Thu, 18 April 2024
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Who will profit from legal cannabis in Germany?

Update : 10 Mar 2024, 19:23

Grass, weed, cannabis: Smoking dope is set to become legal in Germany. It's unclear when the new law will come into force, but it's already apparent who will benefit financially — and who won't.

Dirk Rehahn isn't popping the champagne corks just yet. "I still don't quite dare celebrate," the entrepreneur says. He already has good reason to, though: Traffic to his two websites has increased massively since February 23.

That was the day the German parliament passed the government's draft law "on the controlled distribution of cannabis to adults for consumption purposes." It stipulates that all adults will be allowed to grow three cannabis plants at home and keep up to 50 grams (1.75 ounces) of cannabis there, and may also carry up to 25 grams on their person.

The law was scheduled to come into force in April, but, according to media reports, it could now be delayed, which is why Rehahn is being cautious. Nonetheless, it already seems clear that, if the law is implemented according to plan, he will be one of the winners.
Rehahn sells all kinds of goods related to cannabis cultivation. They could be described as greenhouse technology and gardening supplies. His best seller is a DIY "grow set": a tent the size of a refrigerator, with lamps, ventilation systems and measuring technology.

The cheapest costs more than 500 euros, the most expensive almost 1,500 euros. Right now, though, they are all sold out. "People are overcoming their reservations about growing their own cannabis," Rehahn told DW.

Cannabis cultivation market is booming

Rehahn has, in the past, spent two years in jail for assisting the cultivation of cannabis. It was after this, in 2011, that he started his wholesale business. Since then, when advising customers, he speaks of growing chilies, tomatoes, and broccoli.

He's looking forward to being "allowed to give advice perfectly normally." Rehahn has four permanent employees at his two stores, Drehandel and Dirks Growshop, which together had a turnover of two million euros last year. He anticipates that this year it will increase to three or four million.

Morale is also very good among other suppliers in the so-called growing industry. Seeds 24, an Austrian company that sells hemp seeds, the Hamburg-based supplier Growmark, and others are warning that there are long waits for delivery. The online shop Grow Guru comments: "All our shops and suppliers are currently overwhelmed with customers."  

No big business with recreational cannabis
But not everyone in the industry has reason to celebrate. Those who were betting on comprehensive legalization have come away empty-handed. There will be no specialist shops selling cannabis. Importers, distributors, and shop owners will all have to seek new business models.

The law says that recreational cannabis will either be cultivated by users at home or consumed in so-called "non-commercial cultivation associations," also known as "cannabis social clubs."

"Our business model was never predicated on legislation, fortunately," says Philip Schetter, the CEO of Cantourage, a company that specializes in importing and processing cannabis for medicinal use, and also runs a specialist cannabis clinic in London. Based in Berlin, the company says it has 50 employees in Germany and 25 in Britain.

Cantourage was floated on the stock market at the end of 2022. Since then, its share price has more than halved. As for many others in the industry, Cantourage's problem is that there hasn't been a really big breakthrough.

"Unlike other companies in our field, though, we're showing strong growth, and at least we're not losing money," says Schetter. He states that in the first nine months of 2023 the company had a turnover of 17 million euros.

Schetter told DW that because Cantourage doesn't have expensive production facilities of its own, the running costs are manageable. "We're prepared for whatever comes," he added confidently. The greatest potential, in his view, is in cannabis reclassification.

Medical cannabis: From poor relation to profit driver
The change in the law will also mean that cannabis for medicinal use is no longer classified as a narcotic. This will make it much easier to prescribe. "Companies already in the medical cannabis business will benefit disproportionately," says Finn Hänsel, founder and CEO of the Sanity Group.

His company has already turned its back on some areas of activity and laid off employees because the process of legislation is taking so long. However, Hänsel remains committed to the medical market. "We had hoped for more overall, but there's still a lot of potential in the pharmaceutical market," Hänsel told DW.

Taking a long-term approach

But there is still a small window of opportunity for the companies to do business with recreational cannabis. In the medium term, the state is planning to allow "commercial supply chains" in selected towns and districts.

If these pilot projects go ahead, in Berlin, Cologne and other places, they could bring in additional millions via the cash registers of specialist shops. Details of these pilot projects will be revealed in the summer. People who want to stay in the market need to have patience and a long-term approach.

Not, however, in the case of online retailer Dirk Rehahn. As was the case during the gold rush, it's the one who sells the sieves and spades who has the best chance of making good money.

Rehahn doesn't want to tie himself down too firmly, though. The cannabis industry is very dynamic, he says. Other business models may be more successful in the medium term. "Almost all the small, pioneering health food shops in the town centers have been displaced by big chains. The same thing could happen to us.

 

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