Cannabis On The Rise In Europe: Why Germany's Legalization Is A Game Changer For The Ecosystem

Germany's legalization of recreational cannabis is destined to have a huge impact on Europe. And yes, some local market entrepreneurs and big corporations might be slightly disappointed with the not-for-benefit approach although broader implications suggest a rich landscape of potential opportunities for those with the foresight and patience to navigate it.

Big Picture

Germany's stature as the 31st largest economy globally, boasting a GDP per capita of $48,000, positions it as a dominant force within Europe and beyond. Its influence within the European Union (EU) is formidable, often serving as the final arbiter on critical EU decisions over the past decade. With a population of over 80 million, cannabis is a familiar presence in many parts of the country. Notably, statistics indicate a significant prevalence of cannabis use among young adults, with approximately 8.4% reported usage for the last month in 2023, equating to around 2 million individuals. This level of usage mirrors that of countries like Uruguay, underscoring the widespread acceptance and consumption of cannabis within Germany.

The discussion over legalization has been ongoing for years. Drawing inspiration from Spanish activism and guided by international best practices, such as those outlined by nonprofit organizations such as Transform Drugs, Germany's approach to legalization is distinctly non-profit-oriented. This departure from previous European legalization efforts signals a significant shift in the cannabis landscape, emphasizing social responsibility and community-driven initiatives.

But if you look closely, you'll realize that previous experiences have little to do with what is happening in Germany with this new framework for legal cannabis.

As explained by Jelena Martinovic in a recent Benzinga article, Germany voted to decriminalize cannabis possession while allowing home cultivation for personal use and regulating supply in the form of non-profit membership-based associations of Cannabis Social Clubs (CSC). This CSC, which has functioned for years in Spain, is not officially regulated. Previous experiences of legalization using the CSC model belong to compact societies like Malta (barely half a million inhabitants) or wealthy and isolated Luxemburg, with a population of 653,103.

While the original purpose of pro-cannabis legislators was to set up a retail market, restrictions and regulations made it politically unviable. The original idea of a retail market was postponed for the time being. However, the influence of Germany in the EU makes it plausible that tolerance for these experimental places will eventually be reviewed. In the meantime, these 500-member CSC will likely function like normal cannabis retail shops, covering workers' salaries, biologists, growers and management, shaping the market with a client-captured form of supply.

This model is meant to reach certain users, but will also leave others out. The fact is that associating with a CSC will be more common among heavy users and less so with casual consumers. Given this landscape, decriminalization will make it easier for consumers to grab a gram, but the prohibition of legal supply might encourage the development of further unregulated and uncontrolled markets. In other words, CSC will take some of the illicit market, but demand will surpass their reach. Regulation of a retail market is a necessary step towards better control of the market, better public health and the rights of all users.

Also, from an economic standpoint, CSC will track all sorts of non-plant touching professional services related to production, supplies and logistics, which are the core of knowledge capitalism and will serve as a basis for further economic development within the cannabis industry. The experience of Uruguay, Canada and the U.S. might provide examples of mistakes to be avoided, such as overinvestment.

A market composed of several million consumers with great salaries could change the cannabis ecosystem profoundly. The Bundestag and Budesrat's decision to favor a non-profit model could enforce the rights of users while preserving the limiting the EU's legal boundaries. Nonetheless, this is the giant leap forward in a large list of expected reforms that will change the cannabis ecosystem worldwide.

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