggests this path – a process which can take at least 18 months.

Free Movement Of Goods

As a member of the European Union goods on sale in Germany should, in principle, be allowed in the other 26 member states.

However, according to Article 36 of the treaty member states can invoke the ‘health protection of their population when it comes to the recognition of the free movement of goods’, says Mr Niermann.

“This should be possible in the case of THC-rich cannabis, as it has a psychoactive effect and thus contains an active principle,” he said.

Timeline

As to when an adult-use market will come into effect the ‘THC report’ speculates that a CCA could pass in March 2023, with a regulated market opening on April 1, 2024.

In summary says: “The challenge will be to design the reform in such a way that the black market can be eliminated as quickly and as effectively as possible. This includes, among other things, a sufficient number of licenses to be issued and initially moderate tax rates on cannabis products.

“At the same time, however, a new prevention approach must also ensure that consumption does not increase, especially among children and young people, and that serious eye-level education about the dangers and effects of cannabis is achieved.”

Business Reaction

The German Cannabis Industry Association (BvCW) has welcomed the coalition’s announcement saying it will set the foundations for a ‘reasonable future to develop the potential of the cannabis plant’ in Europe’s largest economy, with a population of 83m.

Its President Dr Stefan Meyer said: “As the cannabis industry, we welcome the coalition agreement as a good basis for discussion for upcoming reforms in the cannabis sector. Many previous experiences from other countries show suitable ways. The cannabis industry is happy to accompany all regulatory issues, such as science-based quality assurance, effective youth, consumer and health protection, sensible advertising restrictions and appropriate taxation. ”

The BvCW says it has set up a cross-sectional working group that will provide technical support saying the ‘legalization errors by other countries should be avoided as far as possible’.

Pia Marten, CEO of medical cannabis wholesale supplier Cannovum, welcomed the intended legalization as an ‘acknowledgement of social reality’.

She said: “There is now an opportunity to form a responsible cannabis legalization with effective youth and consumer protection. Part of this is to learn from the pharmaceutical cannabis market in setting up the regulatory framework to offer consumers safe, high-quality cannabis and to protect them from qualities that can be hazardous to their health.

“We will do our part to provide the German market with high-quality cannabis. In doing so, we can draw on our extensive experience with medical cannabis and will also offer products of the highest quality for recreational use under our Cannovum brand.”

The post What Must Be Done To Enact Germany’s New Cannabis Law And What Will Its Adult-Use Market Look Like? appeared first on Cannabis Business Executive - Cannabis and Marijuana industry news.