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Episode 334 · 3 months ago

Germany has approved Cannabis For Medical Use, and Legalization for Recreation Is Next

ABOUT THIS EPISODE

Management Summary

Germany has a coalition government in power. The coalition contract of the three governing parties “Koalitionsvertrag” wants to enable the recreational use of cannabis in Germany, during this term. Jakob and Benedikt give us an update on the timeline, expected market size, and how Canasativa wants to get a big share of this market. The brothers also expect the legalization in Germany to have a domino effect in the EU kicking off a round of legalization in other countries.

We expect legalization in Germany to be just the start for legalizing cannabis for recreational use in the European Union.Benedikt Sons Co-Founder and CEO of Cansativa

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We are building the leading retail platform for in Germany, as well as the leading B2B marketplace in cannabis.Benedikt Sons Co-Founder and CEO of Cansativa

Find all links and show notes here

Welcome to start up bread, that I own, your podcast and Youtube blog covering the German startup scene with News, interviews and live events. Hello and welcome everybody. This is Joe From Start Barto all your start up podcast and Youtube blog from Germany, Austria and Switzerland. Today I have guests again here with me, the brothers who founded one of the first medical cannabis startups here in Germany. Call it Kanzativa. Hey, guys, how are you doing? Good? How are you? Hey? How are you and doing great. Thank you. I was taking a look into, so to say, my archives, and our first interview was published in April two thousand and twenty. So we'll soon get to what has happened since, but first I would like to thank our enables. This interview was made possible by invest in Hassan and start up ravencom. If you like to learn more about them, you can go down here in the show notes and have a look. Guys, I still remember you. Guys are brothers, and I still remember a lot of very funny stories from our first interview. For example, there was a spider crawling over censor that almost locked down half of the city of Frankfurt. And I remember that one of you had to excuse themselves in a very reputable law firm to go home and receive a big deliver of cannabis. That is stuff that I remember. But can you tell our audience, who maybe never heard or seeing you, who you are and what do you what you did before and what are you doing now in the company? Yeah, that's absolutely true, and especially the spider story. That's really amazing. From my background, I'm Ben Addict. I studied industrial engineering and management, work for several years in Strategy Consulting and founded cancer tiven two thousand and seventeen together with my brother Jacob. I'm responsible for all commercial matters within the company. Yeah, thank you very much for having us and yeah, I'm very happy to give like a very short overview of my background. So I've background and law, studied law and I actually was the guy that took his is a lunch breaks to yeah, get get some cannabis delivered. Feels very far away now that I actually worked at a law firm. Today at Kansativa, I'm still a bit into the the legal and regulatory stuff. So my responsibility in the management is being reported by our head of legal head of regulatory affairs, head of...

...qualities, everything which is relating to operations and the compliance and regular regulatory dimension of the business. And Yeah, so very nice stories and the topics that you were relating to. I think there's a lot of new and good stuff that that we can talk about. My personal experience living here in and around Frankfort for quite some time now, I can at at least say that from my personal experience, there was no false alarm locking down half of Frankfort from you guys. Would you agree to that? Yes, definitely. So we moved our facility to me in Waldorf, which is a small city nearly frings for the airport and it is in a more industrial area. We have some false alarms, yeah, from time to time, especially when we have some some works done at the at the systems. For example, we have now a significantly bigger save room, a strong room, and once, yeah, you finish all those corns construction works, they have to put all the the new parameters into the systems and you get false alarms every second week. But it is something that you can you can work along with the police and it's it's it's not that unique and not that new. Anymore so that they actually shut down the streets and sent the the SWAT team. So, yeah, it's a bit day to day business today. I see when you've been talking about the strong room, would have had in mind was something like a big vault that is in the basement of a bank, or something close to that. Yes, so something very close to that. It's not in the basement, because this would be quite annoying for all logistics team. It is on a ground level, but basically the same that you can expect. So very strong walls made of steel and concrete, camera surveiliance everywhere. And actually what's what is required if you handle the cotics and in still, even if we are talking about legalization cannabis today, at least those products that we handle a regulated as in the cotics. And yes, that's why we put them into a huge vault. That also brings us to our next topic, because these said, they are regulated like a cordics. You can get them on prescription from a doctor for certain indications. I'm not going to go into that. That's the area of the doctors. But basically we're here today because you've been talking about the medical cannabis market and we will soon talk about experiences there,...

