There is a lot of American money (and large firms) circling the German cannabis market right now as the country proceeds towards recreational reform – but will they do anything differently than the “other” North Americans who came before them?
They are not alone.
American money is already jumping the shark if not the Atlantic right now – and headed for the German cannabis market. The lure of federal recreational reform, and a strong medical market beyond it, is, obviously, silly to ignore.
Beyond big firms, investors who are also American celebrities, like Snoop Dogg and Will.I.Am have beaten them to the punch with high profile infusions of cash. Even Heidi Klum, a German export these days, has made a trek back to Berlin from the US to speak to the Drug Czar, Blienert Burkhard about “recreational cannabis reform” and her interest in investing in the sector.
It is getting (even more) sexy to be in the German cannabis industry. However, no matter how self-impressed many of these firms or individuals are, it is dangerous to flout an attitude, much less a t-shirt that claims one is “too sexy” for it, in any way.
Here are a few reasons why.
Nobody Is In a “Prime” Position
There are certainly firms who, by dint of being Canadian, or German and related to the aristocracy (or at minimum, are well politically connected), which have a very good head start as well as market entry. This includes all three cultivation license holders (the now merged Tilray/Aphria, Aurora and Demecan). It also includes Cansativa, the monopoly distributor of all cannabis grown in – or transported to Germany by these three firms.
Then there are firms who are either in the market now (or entering it) who are very adept at raising funds – or are so wealthy from other endeavors that investing early in the recreational market is something they can afford to lose money on as they experiment to get the right model. Losing money in this market right now is way easier than showing a profit.
Beyond these firms, there are a plethora of companies who have scratched out a place in a rapidly more competitive cannabis industry landscape, one way or another. Most of these firms are also not making money (or not a lot of it anyway), creating a fertile ground for American M&A activity as a market entry strategy.
But just buying a distribution license and an existing team also is not a recipe for automatic success.
Exporting product is also not possible from the US (yet) and presumably won’t be for a long time. But even those firms planning or launching European production should remember that this is not the only competition in town. Most of Europe (see Denmark, Portugal, Spain, France, Poland, Switzerland, Greece, Italy, and Malta), every legalizing country in Central and Latin America, Africa, plus New Zealand, Australia and even Thailand, are looking to the German market with similar ideas (if perhaps not so much cash). And do not forget about the Israelis.
Buying into the market, in other words, is no guarantee for success. See Canopy Growth (for starters) as well as firms like Aphria, which are now merged with Tilray. Before that merger, Aphria made money not on its cannabis business here, but rather because of its (very expensive) purchase of a leading mainstream pharmaceutical distributor.
All of this cynicism may seem misplaced – but just remember that a mere five years ago, the Big Public Canadians acted like they ruled the roost and would do so for ever more.
That is not the case anymore, even when the Americans actually do get here in force.
The Rules Are Different
American firms are absolutely primed to make mistakes which can be costly in a market which is still lopsided, evolving and certainly fluid. The absolute best way to enter this market is to do one’s homework and hire a local consultant who knows the ropes and is willing to be honestly cynical about the realities of the market. Sometimes this can get you fired, but the firms who want to succeed here should remember that Europe is not the US, and that goes even more so for Germany.
You need people on your side who are not afraid to talk about pitfalls and have the knowledge to manoeuvre around them. Remember when selecting a consultant that the conventional wisdom is frequently wrong. This starts with looking to Berlin first and foremost as the epicentre of the German biz. It isn’t.
Further remember that while making noise by getting quoted pithily in the cannapress may stroke one’s ego, everyone does that (with varying degrees of success) and it does not sell product, although it can help with raising investment money in the short term. Especially having a presence in certain digital press that covers the industry, which is then amplified by social media. This can be a double-edged sword too.
Also remember that in Germany, in particular, the rules about advertising (along with strange beasts like Novel Food) are NOT ANYTHING AMERICANS RECOGNIZE. Particularly those with state level only experience under their belts.
The Canadians Fluffed Up, Big Time – Copying Their Model Is Not a Recipe for Success
It was in the air even before the Juicy Fields scandal blew up. Germans are fascinated with the cannabis plant – and the vertical – like everywhere else. However, after the much flubbed and highly controversial medical cannabis bid, not to mention the investing predilections of the average German (who tends not to invest in the stock market, including for retirement purposes), the idea of getting rich quickly by investing in an American version of what has come before is less than appetizing.
The industry is in trouble everywhere right now in North America – even in a country where federal reform has already come. This is a vertical based on a commodity that is rapidly normalizing.
There are also very big questions about what a “profitable” cannabis firm will look like here – not to mention what those with the best possibilities of survival. So far, they are firms with licensed access that is tightly controlled if not a monopoly. See all three cultivation holders and Cansativa in Germany, plus Bedrocan right across the Dutch Border.
Even these will not hold. There are several strategic lawsuits in the offing about the status quo. This is also not new. The German cultivation bid for medical cannabis was delayed twice by lawsuits. It is very likely that the next step will be plagued by the same too.
Don’t Think Your Domestic Legal Troubles Will Stay Put
Just like the Canadians before them, the largest American firms now entering the market in Germany have track records back home. Not all of them are good track records. This includes law suits, and of the class action kind, for, among other things, product liability problems. Plus at least one pending wrongful death claim.
Back in the “day,” Both Aurora and Canopy Growth expanded rapidly both at home and overseas circa 2016-2019. Both (and they were not alone) also faced major pesticide problems that drifted across the water, even though at that point the cannapress was more daunted and impressed with the industry and therefore was even more reluctant to discuss such problems.
Those days are over, no matter the sword rattling that big firms have and are still willing to do, expect such problems to get coverage in the digisphere. The world is now just too connected.
While it may be hazardous in the short term to criticize firms in the industry, those problems do not just disappear – something that investors are increasingly aware of. Just because there was a Juicy Fields (the biggest international cannascandal since CannTrust), it does not mean that investors are stupid – and won’t remember next time.
Eventually the biggest, hairiest problems show up in the public sphere because they don’t stop impacting the bottom line.
The McDonalds of Cannabis?
It is obvious to even the most casual observer that mainstream American products are actually increasing on German shelves. There is a McDonalds, Burger King, KFC, Domino’s Pizza, or Subway at almost every German train station and are also multiplying throughout rest stops on the autobahn.
Further, Germans love the idea of franchises.
It is not out of the question that an American cannabis brand or two manages to pull off a successful German invasion. Eventually.
However, merely buying shelf space or establishing brand or market presence by acquisition won’t be enough.
The Canadians learned this too – the hard way.
No matter what, however, the next 24-48 months are going to be very interesting as the details begin to emerge about what the shape of recreational reform will be. Expect many familiar American names to circle Deutschland, even if they land clumsily, or even flame out along the way.
The Americans may have landed, but it is very clear it is not D-Day.