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A display explaining the medical uses of cannabis features a container inscribed with the word "Hashish" in Berlin's Hemp Museum on Feb. 23.JOHN MACDOUGALL/Getty Images

The German parliament has voted to decriminalize recreational cannabis, laying the groundwork for full legalization by the end of the decade and signalling a significant shift in drug policy within the European Union.

But the legislation approved by the Bundestag Friday afternoon is a significant step back from the original plan to fully open the market, and delays the opportunity for Canadian producers to expand into the German recreational market, while giving a possible boost for medical sales.

Unlike Canada’s relatively unhindered path to full cannabis legalization in 2018, Germany has faced constraints imposed by EU treaties, and as a result has delayed full commercial legalization, pivoting toward home cultivation and trial cannabis clubs to start.

The new measures will allow German adults to grow up to three plants at home for personal consumption, and to carry 25 grams of cannabis on their person. As of July, non-profit cannabis clubs will be allowed to distribute cannabis to their members.

Imports of recreational cannabis grown in Canada to the EU are expected to be barred even when full legal commercialization is passed. But Germany imports most of its medical cannabis from Canadian producers, and the number of patients is expected to grow after Friday’s decision.

Medical cannabis has been legal in the country since 2017, but doctors have been hesitant to prescribe it and limited by medical requirements, said Dirk Heitepriem, vice-president of external affairs for Aurora Cannabis Inc.’s European division.

Juan Martinez, senior vice-president of international for Curaleaf Holdings Inc. CURA-T, has estimated that the legislation could catalyze patient growth in Germany, from about 300,000 patients today to up to four million.

Aurora and Tilray Brands Inc. TLRY-Q both operate greenhouse facilities in Germany. Denise Faltischek, head of Tilray’s international business, said the legislation passed Friday replaces the tender process for medical cannabis with a licensing scheme and a medical free market, allowing the company to expand production.

Meanwhile, the German Health Minister has committed to moving forward with legislation that would enable the second pillar of the legalization plan: regional pilot projects for recreational cannabis shops. This could give Canadian companies an early market foothold through partnerships with German producers.

For instance, Canadian cannabis retailer High Tide Inc. HITI-X has partnered with Berlin-based producer Sanity Group to identify acquisition opportunities and source high-quality retail real estate ahead of full legalization.

“We will continue to monitor the legislative progress of this second pillar and believe that High Tide will be well positioned to bring our flagship bricks and mortar Canna Cabana brand into Germany as soon legally possible,” said High Tide chief executive officer Raj Grover.

It’s a small step forward for the beleaguered Canadian industry, which has been ramping up its international operations while the domestic market has remained saturated. Medical cannabis exports surged by 40 per cent to $160-million last year, from $107-million the year prior, according to Health Canada data.

In a note to investors last month, ATB Capital Markets analyst Frederico Gomes noted that several Canadian companies could have their international sales close to double should Germany reach full legalization and sales step up by 2028. He estimates Aurora’s international sales could grow from 28 to 43 per cent of its total revenue by the end of 2028, and Tilray could see that a jump from 7 to 16 per cent.

Germany’s decriminalization could also influence other European countries eying legalization, including Poland, Britain and France.

“There are so many countries that are using the German framework as an orientation,” said Aurora’s Mr. Heitepriem. “We expect the development of the medical market in Europe will get a boost.”

German lawmakers appear to have strategized based on the successes and failures from the Canadian model, including avoiding excessive taxation and eliminating THC limits in the initial drafts of planned legislation.

The legislation was among the changes pledged by German Chancellor Olaf Scholz’s coalition when it took office in 2021. The coalition has since become unpopular in Germany, and has been criticized for party infighting and broadening economic challenges in the country.

The cannabis bill passed by 407 votes to 226, but continues to face opposition from the center-right opposition bloc.

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