B2B Firms Positioned to Meet Recreational Demand as Germany Moves to Legalize Cannabis

As the first EU country to lay out a comprehensive framework for cannabis regulation, Germany is in a position to set the agenda and provide a regional rule book for the cultivation and use of the recreational drug, according to the country’s health minister Karl Lauterbach.

“If this law comes to pass, it would be the most liberal project to legalize cannabis in Europe, but also the most regulated market,” The Guardian reported Lauterbach saying at a recent press conference in Berlin. “It could be a model for Europe,” he added.

Moreover, if a study by researchers at the Heinrich Heine University Duesseldorf is correct, that regulated market could soon be contributing to annual tax revenues and cost savings of about €4.7 billion ($4.67 billion) for the German government.

So, while German and EU policy issues are being assessed, the businesses set to gain from full cannabis legalization are biding their time.

For example, one of Germany’s popular and well-funded cannabis firms, Bloomwell Group, currently operates solely as a holding company for businesses that focus on the entire value chain of medical cannabis except cultivation.

The Bloomwell Group, which has made no secret of its intention to tap into recreational demand when the law allows, is preparing to hit the ground running when legislative reform comes into effect to tap into opportunities provided by the hugely underdeveloped market across the region.

EU Approval Non-Negotiable

For the law to materialize, Chancellor Olaf Scholz’s ruling coalition has made it clear that it would need a stamp of approval from European Union authorities before moving the project forward. In fact, the German government has recently submitted a proposal to the European Commission and has stated that it will only draft a law once the Commission approves the plan.

Unlike the first U.S. states that have often pitted themselves directly against federal prohibition when they initially moved to legalize cannabis, German policymakers appear keen to ensure that affected parties can operate within clearly defined legal parameters.

Like all EU countries, the country is subject to the UN Single Convention on Narcotic Drugs (UNSCND), which prohibits the production and distribution of cannabis as a consumer product. And the challenge of regulating an industry that is still largely criminalized by international law is part of the reason for the laissez-faire approach favored by countries like Spain and the Netherlands.

However, the only reason decriminalization hasn’t led to the kinds of policy clashes witnessed in the U.S., where contradictory overlapping law enforcement regimes have created all kinds of headaches for the cannabis industry in its formative years, is that policing in the EU is almost entirely the remit of the individual member states.

Related: Cannabis Firms See Prices Rise Ahead of Senate Hearing on Decriminalization

A common judiciary, on the other hand, is a central pillar of the union, and should any new cannabis legislation end up in the European Court of Justice, German lawmakers will want to have taken every precaution to ensure it stands up to rigorous scrutiny.

Under the decriminalization regime in neighboring countries, the licensed, taxable companies in the cannabis industry exist at the consumer-facing end, while on the business-to-business (B2B) side, full transparency is a near impossible task leaving many growers operating from the shadows.

For paying suppliers, the current system creates unnecessarily complex and irregular supply chains for a business process that is relatively straightforward in other sectors.

Learn more: Cannabis Industry Sees Rising Demand for B2B Payments, Cash Flow and AR Services

As a result, businesses across Europe that deal in cannabis, whether medical, recreational or otherwise, find their hands tied as fully regulated entities unable to cultivate the plant without risking exposure to technically illegal enterprises — robes that will be untied once the legislation is approved by the EU.

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