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Germany: Entry points for cannabis entrepreneurs

Germany offers opportunities for those willing (and able) to wade through convoluted regulations and tight restrictions

4 min

The first question aspiring entrepreneurs usually ask Nick Pateras about the German cannabis market is whether the largest pot sector in Europe is really as complicated as it appears.

“There is a perception that entering the legal cannabis market in Germany is a regulatory headache and it absolutely is,” the managing director for Europe at Materia Ventures told The Rise from London; his company facilitates imports and exports of medical cannabis globally.

“Germany has two federal agencies that have overlapping responsibility when it comes to medical cannabis [and] you also have 16 local state authorities that are responsible for issuing and overseeing certain types of licenses,” Mr. Pateras explained.

Navigating such a bureaucratic labyrinth translates to high entry costs for an entrepreneur, Mr. Pateras added, especially given the relatively limited business opportunities that exist today. Yet those opportunities do exist and experts believe new types of cannabis businesses in Germany will soon emerge as the market rapidly evolves.

Existing opportunities for German cannabis businesses 

The most common cannabis business model in Germany as of early 2020, Mr. Pateras said, was wholesale. Importing and distributing medical cannabis is among the few entrepreneurial activities German cannabis policy allows and that market is arguably already saturated.

Charlotte Bowyer, a Vancouver-based cannabis consultant and German policy expert for London-based consultancy Hanway Associates, said there were upwards of 50 licensed cannabis wholesalers in Germany as of March 2020. That is despite multiple licenses from multiple levels of government being required to operate in that narrow space.

Wholesalers must first acquire a wholesale dealers authorization or WDA from the state where they intend on operating, which allows them to deal in medicines. Another license from the federal government allows wholesalers to deal with narcotics, which cannabis is legally considered in Germany.

Finally, because Germany has a prohibition on importing any medicine that has been irradiated, wholesalers wishing to bring irradiated cannabis into the country must also acquire an exception from a separate federal agency. Most of the dried cannabis flower available in Germany today has been irradiated because the country's strict requirements for microbial content and overall quality are difficult for growers to meet using other methods.

“If you’re an entrepreneur, what you have to understand is right now there hasn’t been a proliferation of that many business models in Germany,” Mr. Pateras said. “Because cannabis is regulated as a narcotic, there really is very little you can do by way of patient education since you really cannot speak to patients directly at all.”

There are two opportunities for cannabis entrepreneurs in the existing German framework, he said. The first is geographic, as eastern Germany has a proportionately lower level of cannabis prescriptions than elsewhere in the country, meaning a focused wholesaler could service pent up demand there. 

Then there is the value-add for wholesalers, Mr. Pateras said, noting “models that are tailored to servicing cannabis wholesalers” could do well within existing cannabis policy in Germany, "because different states have different requirements for cannabis companies, it's an opportunity to set up in one that is familiar with cannabis and has more business-friendly oversight."


Upcoming opportunities for cannabis businesses in Germany

Small changes made recentlyand quietlyto German cannabis regulations might create chances for entrepreneurs to develop new innovative business models, Ms. Bowyer said.

Germany recently changed the rules on how insurers reimburse pharmacists and how they are being compensated, she explained. Previously, pharmacists would purchase wholesale cannabis and the law allowed them to apply a certain markup on a per-gram basis and insurers would cover that higher price.

“Pharmacists were motivated to buy cannabis for, say, nine Euros per gram and sell it for 18 because they would be fully compensated,” Ms. Bowyer said. “They have now set up a new rule where the amounts are based on quantity so bulk orders allow for lower prices per gram. Now, as a result, pharmacists have incentive to source less expensive cannabis because it will give them bigger margins.”

Wholesalers able to bring in lower-cost cannabis, or capable of offering bulk order discounts, might find that to be a successful entrypoint given the recent policy change, Ms. Bowyer said.

Addressing persistent cannabis supply shortages in the near future should also create new entry points for entrepreneurs, according to Mr. Pateras. While a small amount of domestic cultivation is expected to become available later this year, Mr. Pateras notes the vast majority of German medical cannabis will continue to be imported for the foreseeable future, but new sources of supply are expected shortly.

“Within 12 months I expect we will see product coming into the Germany market regularly from Portugal, from Malta, from Colombia and from Denmark,” he said. “The problem in Germany is a lack of supply and a lack of product diversity, so once those are both addressed we are playing a different game.”

One consequence of the limited supply is patients getting prescriptions that currently go unfilled, Mr. Pateras said. “That is definitely happening, and then the other issue is doctors not wanting to prescribe dried flower and until extracts become more consistently available they won’t write any cannabis prescriptions.”

“That is why more product and more product variety will change the market,” he said, “you bring more doctors in because there will be more oils available and more data behind some of the products that will become available and patients also have more options.”

Once that occurs, “I could see one business model being a company that sets up educational workshops for doctors to help them understand medical cannabis better,” Mr. Pateras said. 

“That could be sponsored by producers and that would be completely legal.”

Correction: An earlier version of this article stated Germany will only allow irradiated cannabis to be sold medically. Non-irradiated cannabis is allowed in Germany, though strict microbial limits have resulted in the vast majority of the country's medical cannabis supply being subjected to radiation.

Extracts

  • This story offers advice for people looking to start a cannabis business in Germany
  • It should help you understand how to operate in Europe’s largest pot market
  • Wholesale in eastern Germany and importing bulk-discounted dried cannabis flower are potential models experts say entrepreneurs should consider

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