The news last week that the German Minister of Health would go slow thanks to party pressure is a mixed bag for the development of the cannabis industry – but is not totally a bad thing
Spring fever has already come and gone this year when it comes to the cannabis conversation in Germany. Despite months of promises about scheduling and legislation progression, when push came to shove, Karl Lauterbach, the German Health Minister, was literally delayed by his own party last week, although spun it slightly differently.
Literally the day before the deadline Lauterbach had been announcing loudly for at least the past year, the SPD issued the extraordinary statement that they had decided to put partial brakes on the whole thing, citing “European law” although this might as well have been substituted with “CDU politicians from Bavaria.”
This too, is not largely surprising, particularly given domestic opposition to a full-fledged, first step recreational cannabis market over the past 12 months, particularly from this part of the political spectrum.
Here is the interesting thing. It is going to be possible to find large parts of the “cannabis industry” who agree with this decision, particularly given recent developments, scandals and lack of accountability even in the medical market.
When it comes to conventional wisdom in weed, greater legalization is always a good thing. However, as has become increasingly clear over the last nine years, the kind of legalization allowed so far is usually so flawed that it creates other problems. This includes in Canada, business plans and financial engineering that were never going to be sustainable, in the United States a state market that has not even figured this part out and in Europe an industry at once given shape and hobbled by regulation that is frequently, even in one country, at odds with itself.
Given this track record, not to mention the growing understanding about cannabis as well as moving legislation globally, it remains inevitable that the German government will have to do something, and soon on this issue. That it will be, for at least the first step, a far cry from sally forth, full speed, is not necessarily a bad thing.
Below are the big reasons why.
European Precedent Is Needed
As both Malta and Luxembourg (whose “new ruling coalition” declared the path to legalization within five years, five years ago, has learned), saying something popular at a national level during an election is a far cry from making that happen. Cannabis legalization has been thrown, inevitably into that mix.
Decriminalizing the plant, and allowing essentially a craft, non-profit market to gain a foothold is also a very respectable first step. It’s getting to the next one which is proving so challenging.
Home Grow, Social Clubs and Decrim Are Not a Bad Start
Here is one thing to understand from a governmental point of view. As soon as legalization legislation passes, the next infrastructure of departmental authorization, permitting, taxing and zoning must be put in place. This is a bugbear, and has also been screwed up, royally, just about everywhere. See California, but also a lot of other places right now too.
In Canada, financial engineering of a highly dubious nature allowed a small club of those who knew how to perform a reverse IPO on the Toronto Exchange (and were allowed to do so for this purpose) overcame a naturally evolving, patient-based network before essentially flaming out based on fraud if not generally faulty business assumptions and operations.
Government control of sales also failed.
In the United States, particularly at this point, it is also possible to say essentially the same thing, especially since it has emerged that the real power in the room on the MSO front, Curaleaf, got its financial backing from Russians of oligarchic pasts as the institutional capital in the room stayed mostly distant.
The reality is that at this point, particularly given other financial considerations (higher interest rates, multiple scandals in both the financial and cannabis worlds, and poor performance for the vast majority of investors) a highly oversubscribed bubble has just gone pop. Further, this bubble would have popped several years ago if not for Covid.
The Industry and Governments Needs to Fix Big Issues
Betting on the size of the ever-expanding market is a game played by just about everyone, from startups to funded corporates. Having an efficient supply chain and regular sales is another discussion – and very few people actually have that. It is not just something that one can “buy” into.
So far, that process, of legitimately gaining market share that is sustainable, has evaded every cannabis brand and company because it has just not been sustainable before. And so far, the governments who have tried their hands at legislating cannabis markets have also run into repeated issues – from too high tax rates to not thinking through access issues on the medical side.
The question is, however, how to make it that way for markets and consumers – both in evolving and existing markets.
The current direction of the German government seems to be the only sensible step at this juncture. And not really unlike what is going on in Switzerland right now too.
Coverage For the Critically Ill
Here is another unpleasant reality in the room. The numbers of those who need cannabis – either because of a debilitating disease or age, or both – are growing. This, however, is far from the chic, shiny market the cannabis world wants to be and the corporate pharmacy world already is. Particularly given thorny questions of who pays, and for what.
When used as medicine, cannabis works extraordinarily well in lightly processed forms – from proper drying to basic extraction. This means it is well on track to becoming a widely recognized generic, no matter the future extractions, isolations, and recombinations of cannabinoids on the horizon, including in unique delivery mechanisms.
Who will be able to afford them is another matter. As German insurers have proved over the last six years, approvals of a still expensive monthly medication that is approved essentially forever is an expensive proposition.
There has to be an escape hatch. The German government has just taken it.
The proposed compromise, home grow and social clubs, is not a perfect solution. But it is for right now.
The Stymied Industry?
The German cannabis industry has gone through several iterations at this point, and it is safe to say that the “Canadian Wave,” has largely petered out, while the American one is now on hold.
What perpetuation of the status quo means, which is what the currently proposed decrim with home grow and clubs also creates, is that the commercial industry is essentially robbed of capital and a chance to legally expand domestically.
This is a breath of fresh air to all the struggling distributors in the market right now, although it won’t save all of them.
And in the meantime, patients essentially get an escape hatch from the unbelievably strict, dangerous box into which they had been backed.
Last week’s developments to delay a fully legal recreational cannabis market, in other words, are not a loss – far from it in fact. And may in fact be just the breather the industry needs to figure out how to address the major issues still looming in a market which is far from mature, even on the medical and CBD fronts.