Germany’s Most Promising Cannabis Companies

Marguerite Arnold

May 3rd, 2017

Policy, Top News

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The Green Machine is about to take off in Germany and foreign investors and other companies are paying attention. The German government has now not only made medical use legal and covered under health insurance here, but has put establishment of a domestic regulated industry on the fast track.

Many Americans in particular at the recent ICBC event in Berlin remarked how similar the market feels to the U.S. about a decade ago.  However appearances if not the state of the status quo are a bit deceiving.

The event was a huge success. And while most companies in attendance this year were foreign (mostly Canadian and American), there were significant locals too. Speakers and panellists all spoke with reserved optimism about the real potential of this market to firmly establish the legitimacy of medical globally. Conference attendees were also invigorated by the news that Germany’s first domestic grow licenses were finally up for bid. Even though controversial in that it mandates foreign partnerships, the fact that this is all now happening means reform has finally arrived here. There is now no more stalling or turning back.

A Birds Eye View of The Domestic German Market

Germany has been on the road to legalization for quite a few years. That means that the country’s cannabis business vertical now has all the potential to take off like a rocket. There are currently about 1,000 patients here receiving cannabis by prescription. The government itself expects between 5-10,000 new patients per year from now on. That could also go a lot faster.

The country has also been conducting peer-reviewed medical studies on the drug (even before this year) that have looked at its medical efficacy at a time when such things remain verboten in the United States due to scheduling issues.

As a result, even as the German government released its first tender bid (essentially a federal request for proposal) for the first 10 “grow licenses” in Germany, there are already profitable cannabis vertical companies here that are also on the road to further market expansion.

Who Are These Masked Wonders?

There are three companies that stood out at the ICBC. Two are established German players. One is a newbie upstart with a billion dollars of market cap behind it. The areas they represent are also hot, hot, hot for American and Canadian investors in particular, the former in particular who are tired of federal restrictions that prevent safer investments.

MedCann GmbH. This cannabis start up has all the mo of a company in the right place at the right time. Founded by American expat Dr. Pierre Debs and a German partner, MedCann became the first German company to obtain import licenses last year. The strategic importance of that in the German if not wider European market cannot be underestimated, particularly given the other players at the table. MedCann was bought out by Canopy Growth late last year. As a result of this, the company has clear market advantage domestically not to mention a major head start. That includes the only “experimental” import license in the country right now, almost no competition yet, and an exploding market. Even before the announcement of the licenses was made public last summer, legal cannabis sales by prescription, doubled in pharmacies almost overnight.

Storz & Bickel. If you have never heard of the company or it sounds a bit unfamiliar, check your favourite Volcano vape. These are the guys who make it. They are what is known affectionately in Germany as a “Mittelstand” company. Started in the 1990’s when there was no real commercial marijuana market anywhere except Holland, the company has until now found profitability with a 90% export rate. It now finds itself in an even better position back home. In an environment where not only the drug but medical devices used to consume it will be covered by public health insurance, the company is suddenly competitive with less expensive and less established players on the block.

VTA (Distributed by Root Sciences). This company is another one of the hidden gems in the global marijuana market. The company literally sits at one of the most interesting places of the global market. They also sit poised to gain significant domestic if not EU market share as a result of how regulation is developing here. Rewind just a few years, and the issue of marijuana concentrates was motivating entire U.S. states if not countries (including Canada and Holland) to consider their ban altogether. Today, as a result of the medical focus the government is trying to jumpstart now, they may well be the face of future market development across the continent (at minimum). The reason? Their extraction machines, made originally for the “regular” if not “mainstream” pharmaceutical industry here (which is large) can be used to purify weed too. That means that removing impurities will be a German “specialty” and spells use in all things pharma as well as edibles down the road.

What Foreign Investors Should Look For

Remember that this is a federally legal market. That means that companies that do go public here will face none of the headaches still facing U.S. facing canna companies who want to get listed.  That said, there aren’t any real direct cannabis plays at this level in the German market. Alternatively, foreign investors should look for existing public companies moving into this space, particularly in the pharma area. German companies also have to raise money in very different ways than American firms and have less exposure to the equity market. Direct co-investments in strategic parts of the industry, even if with established players, and or via strategic partnership is a good bet right now.

In the shorter term, however, the start up market is about to get going here, including beyond just growing. Weedtech is going to be huge here for the right players.

Just be aware that the rules are different here, the game a little more subdued, but the gains no less potentially impressive.

What About Recreational?

As with everywhere else, medical is leading. Here it will be able to establish a huge and very different market entrance from the beginning. Those who get in the game now, will have clear advantages when recreational reform comes, and it will. It is also likely to come as soon as a year or two in the form of “city trials” in places like Bremen, Berlin, Cologne, Dusseldorf, Frankfurt and other large cities with open drug markets the police are eager to shut down.

For now, however understand that the only plays here are medical, but in an environment where the basic questions about insurance and banking have already been dealt with.

About Marguerite Arnold

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