...but basically there is a new coalition in Germany under all of shoals and within their contract. So there are three parties getting together to form a government here in Germany, and in the contract where he got together, they put in legalization of cannabis for recreational use. So that's the main point we will be talking about here, but can you share a little bit your experience in a short wrap up? How was it that cannabis became legal for medical use here in Germany? Yeah, absolutely so. The market kind of grew really rapidly and very significantly. In two thousand and seventeen we had roundabout a medical cannabis flowers market of one point seven metric tons. This grew too, close to ten metric tons in two thousand and twenty and for the last year, two thousand and twenty twenty one, we are talking already about like twelve, point five up to fifteen metric tons. This is huge. For this year we expect even more, probably fifteen or even up to twenty metric tons. This is a significant addressable market, but compared to the recreational market, which is, depending on different estimations, even four hundred or eight hundred metric tons big. It's rather small. I was just trying to find where what that may be in US values, because there's still using very, very strange values here, but I could not find it right now. But twelve metric tons, that's quite a lot. How big is your market share in that? So we have a significant market share. This is due to our very special and exclusive role as the leading partner and the exclusive partner of the socalled bee farm, so to say. We are the exclusive partner of the Cannabis Agency and we are therefore the exclusive distributor of cannabis from domestic cultivation, and cannabis from domestic cultivation itself is two point six metric tons on an annual base, which is a significant portion of like a total market, and we have this exclusivity for the next four years. Yeah, summing up to ten point four tons metric tons over this four years. And obviously, in addition to our domestic cannabis that we are bringing into the pharmacies on a daily base, we are also having the biggest and the leading product portfolio of imported medical cannabis flowers. You were talking about thirty suppliers, fifteen different country origins, which is significant,...

...and therefore we would consider ourselves always as the d leading cannabis platform in Germany. I see and for everybody from thes one metric ton is two thousand, two hundred and five pounds. I found it eventually, and and you guys have been, with that approach, pretty successful. I've been looking up and you guys raised something a little bit about twenty million d as dollars in VC money. You even made it into mainstream media because one of your investors, to lead investors in your series be funding, was Casa Verda. For everybody who doesn't know that, that's the investment vehicle of Snoop Dog, but I do believe he also believes in you and in what is coming. I'm talking a little bit about the future here. As we said, there is a contract, there is a will to make a law. The even even even the draft of law is not here yet. So you way ahead of the curve with that, and there is an expectation. I read in the media that the first bill for a discussion should be available to lawmakers towards the end of two thousand and twenty two. So that means even the most and vicious goal would be that the law comes into force some time around summer two thousand and twenty three, and, as we discuss, there is a lot of regulatory add ons to that, to law here in Germany. So you could be looking at some time fall or winter two thousand and twenty three with that. Would that be approximately your experience how this develops? Jacob? Yeah, I think you're very right in this assumption, and I think I mean there are always some some influences that we cannot fully assess. You know what happens with a corona over autumn, what happens with the Ukraine crisis? But the time lent that you just outlined US exactly what we can expect if the lawmakers put the they're enough focus on this important law. And what we expect is that by even September, October, they have the initial first draft bill and then this will be passed on to the government once the government is aligned, and I think the chances, I hear, that this will be quite fast because all of the three parties that are constituting the the government are in favor of the legalization and there's not not much to discuss for them. We see that is very likely that we can get a bar a bill to be...

...aust on to the parliament and all Federal Council, which is the Bundescart, in which the the sixteen different states have to vote on the on the law as well, will be quite fast and, yeah, if we manage to get the law passed by summer next year, it is very likely that we have the frameworks installed to be ready for sale later or late next year or early two thousand and twenty four. However, what will be the challenge, and this is where we are coming in, is bringing the product, creating the infrastructure for the retail stores and, yeah, making this more theoretical approach of having a law to be, yeah, transformed into a working business. And I think this will be the challenge and everyone is very, very much all set to start working on on this, supply chains, on the infrastructure, once we have a bit more clarity on how the lawmaker intends to make the system work. That will be actually my question be good. I was I would now be going into talking about how you guys are envisioning how the future could look like. For example, you can only buy cannabis in dedicated stores, maybe in tobacco stores, maybe only informacies, and so on and so forth. But sorry, sometimes I'm thinking pretty strange. What do you guys tell your family you're actually doing? Well, I import cannabis is something you don't usually write on your linked the profile or on your tender profile writing. So the good thing about like our family is that they are already used to that. We are selling cannabis for years already, and sometimes it's pretty funny, if you like think about it, that we are probably one of the biggest cannabis dealers in Germany. However, our family is, like, really supportive of all that, but mainly because we look at this also as a very professional business, and we also look at this as a unique chance in history and a unique opportunity to legalize a product and also to just give access to so many people to a product that at the moment they only can access to and consume in a illegal, illicit framework. And here we believe in, yeah, doing the right thing at the right point in time, as we did five years ago with our focus on medical cannabis patients, helping them to get access to a medication, to a therapy that really helps them. And now it's about like helping also consumers to get high quality products in a well thought through legal framework of legal cannabis. HMM. We do have...

