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Partial legalization: Cannabis companies between departure and disillusionment

Partial legalization: Cannabis companies between departure and disillusionment

Advocates have waited a long time, and now the Bundestag has decided on partial legalization of cannabis. But the mood in the industry is divided. Many people prefer to use cannabis as medication.

The expectations for legalization were huge. One of the largest recreational consumption markets in the world could be emerging, cannabis companies enthused. Specialist shops in German pedestrian zones instead of prohibition policies, legal sales instead of dealers, smoking weed from the dirty corner.

In the hope of lucrative business, start-ups are entering the market, celebrities such as Mario Götze, Moritz Bleibtreu and the US rapper Snoop Dogg are investing in cannabis companies. Legalization seemed to be the next big thing and Germany, as a large market, also looked promising from a foreign perspective. Providers from Switzerland, Canada and the USA have long been warming up.

But with the decision of the German Bundestag on Friday, it is finally clear what has been apparent for months: the partial legalization of cannabis for recreational use does not go nearly as far as the traffic light government’s coalition agreement. Cannabis is to be removed from the Narcotics Act, where it is currently listed as a banned substance alongside other drugs and is subject to criminal penalties. Possession and home cultivation of limited quantities should be permitted for adults from April 1st. And in clubs (“cannabis clubs”), members should be allowed to grow the drug together and give it to each other. However, the previous plan to sell cannabis to adults in specialist shops has been postponed. This will initially be tested in model projects in Germany – the outcome is uncertain.

Partial legalization dampens euphoria

This is putting some cannabis companies in trouble, industry experts observe. The gold rush mood has long since given way to disillusionment in the competitive market. Things have become quiet about new cannabis business ideas from actors or footballers. And companies like the Berlin start-up Cantourage, which went public in autumn 2022, have brought investors little joy. The bottom line has been that the share price has declined sharply since then.

The cannabis industry industry association still sees an upswing for the companies. “Home cultivation and cultivation clubs as self-sufficiency options are not commercial in themselves, but they require infrastructure, equipment and services,” says Lisa Haag from the Technology, Trade & Services Department.

In view of the hype surrounding the release, a colorful market has emerged for all kinds of (legal) cannabis products – from hemp shower gels to hemp tea and creams. A “hemp megastore” recently opened in Munich, which offers around 1,000 cannabis-related products on 800 square meters. Some of it, like hemp liqueurs or noodles, falls more into the fun department.

“Opinions vary widely as to whether partial legalization will help the industry at all,” says Rossoni, whose company is part of the listed drug manufacturer Dr. Reddy’s and focuses on finished cannabis medicines. In any case, the growth story surrounding the full legalization of many start-ups has collapsed.

Higher interest rates and stingy investors

“We no longer see any significant new companies entering the market,” observes Jakob Sons, co-founder of Cansativa from Mörfelden-Walldorf in Hesse. The company trades in medical cannabis, with annual sales of around 17 million euros. This is complicated by increased interest rates and cautious investors – the environment for start-ups has generally become harsher. “Some companies are running out of steam,” Sons said. “We are observing the first bankruptcies in the market. Consolidation is progressing.”

Sons still sees advantages in partial legalization. “It’s not a big deal, but it’s an important step in the global trend to destigmatize cannabis.” In addition, there is now a little more regulatory clarity. Since cannabis is to be removed from the Narcotics Act from April, doctors will be able to prescribe medical cannabis more easily. The reservations of medical professionals are still great. “With partial legalization, we expect significantly more cannabis patients in Germany,” says his brother and founding partner Benedikt Sons. Investments therefore focused on the medical sector. The enormous requirements for pharmacies will also be noticeably reduced with partial legalization.

Tailwind for medical cannabis on prescription

Cannabis as a medicine has experienced a boom since liberalization in 2017. Sick people can have the substance prescribed by their doctor, for example against spasticity in multiple sclerosis or chronic pain as well as nausea and vomiting after cancer chemotherapy. But the documentation requirements for doctors have so far been high. Rossoni from Nimbus Health, who is planning new cannabis products, also expects partial legalization to help the industry in medicine. “Acceptance among doctors is likely to increase.”

Ever since cannabis was released on prescription, there has been speculation about its release for recreational use. However, there are great doubts about the planned implementation. Smoking weed in public spaces, for example, should be banned in schools, sports facilities and within sight of them – specifically within 100 meters of the entrance area as the crow flies. And according to the plans, the cannabis clubs are to be organized as non-commercial associations and need a permit that is valid for a limited period. The attached building may not be an apartment and may not have conspicuous signs. Advertising is taboo, including cannabis consumption directly on site. Documentation requirements are also regulated. Rossoni is skeptical. “It remains to be seen whether this will all prove to be practical.”

Source: Stern

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