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HIGHLIGHTS
  1. German tender process to issue cultivation licenses delayed once again
  2. Canadian companies continue to supply most of Germany’s medical cannabis via export
  3. German insurance companies cover the cost of most cannabis prescriptions

While Germany dithers, Canada dominates.

Late last month, Europe’s biggest economy once again delayed the tender process to issue the country’s first cultivation licenses, giving Canadian producers more time to expand their foothold in the continent’s largest cannabis market.

Marijuana for medical purposes has been legal in Germany since March, 2017, and Canadian cannabis companies have spent hundreds of millions of dollars buying assets and establishing partnerships in hopes of becoming Germany’s first legal cannabis growers. But because of several delays in the tendering process, grown-in-Canada marijuana continues to fill the majority of tens of thousands of German cannabis prescriptions.

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“There are some near-term benefits from the financial perspective in terms of the exports we are making to Germany,” said Allan Rewak, executive director of the Cannabis Council of Canada. “While [Germany] may have kicked the can again in terms of [cultivation] licenses, many of our members remain active and are primed, poised and ready to go.”

Canopy Growth Corp., which first entered the German market in late 2016 through the purchase of cannabis importer and distributor MedCann GmbH, has been a key beneficiary of the delay in domestic cultivation. The Smiths Falls, Ont.-based company generated 12 per cent of its total product revenue in Germany between early April and late September of 2018, compared to just 1 per cent of product revenues during the same period of 2017.

“On the financial side, of course if one is looking at it from that perspective yes, clearly [the license delay] is an advantage for Canopy as we are already selling in this market,” said Pierre Debs, the managing director of Canopy’s European operations who previously founded MedCann GmbH, “but my main concern is that our patients get their medicine.”

The German medical cannabis market is seen as particularly lucrative because insurance companies cover the cost of most German cannabis prescriptions, allowing producers to charge higher prices. In addition to Canopy, other major Canadian growers such as Tilray, Aurora and Cronos Group export cannabis to Germany.

According to the German National Association of Statutory Health Insurance Funds, roughly €31-million ($47-million) was reimbursed to nearly 80,000 patients during the first half of 2018. The same data found approximately 60 per cent of those reimbursements were for products imported from Canada, with the remainder coming from Holland.

Canopy made an average of $9.87 for every gram of cannabis it sold in the second quarter of its 2019 fiscal year. That figure is 24 per cent higher than what the company earned during the same period one year earlier, at least in part because of the $13.58 per gram Canopy made on average in Germany during Q2.

Larger returns, however, often require larger risks. Aphria, for example, paid $425-million for Nuuvera in February, 2018, in part because it was believed to be close to obtaining a German cultivation license, only to see the entire licensing process restarted from scratch barely four months later. Aphria CEO Vic Neufeld publicly acknowledged at the time that his company “wouldn’t have paid as much” for Nuuvera had they known the licensing process could be upended.

Undeterred, Aphria agreed to pay nearly €50-million in November, 2018, to acquire CC Pharma GmbH, which has distribution relationships with 13,000 German pharmacies. The company is also building a vault in northern Germany capable of storing up to 5,000 kilograms of dried cannabis.

“By the latest delay of this tender I might be a bit surprised,” said Canopy’s Mr. Debs, “but obtaining licenses to grow a heavily regulated and until recently prohibited narcotic plant such as cannabis simply does not happen overnight.”

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