...one country that was pretty popular in Europe, especially for trials, because it's the Netherlands, the Dutch. They had a legalization of even recreation cannabis way ahead of Germany, and then they're used to be special cafes. We could consume that, and my understanding is that at one point they turned into membership clubs where they have to know you, you have to be member in order to be there and consume cannabis. What do you guys seeing or what is your expectation? What will happen here in Germany? Will we start with the very tight regulation and then find the first ex get the first experiences and then maybe later on broaden this, or do you expect something like really, really easy, lowtouch regulation and they'll see where they basically need to draw lines? So in now understanding politics, want to have a broad legalization, so end to end, and compared to the Netherlands, they don't want to keep it or reduce it to decriminalization. So if you if you have a look at the Netherlands, it is allowed to buy the product at the coffee shop, it is allowed to consume, but the supplied chain that produces and delivers the products into the coffee shops, this is not regulated, and our lawmaker clearly intense to have a full fledge legalization and decriminalization of cannabis so that we have a stigma free and save in simple supply chain. However, this still will be highly regulated because it is a substance that has not not only positive effects. It is the same for for other substances such as Nicotin, coffer in alcohol that people take. It can be something that that you consume and are totally safe, but there's a degree of consume or consumption that is not good for the health and that's why the lawmaker still wants to pose a regulation around it. But what we expect, and this is clearly addressed by by politics, is that we have dispensaries so that there will be a special store that you can buy cannabis in, get customers support, get some information on safer use, on first time use, so that we will create a system in which people, even if they are first time consumers, can have an experience that the leads them into a safe and good consummation of the product, and...

I think this is this is unique about how Germany looks at it, to create a simple and self regulated system that, yeah, only uses regulation to the extent necessary and it's not overregulating the supply chain to really, yeah, have a competitive advantage towards the black market, because it is still one of the main targets to, yeah, be to fight the black market that is very strong here in Germany, associated with a lot of prime and all of this stuff, that they not only fight crime, they also fight money laundry. That way I find very interesting. And, Benedict, you are more than number sky. What do you expect in terms of market size when you're looking into that future? And by the way, Jacob, you really really make me smile because when you said, yeah, consumer support, I was I was wondering, will there be a hotline for stoners? Sorry, no, professional totally fine, check your own pots. Actually, I mean creative idea. Why not? But that's definitely something we need to look at. This once we have like a outlined, regular story framework, but when it comes to the numbers and figures, there are many and different estimations on the illegal market. So you can look at studies from like very wellknown universities. They would come up with a market estimation of four hundred metric tons to give you a bit of a taste what this could be in euros. At a price of ten euros program we're talking about a four billion euros market, which is round about four point five billion US dollars. Other studies and other estimations they actually show that the market is even as big as eight hundred metric tons. So we're talking about eight billion euros. This is huge, but with a population of eighty million people in Germany, it's not that huge because if you look into the Canadian market, significantly less people live there and the market over there round about four years after legalization of adult use. So recreational cannabis is also around four billion Canadian dollars big. So this is a massive opportunity just for the German market itself. But what we also is expect is that the German market, that's just the start and the beginning for the whole European market, for the EU, and we really expect that there will be a...

