As markets mature in the U.S., some companies are turning their focus to Germany. Canadian companies have faced tremendous competition causing many business models to break down. Too many licenses and plunging prices have forced several companies to merge or restructure. In the U.S., the California market is in disarray over outrageous taxes and a resurgent illicit market, while Colorado learns that having a first market advantage doesn’t mean it’s lasting.
New Jersey has undoubtedly given a boost to the lucky licensees that have been the first to sell adult-use cannabis. New York’s adult-use launch has been disappointing to say the least. That’s why some companies have zeroed in on Germany.
Market Start Date
Cantor Fitzgerald issued a report today looking at the German adult-use cannabis market and sizing it up. While the program isn’t even established yet, Analyst Pablo Zuanic believes sales could begin in early 2025. He wrote, “The actual start of sales may be more dependent on whether imports are allowed (a big if) or if only domestic production can supply the German rec market (Canada, the only G-7 rec market, does not allow imports). If imports are allowed (more likely from within the EU only, at first, at least), we think sales could begin as soon as early 2024E (assuming potential exporting countries enact rules that allow the export of rec cannabis).”
As the actual timing for the opening of the market remains a product of guesswork, the size of the market is equally hard to pin down. It’s hard to say how much cannabis the population will want to consume. Zuanic looked at the various U.S. states to try to gauge a number. If California clocks in at $130 per capita spending and Colorado comes in at $350, a conservative assumption would be $150 per capita for Germany. The analyst says that would imply a $3 billion market and if he bumps that up to $200 per capita, it could be a $17 billion market. A big caveat to these numbers is the currently existing medical marijuana in the country. That market, which started in 2017, has been slow to materialize, with only €300 million in sales. Besides Cantor, in 2018, Prohibition Partners had projected a €1Bn MMJ market by 2020 for Germany, and BDS Analytics predicted €800Mn by 2022. Both have been far off those targets leading Cantor to be more conservative.
German doctors have often only prescribed medical cannabis as a last resort. A separate option for cannabis consumers in the country has been the newly created wellness centers. These are typically associated with private prescribers, online pharmacies and out-of-pocket costs. It’s described as a ‘quasi-rec’ market giving medical marijuana access to more people willing to pay. However, it demonstrates the stigma that cannabis continues to face in the country as doctors are reluctant to jump on board without more studies to back up the prescriptions.
The companies that have targeted the German market are a mix of well-known public players and some private companies. The publicly traded companies are:
- Aurora Cannabis (NASDAQ: ACB)
- Canopy Growth (NASDAQ: CGC)
- Tilray (NASDAQ: TLRY)
- Clever Leaves (NASDAQ: CLVR)
The privately owned companies include:
- CannaMedical Pharma
- Four20 Pharma
- Little Green Pharma
Tilray – Tilray claims it is the market leader both in flower and full-spectrum extracts, and claims the best distribution reach. However, Cantor notes that several other sources question the notion that Tilray is the market leader in flower MMJ. Market data points to Tilray having a 15% market share, while the company suggests the actual number is closer to 20%. The report stated, “Tilray flower is sold to pharmacies at €8.59 per gram, above the market average estimated at €7. Tilray began domestic production last year (one of three licensees, together with Aurora and Demecan), and it also imports from its facilities in Portugal (where we were told by management it can produce up to 20 tons). Based on its current German presence, global scale, and proven expertise, we expect the company to be a relevant player in the future German rec market.”
Aurora Cannabis – Zuanic wrote that Aurora management says its number two in medical flower with 17% volume share and that Bedrocan is number one (but the Bedrocan product is distributed across various wholesalers, and not always captured by the Insight Health under the Bedrocan brand). The report said, “Aurora also holds one of the three licenses to produce med cannabis in Germany (combined, the three licenses amount to a 2.6-ton quota), and we were told by management that operations began in July 2022.” Cantor thinks Aurora could snag one of the adult-use licenses and become a key player.
Canopy Growth – Cantor says that Canopy Growth remains a top-five player in the German flower market, with consistent supply from its Canadian facilities, selling under its own brands(although it seems it will need to transfer its Spectrum brand to the new owners of C3). Zuanic wrote, “In our view, if Germany decides to allow only domestic production and imports from only within the EU, Canopy Growth will need to find local partners or build new capacity.”
Clever Leaves – The Cantor report said, “In our view, the company is more in an early-stage phase in Germany compared with its larger peers, but its five-pronged route to market in Germany gives it options depending on the framework that Germany ends up implementing for rec cannabis.” According to Cantor, Clever Leaves supplies two CBD-only extracts to Ethypharm (a small local pharma company); it supplies bulk cannabis extracts to FoliuMed and it ships high THC cannabis flower to wholesale/distributor Cansativa (in which it owns a 9% equity stake). Cantor also said Clever Leaves distributes its own medical flower brand Iqanna; and recently announced an agreement with importer/wholesaler Cantourage to sell a second high potency flower SKU under the Iqanna brand.
While it’s too soon to know who will be the winners or losers in the German market, Aurora and Tilray currently seem to be the best-positioned. Cantor also pointed out that Curaleaf recently acquired Four20 Pharma, one of the top five players. So, the Curaleaf competition can’t be measured just yet. Zuanic thinks as the U.S.legalization situation remains undetermined, some investors may want to shift their focus to Germany and put these names back on the radar.
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