Can German pot succeed in a crowded medicinal marijuana market?
Commercial hemp growers in Neumnster, Germany, were recently jubilant about their first legal marijuana harvest. Owned and operated by Canadian cannabis company Aphria RX, the plantation has grown a batch of 50 kilograms (110 pounds). The company told DW in a statement that they aim to expand production to "about a ton in the course of the next 12 months." Security precautions are tight at Aphria RX's indoor growing facility, with the controversial plants grown behind tall concrete walls with barbed wire. That is because the use of medical marijuana in Germany still falls under sweeping narcotics laws overseen by the Institute for Drugs and Medical Devices (BfArM). Now the first supplies from Neumnster have been sent to pharmacies all over Germany and will be distributed "by prescription only" to patients suffering mainly from pain, spasticity or anorexia. The use of cannabis for medicinal purposes was legalized in Germany in 2017. The BfArM institute chose three cultivators in 2019 to ensure s national supply  two of which, Aurora Cannabis and Aphria RX, are based in Canada, while the other is Germany-based startup Demecan. Security requirements for cannabis cultivation in Germany are high forcing producers to grow the plant behind barbed wire  So far, however, only Aphria RX has come onto the German market, with the other two contractors remaining vague about production starts in statements to DW. Aurora said it was currently importing cannabis from Canada, which was why "assessing when first deliveries will be made is impossible." Demecan is planning for its local production site to be operational by the third quarter of this year, hoping "to harvest a first crop as soon as possible thereafter." The Demecan facility will have its topping-out ceremony on July 15. A series of mishaps  Under the 2017 cannabis legalization plan, cultivators were expected to deliver homegrown German marijuana by the end of 2020. But supply bottlenecks emerged during the COVID-19 pandemic, forcing the contracted companies to delay production. Aphria RX's recent 50-kilogram harvest, therefore, was "mostly symbolic," said Alfredo Pascual, a cannabis market analyst at investment firm Seed Innovations. "Production in Germany has repeatedly been delayed and we have no assurances at all as to how much cannabis will be harvested or delivered over the next few months," he told DW, adding that it will be interesting to see if the contractors stick to their supply promises. Many companies smell a multimillion-dollar business opportunity  Apart from operational delays, the launch of German cannabis was initially upheld by regulatory mishaps. In 2018, a court stopped the tendering process for firms wishing to grow and supply cannabis, saying the process had taken place over too short a period of time. Pot demand growing  "It's a positive signal that the cultivation of cannabis has finally started here. It'll lead to more medical doctors acquainting themselves with cannabis treatments," said Jrgen Neumeyer, the managing director of the German Cannabis Business Industry Association (BvCW). In an interview with DW, he noted that cannabinoids were still niche products, but demand was constantly growing since medical marijuana had been legalized. Germany's public health insurance companies don't publish data about how many patients are prescribed medicinal cannabis. But industry analysts have estimated that the figure could be around 90,000 people. Neumeyer is skeptical that German growers alone will ever be able to "plug the current supply bottlenecks," saying that imports are bound to rise. In 2020, the German market imported a record 9,249 kilograms, according to BfArM data. The contracted production totals 10,400 kilograms over a period of four years, but the contracts include a clause that allows the three competitors to increase their German production by 10% during that period. Price pressure  Since German medicinal marijuana is grown at the behest of the government, it's the authorities that determine the price. Until the beginning of 2019, there were reports of Canadian exporters selling unprocessed cannabis for 8.80 ($10.44) a gram in Germany. But BfArM has now set the wholesale price for medical cannabis cultivated in Germany at 2.30 per gram. Stephan Kramer, the chief executive of pharmaceutical wholesaler Heyday, believes there will be price pressures, but no price wars as German domestic production comes online. "Cannabis retail prices will adjust lower in the next 12 to 18 months," he told DW in an email. Downward pressure would also result from mounting imports from abroad because the operational costs of growing marijuana abroad were much lower, he added. The Heyday CEO, who imports cannabis products mainly from Portugal, cherishes lower labor costs in the southern EU country, its ideal climatic conditions, and its low regulatory requirements. Seed Innovations analyst Alfredo Pascual said it would be a "significant development" if German domestic production really made up about a quarter of the national market as planned. "[But] as long as German producers will be forced to grow only in bunkers, it's cheaper elsewhere," he added. Pascual argues it could be more profitable for German companies to focus on the downstream parts of the cannabis supply chain, like processed cannabinoid products. German patients looking for pot could be the winners of tighter competition on the domestic market. According to Techniker Krankenkasse, a public health company, costs for a month-long therapy could be between 200 and 2,200. But most of the publicly run funds still reject reimbursement for about 40% of all patients seeking such a therapy. They would most likely not object to a good dose of pricing competition in the German cannabis market. This article was adapted from German