...certain domino effect happen and then we're talking about another multiple of this addressable market. Probably even up and north of sixty or maybe seventy billion euros in the long run annually. That is pretty cool and for everybody who listened to the medical cannabus area, that will be forty, two eighty times will we having right now in terms of legal medical market. And honestly, you talked about you can import legally cannabis for medical use. I assume there will be legal import for recreational us as well. Which countries are actually going to crow that? And do you expect when Germany, when it really pops, when it goes like crazy, that there will be problems in the supply chain? Yeah, so, first of all I may kick it off. So key supplying countries as of now for the medical market are Canada, Denmark, Portugal, Spain, even Uruguay, Netherlands play a role. So those countries. They have a certain, let's say, experience in having cultivation and manufacturing sites for pharmaceutical great cannabis. Many of those companies already have a recreational strategy in place. So obviously those are also countries where you have quite a huge industry and economy that is willing to export product into the German market and we believe this experienced, this expertise is definitely something that those companies can leverage and can use in a future recreational framework where we, as a yeah, German importing company, can be a very, very strong partner to bring high quality products into a also legal market. However, they are definitely some regulatory hurdles that need to be tackled. It's not a easy game to trade cannabis around the globe in a legal system because normally, also those countries that wish to export recreational cannabis, they need to more or less also adapt certain regulations that this is allowed, and on our side, Germany also needs to allow that cannabis imports are possible. So there's still a lot of work to be done on different levels. However, we are, yeah, believing that it must be a global economy, a global supply chain, because growing in a country where we do not have so much sun, where we have high labor cost where we have high electricity costs, growing cannabis in a country like Germany is probably not the solution to Um yeah, supply eight hundred metric tons on an annual base.

This is probably something that's not possible and we believe a key success factor our global traits. Maybe this is even a European huge possibility, opportunity to create additional industry, additional, yeah, possibilities for people to work and so on. Benedicte, you're also made me smile when he said there are big hurdles to legal import of cannabis to Germany. I think they legal importance also have some trauma that is now understood. So you guys also can import a lot, of course, only legal and the question is now for me how you guys are positioning yourself. You want to be the importer and disreputer in Germany and, looking in the future, maybe also into the countries in Europe that legalize recreational use of cannabis. Yeah, so we enable cannabis. That's like our overall goal. We want to make cannabis available for everyone, simple and safe. And we how do we want to achieve that? We are building the largest cannabis retail platform and at the same time we are building the leading be to be a marketplace for cannabis. And what does this, like in particularly, mean? I would suggest that I hand over here to Jacob to give some more details on those two key measures. Yeah, the difficult things are always stuff for the lawyers. I see, I see now. This would be like, I think, royal pain if the lawyers were to explain all those stuff, because we're always to complicate. We talked, Oh, I always we talked too much. So let me try to reduce it to the to what is relevant. So operating a be tob market place is something that is crucial in a high friction, transaction based and regulated sector, because you need someone who operates the trust between the vendors and the customers. And what we're doing today in the medical ecosystem is something that is even more regulated because you have to check all the licenses, have to check GMP and GDP compliance and so on. So we operate a system in which whoever wants to sell and whoever is part of the pharmaceutical supply chain and on the other side, pharmacy can go to our market place and they can be safe. They know that we take care of all those complicated things around qualification, validation and swam and we will apply this principle to the recreation cannabis market as well, because we see that we still will be in a regulated industry. It will be very important to be fast in making business. It is very important...

...to be fast in moving the product, but it will be very important to be compliant as well, and as the pharmaceutical industry seems to be quite a close shop, we want to bring in our experienced from from this most regulated industry to be an real enabler that takes care of democratizing the industry and providing a solution where it will be easy. It should be easy as opening a a shopify ECOMMERCE shop to engage in this industry because you have a partner, and this partner will be us, that takes care of all the regulated and complicated things. And in a market that will be highly fragmented, because we will see that there will be many different brands, many different products, many different manufacturers and even more, point of say, it's even more retailers, it is very important that you have one partner that takes care of operating a marketplace that seamlessly integrates the supply chain between vendors and the retailer's first point. Second Point is the same challenges that you have operating a wholesale or import on manufacturing business in a regulated industry is operating a retail store. So imagine that you wanted to open a retailt or that trades are regulated substance. You would need to apply for the license, you would need to establish quality management systems for Medica Cannabis. There will be some prevention work, you will have to draft social concepts, you have to take care of where to get the products, documentation, warehousing, logistics and so on, and we want to create a platform, a a system, a modular system that will make things very easy for you to focus on what is important for you. Getting the product, selling the product, consulting and serving your customers and a very much engaging in a new industry but not doing all those pioneer works on regulation and processes that are important but that are replicable for many different shop owners. And we want to enable the retail store being the operating backbone and providing turnkey, plug and play solutions for everyone who wants to engage in this industry. My understanding is now that you have something like a shop. If I shop, we can order from different producers via your platform as a retail store some way here in Germany. My my question would be, since it's a highly regulated product on both ends, does it have to go through your central warehouse, like a huband spoke system, and go from there into the retail store. Would...

