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German startups see multi-million dollar profit in the medical cannabis business

Sebastian Diemer had imagined a room full of cannabis sellers in a different way: Instead of hooded sweatshirts, the men wear tuxedo, sparkling wine is served, and the dinner tables in the ballroom are decorated with floral arrangements.

The German startup millionaire will be a guest at the Cannabis Awards in Toronto this evening, honoring the best bongs, vaporizers and flower varieties of the year – a kind of cannabis Oscar.

With the legalization of cannabis in Canada in October 2018, the market has changed: The dealer on the corner and the organized cartels are getting increasingly competitive – and that comes in suit and tie. It is above all startups such as Canopy Growth or Tilray, which are pushing into the still-young economic sector and are thus achieving partial double-digit billions of valuations on the stock market.

Future market medical cannabis

Start-up entrepreneur Diemer, who has made a name for himself in this country with the establishment of the online lender Kreditech, is in Toronto on a business trip. He believes that even in Germany and Europe, a billion dollar market for cannabis will develop in the next ten years – at least for medical cannabis.

The latter may sell pharmacies legally since March 2017 under certain conditions, such as pain patients. The medical effect of cannabis-based medicines is controversial among physicians – also because there are few studies.

“Europe will be by far the world’s largest market for pharmaceutical cannabis,” says Diemer in an interview with Business Insider. He expects a market volume of 55 billion euros in Europe by 2028, he says, citing a report by the consulting firm Prohibition Partners. In December, he founded his own pharmaceutical startup Farmako, which has now collected a seven-digit investment.

Startups bet on legalization

Diemer is not the only one who suspects the next big thing in cannabis. At the German Hanfverband, according to their own statements, there are currently regular calls from entrepreneurs who want to find out about the market potential.

Even the competition economist Justus Haucap, one of the leading experts in the field, sees a trend in this: “There is a certain gold rush mood on the cannabis market. This is also explained by the fact that internationalization is taking place right now, with more and more legalization – be it in Canada, California or Michigan, “he says to Business Insider.

So far, however, the business with the “green gold” in Germany is a difficult undertaking. Medical cannabis is a strictly regulated niche market, the hurdles to a prescription are high. According to the GKV-Spitzenverband, which represents the interests of the statutory health insurance companies, around 128,000 prescriptions for cannabis flowers and cannabis-containing medicines were issued from January to September 2018. That corresponds to a turnover of around 50.8 million euros – not much. But demand is developing rapidly, as shown by the figures of the GKV.

Economist estimates market volume at 2.5 billion euros

In this respect, the entry into the market for medical cannabis is above all a bet that Germany and Europe follow the same path as Canada – and eventually legalize the substance completely. Anyone who already collects expertise and builds production structures will later have a start advantage.

A study by competition economist Justus Haucap on behalf of the German Hemp Association shows how such a mass market for cannabis could look like. With a total consumption of 250 tons of cannabis per year for the Germans, a gross turnover of 2.5 billion euros would be possible on the German market alone – and that would be a conservative estimate.

According to Haucap’s calculations, the state would also earn a lot of money: The legalization is therefore to flush around 1.3 billion euros in tax revenue into the state treasury and create more than 19,000 jobs.

Foreign competition is in the starting blocks

However, whether the German startups and pharmaceutical companies can then compete against the foreign competition, which have a considerable advantage in experience, is another matter. The competition is not just about imports, production and research, but also about cultivation. From 2020, cannabis could also be grown legally in Germany – but the cards are unfairly mixed, says Florian Rister from the German hemp association.

“The award criteria will benefit companies that already have experience in the cultivation of medicinal plants. This creates a market in which large pharmaceutical companies and foreign companies divide the cake among themselves. Startups have no chance, “says Rister. In addition, companies are likely to expect a downslope at the beginning, as the sales volumes allowed are simply too low – newcomers can hardly afford that.

“Cannabis products could become the new after-work beer”

That’s why Sebastian Diemer does not want to be concerned with farming so much with Farmako – his focus is on flower and oil research. In the medium term, he wants to push the prices. In addition to Farmako, he also builds up a sister company, the Good Company. It is to specialize primarily in over-the-counter stimulants based on cannabidiol (CBD).

“Cannabis products could become the new after-work beer: they have the same relaxing effect, but without the negative effects,” he says. Everything from CBD-containing oils to chips and gummy bears to sparkling wine is possible.

What that looks like in the trade, can also be observed in Canada: In the inner cities opened there since legalization cannabis shops such as “Fire and Flower”, whose presentation is strongly reminiscent of luxury boutiques. It makes it clear where the industry is headed: away from the stony cliché, towards the lifestyle product. However, nobody knows when cannabis will be socially acceptable in Germany.

Published inFintechStartupsTechnology

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