The Bundestag must still sign off, but cannabis legalization in Germany is clearly still inching forward. Will recreational reform finally come to the continent, a decade after such efforts began to be seen in North America next year?

In what has made global news already, the German cabinet approved a draft bill to legalize the recreational use of cannabis on Wednesday, August 16. It’s a sign that summer is actually coming to close, and, certainly politically and administratively, the government means business on this issue this fall.

As a result, this is a huge step, more or less on timing that was announced this spring, even though the legislation must now be approved in the Bundestag (parliament). As a result, the next steps in legalization are still not a foregone conclusion. A recent Der Spiegel poll seemed to find that most people in Germany oppose legalization, although there have been other polls showing that a definite shift has now taken place and the majority, even if narrowly, are ready to give this a go. That does not mean that there has not been strong and sustained criticism internally. On the public policy side, there is no denying that prohibition has completely failed, just as it has everywhere else.

The process is also happening in a fairly standard way, politically here. This includes, more or less, proceeding on a schedule, and delivering a political promise that has now been in the offing for two years. That does not mean, however, that the Germans are going to do it exactly like anyone else before, although there are clearly similarities between US state and Canadian federal reform.

That said, this is also a warning to all those now looking to Europe for an expansion of their business from North America. It’s not going to be “the same,” and the differences will be costly to navigate without an expert to guide the process through on the ground.

This starts with the pace of reform.

Indeed, as it is, the legislation is already a kind of “Cannabis Lite” or Cannabis Legalization .50. It was watered down, considerably, to what was originally promised by the coalition when they won power in 2021. The first step is an effective decriminalization, with the establishment of only non-profit, non-consumption on site, “cannabis clubs.” Limited home grow of three plants will also be allowed.

The second step, planned for next year, is the most contentious aspect of the entire enchilada. Namely it will allow for controlled commercial distribution of recreational cannabis in regional trials, probably akin to what is happening in Switzerland right now. This is the part that was stripped from what was originally proposed by Karl Lauterbach, current Health Minister, and the man to go to for making all of this happen. Indeed, his PR budget was threatened by the government if he did not deliver this draft by the end of the year. That is a significant threat at a time when the entire government is also facing more generally, widespread criticism over its performance to date.

The reason of course that all of this is so controversial from a legal perspective is that the entire issue of the legal sale of recreational cannabis runs directly counter to the 1961 Convention on Narcotic Drugs. That is why the first step into this entire enchilada in 2017, when medical reform was passed in Germany was not as problematic and could not be challenged by anti-cannabis forces in the government as easily. In fact, the bill passed parliament unanimously. It was in this case, a foregone conclusion. Particularly as German patients began to win their cases, including for home grow, in still highly conservative German courts. There are many in the legal profession, starting with progressive judges, who support this kind of reform, just because they are tired of seeing small home grow and patient possession cases end up in their court rooms.

It is for this reason, however, that German cannabis clubs will be forced to operate as non-profit grower collectives.

The Issues at Stake

Many cannabis reformers and advocates domestically have already criticized the effort, and for several good reasons, starting with the fact that this creates the spectre of a vast grey market which is almost impossible to police. Here are a few more specific issues:

1. The clubs will be in a kind of grey zone when it comes to regulation. They will almost certainly be required to be permitted and will clearly require a not insignificant injection of capital to get off the ground to begin with, beyond mere real estate leases. Product liability issues loom large as does the entire discussion of consumer safety. Beyond that, it will be difficult to maintain accountability in an environment where yield per plant is still an uncertain science, even in GMP environments. And then there is the matter of cost to the consumer. Will the clubs be able to compete with either the black market or pharmaceutical distribution, particularly if they have to prohibit actual sales and roll the cost of the production into the club membership? Only time will tell.
2. The “next step” – namely the passage of legislation allowing for limited test markets is cause to cheer, but as in Switzerland, is going to be a painful, drawn-out experience. Expect at minimum, the spectre of at minimum, municipal bans on shops, if not the entire state of Bavaria to rival anything that has been seen in the US so far. Then there are the expenses of actually getting into the trials. If they haven’t been cash strapped so far, companies can expect to see large expenditures and outlays in a number of fronts even to qualify. This includes a serious conversation about product liability issues that has really not been had so far. Advertising, not unsurprisingly, is off the table, as it has been in other countries. How that will translate into online discussion is another matter.
3. Other European countries, starting with the Czech Republic, will also almost immediately follow suit, which is good news for the overall discussion, but is also likely to create a patchwork of European “MSOs” who can operate in various states. Several of those will be Canadian, and almost certainly several will be German.
4. Financing will start to flow back into the industry after a general hiatus since Covid began, but only for those entities which are legal and certified, which is going to weed out the smaller operators hoping to make their name if not paycheck in the pending German green rush. The division between the few holding the fort and those struggling to hold on will continue to widen, starting of course, with German specialty distributors.
5. This is going to be a highly limited market, and for a long time. Starting with the fact that the only products the clubs will be able to offer are both flower and hash.
6. Full legalization is easily on a ten-year trajectory, both in Germany and across Europe. Even if Germany, and presumably at least the CR and Portugal if not Austria follow suit relatively quickly, one only has to look at the Swiss Recreational Trial or even the Dutch national regulation of cultivation and distribution to understand how slowly this will be implemented.

The Industry vs Patients?

It will be interesting to watch the development of a commercial industry in an environment where many cannabis afficionados are going to immediately start producing their own, at home, if not cooperating in a local grow establishment. This is certainly going to drain a certain amount of business from commercial brands hoping to enter the space as the market develops. That said, not every cannabis consumer wants, or has the space to grow at home. This is the establishment of a new industry and vertical, even if it is clearly going to be, as they say aus Deutsch, certainly schritt für schritt (slowly, step by step.)

In the meantime, patients hopefully will face fewer access issues, but the process of getting approved by health insurers is still slow and strewn with legal costs. And many patients will not be able to produce enough for their own needs, even with an effective home grow.

Regardless, all of this is good news for an industry that has certainly taken root in Europe if not Germany. And while it is clearly not take off time, yet, the powers that be are clearly moving into position on the runway.