...that be the set up this? This is one of the the key USPS that we offer today for our pharmaceutical clients, because you would need to operate this infrastructure anyhow, as we expect that cannabis, as a legalized recreational product, hopefully will be less regulated on the part of warehousing and all those stuff, because it would be ridiculous if we had to put cannabis into a vault everywhere we have it. So this would be a bit more flexible so that you either can have your own infrastructure that you can choose one of the maybe third party logistics that you have. So our system is designed that we can operate in every different approach. So own integrated warehouses from the vendors, fulfillment by Consertiva, which is always the preferred solution in the medical system, because it is more convenient for the pharmacies. It will be more convenient for the retailers because they get consolidated shipments from just one party and this makes things easier. I think we will be very competitive on what you have to stand for logistics so that it will make sense to go and have fulfillment done by us. But especially in the post legalization world, there will be so many products that even if we doubled or quldre puts, or even if we had a TEDX on our warehousing space, we couldn't make it in the current setup. So we definitely will be open for other third party logistics partners. I see, and that also sounds like you would be open to talk to new investors to take on that new wave of consumption that you see on the right. And Yeah, absolutely so. I mean, we've raised quite some, some significant capital over the last few years. Also recently we raised another fifteen million US dollars. However, as you also described earlier in our talk, we are at this really tipping point, also from the legislation process, and we are, yeah, prepared when it comes to our plans. We are prepared to execute. And for all this execution there is again the possibility that, yeah, investors can invest into Kinsittiva and we are always looking for great partners, for a for this massive opportunity in the next few years. That also sounds like you guys are currently hiring. That's also absolutely true. So we actually had quite some growth over the last few months. As of now we are over fifty very talented and highly skilled folks in our company. However, there are always some jobs that, yeah, we're looking for again, you...

...and highly challenged people to join our company. And Yeah, this can be checked on our website, which is cancer tiva minus group atcom and there are definitely exciting opportunities for everyone. Everybody who is listening to this, all watching this on youtube or any other APP go down here in the show notes. There will be linked to our medium block. If you cannot find us because you're listening to you this on one of our partner radio station. Go to DUB DUB DUB mediumcom forwards leash start up rates Io, and there you will also be able to find a blog post. The very last questions, because this interview is sponsored by invest in Hassan, I would be curious to know why are you currently located here? May We say, Frankfort, even though more feen invited, of is a different city, but it's it's exactly next to the airport Frankfort. So everybody from outside it doesn't happen make any difference. So maybe very, very important that even today our even bigger. Office is again in Frankfort. So we have office space in Frankfort again. It's where we started. Then we moved to with it. Now we are back in Frankfort. Will of the city will love the the open minded culture. Will love how the the city itself is focusing on enhancing startup culture. They have many different formats where you can can meet up, meets other founders, get into connections, communication and I think that it is very much becoming an ecosystem and a very buzzing spot. That, I especially, can only motivate people to come to build their start up here and, yeah, connect with a very buzzing start up hub in the middle of Germany. And my last final question, if you would have wishes, not only one, maybe two or three and dressing directly to the decision makers, what would it be? Yeah, so maybe, first of all, having the possibility and opportunity to talk about cannabis frank and free on let's say state level, cities level and so on. That we're just, you know, having the opportunity to talk about that. That's very important, I think. Second item, and this is more like a request on the the federal level, or even maybe under European level, the framework for we see investments in Germany compared, for example,...

...to the yeah, US, there are things that should and maybe improved and initiatives to, yeah, accelerate potential improvements here. would be probably a very, very good thing to actually grow the start up ecosystem, not only in Germany but also in Europe. There's actually not more I have to add. I would say thank you very much, guys. It was pleasure talking to you. We now recording full, more than thirty seven minutes. Thank you very much for a time with the pleasure having you here, and see you again in a few years. See you again. Thank you very much. It's been a pleasure. That was awesome. Thank you. Bye, bye. Bye, guys. Bye Bye. That's all. Folks find more news streams, events and interviews. AWW, let's start up bread that Hio remember. Share is care.

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