Germany reveals new cannabinoid legislation
Last week the German government announced its revised plan to legalise recreational cannabis, drawing on a range of approaches from other European countries. However, the newly presented legislation represents a significant climb down from the initial plan suggested late last year.
The German government’s proposal is based on two main pillars. The first allows the establishment of non-profit associations, known as cannabis social clubs, nationwide, where up to 500 adults (aged over 21) can purchase cannabis flower for recreational purposes. Members are also able to buy seeds for home cultivation of up to three plants. The second pillar involves launching a five-year pilot program at the regional level to test commercial supply chains in several districts and cities, covering the production, distribution, and purchasing of cannabis at designated points of sale. This approach is being implemented to enable the evaluation of commercially available recreational cannabis on population health, youth access and to assess the impact upon the illicit market.
The proposed plan does not entail the total legalisation of cannabis, but rather allows for personal consumption only. This is a departure from the original proposition, which aimed to establish a market similar to that of some US states in which in which recreational cannabis is legal, generating tax revenue and creating jobs in the industry. Indeed, it was suggested that full legalisation would deliver $5.3 billion in taxes to the German state. The revised plan is seen as a more moderate approach to cannabis legalisation due to challenges posed by international and EU regulations, which prohibit the sale and distribution of narcotic products.
The proposed plan has been justified by the German federal government as a means to curb the illegal market, ensure quality control of cannabis products, and protect public health and minors. However, there are still critical points that require clarification, including the announced limit on THC content and specific regulations regarding cannabis social clubs.
The proposed plan has implications for the European cannabis industry as a whole. As Europe’s largest economy and arguably the most influential EU member state, Germany’s legislative approach to legalisation will likely be used as a blueprint for other European nations that aspire to permit recreational cannabis. As such this retreat from Germany will likely setback and derail full legalisation efforts across Europe, at least for the time being.
This news has brought into focus three of Óskare Capital’s published predictions for 2023:
- European medical cannabis (pharma) markets will take investment away from recreational markets as investors prioritise stable and developed regulation with scientifically proven products.
- Global recreational cannabis markets will continue to be dogged by asymmetric regulations that will dissuade financial institutions from participating in the recreational sector due to the regulatory risk.
- Average valuations of private deals in Europe will remain flat or fall in 2023, particularly those of German companies in the recreational cannabis market as the infrastructure and regulatory framework takes longer than expected to establish.
Whilst frustrating for those companies that planned to target recreational markets, we believe that this is a very positive outcome for the medicinal sector and compounds the potential of the medical and pharmaceutical investment opportunities. It is now abundantly clear that legislation is hampering the access of cannabinoids to those who may require them for medicinal purposes, and we believe that investment into new endocannabinoid drugs and the wider ECS pharmaceutical sector is the most effective way to meet patients’ needs. This more nuanced approach allows individuals to receive targeted therapies for specific conditions, as opposed to the more “scattergun” approach of self-medicating with cannabis flowers.
Furthermore, we are satisfied that capital earmarked for the anticipated recreational market is moving towards the medical and pharmaceutical sector, an area that shows significant growth potential in an already regulated market, with several multi-billion dollar exits to date.
For those that are keen to learn more about this exciting sector, Óskare Capital have recently published a report on the ECS Life Sciences sector which is available here.