Germany’s Cannabis Market: Regulatory Growth and International Expansion Opportunities

The following two articles explore the developments and opportunities in Germany's cannabis market: The first article, by Franziska Katterbach, examines the regulatory changes driving dynamic growth in the medical cannabis market and laying the foundation for the future legalization of recreational use. The second article, by Jonathan Sherman, highlights how German cannabis companies can leverage the well-established Canadian capital markets to benefit from expansion opportunities in Europe’s largest legal cannabis market.

1. Cannabis in Germany: the time is NOW to seize opportunities in the emerging market

Germany is at the dawn of a new era: the market for cannabis, especially for medical use, is developing at a rapid pace and recreational use is at the verge of happening. Foreign investors and companies active in this area should act now if they are to avoid missing out on entering this dynamic market. With a mix of regulated access and a clear legal framework, Germany not only offers potential, but also security for long-term investments.

The recent changes in the prescription of medical cannabis in Germany mark a turning point. Since April of 2024, medical cannabis is not considered a narcotic anymore but rather treated and reimbursed as regular rx drug, and in October 2024 the pre-approval of the statutory health insurance was abandoned. As one consequence, the inhibition threshold for prescribing cannabis has fallen drastically and many doctors are more open to the subject. But what does this mean for the envisaged recreational market? A closer look shows that key components of a regulated recreational cannabis market that the German Consumer Cannabis Act (Konsumcannabisgesetz - KCanG) is supposed to regulate in the future are already a reality - albeit in medical guise.

Hand in hand, in December 2024 the new regulation by the Federal Ministry of Food and Agriculture (BMEL) laid the foundation for research applications related to recreational cannabis. Notably, a pilot project is planned where pharmacies in select regions will serve as dispensaries for recreational cannabis, ensuring controlled distribution, consumer safety, and quality assurance. This approach complements the existing framework by supporting scientific research, enhancing prevention measures, and providing a structured alternative to the black market using the existing infrastructure of pharmacies and GMP quality.

Reducing bureaucracy: focus on medical use

In the past, the authorisation requirement of the statutory health insurance prior to initiation of the first medical cannabis prescription was anchored in Section 31 (6) of Book V of the German Social Book (Sozialgesetzbuch V - SGB V). This required doctors to obtain authorisation from the statutory health insurance funds before prescribing cannabis products for the first time. In medical practice, this meant a considerable administrative burden for which the remuneration was inadequate. Numerous applications were initially rejected, only to be approved later after lengthy procedures.

Since medical cannabis is now a prescription drug and the prior approval of the health insurance has been removed, the situation has improved noticeably and the industry has experienced an initial boost. Patients are benefiting from a faster supply and the number of prescriptions is increasing significantly with platforms for online consultations offering a new, flexible approach that challenges existing structures.

The economic impact also should not be underestimated: According to industry reports, the market for medical cannabis in Germany could grow to over one billion euros by 2028.

The recreational market in theory - and practice

The Consumer Cannabis Act (KCanG) provides for two stages of legalization of recreational cannabis in Germany. However, there has been little progress in commercial legalization. The first pillar of this law started in April 2024 with decriminalizing home grow and possession and cultivation associations have been legally permitted since July 2024. However, even though several licenses to such associations were granted, they have yet to engage in any significant activities. The second stage of the KCanG, i.e. the creation of a licensed and state-controlled market for recreational cannabis that ensures quality control, protection of minors and regulated distribution, has not been drafted yet.

However, current practices in the German medical cannabis market illustrate how close recreational use already is. Through platforms for online consultations, patients gain quick and regulated access to medical cannabis which is predominantly cannabis flowers. These cannabis flowers adhere to the same quality and youth protection standards like other medical products.

This could lead to the conclusion that, in practice, many aspects of the planned law have clearly already been realised in the medical market:

• Controlled distribution: Cannabis products are only sold in pharmacies, which guarantees quality and safety.
• Protection of minors: Access to cannabis is only granted to patients of legal age on the basis of a doctor's prescription.
• Regulation: All products come from certified cultivation and are subject to strict standards that ensure both pharmaceutical quality and consumer protection.

This de facto medical-recreational market differs only in nuances from what the Consumer Cannabis Act is aiming for. Patients can obtain prescriptions via simple online consultations, which can then be redeemed in pharmacies. This enables quick access to tested products without the need to create extensive new structures.

Canada as a role model?

A look at Canada shows how a regulated recreational market can function. Two separate systems exist there in parallel: a medical market, in which patients receive cannabis products directly from the producer after consulting a doctor, and a recreational market with state-regulated sales outlets.

Although the German model has parallels, it remains more regulated.

The German practice could be an intermediate step: many aspects of the "second pillar" are already being implemented in the context of medical care. These structures could easily be expanded if political agreement is reached on an official recreational market.

Conclusion

Developments in the medical cannabis market show that Germany has already integrated many elements of a regulated recreational cannabis market. The controlled dispensing of cannabis via pharmacies, the assurance of pharmaceutical quality and the protection of minors are key points that are being implemented in a medical context.

Hence, as political uncertainties are slowing down the official introduction of the "second pillar", the question arises as to whether a parallel recreational market is really necessary - or whether the existing system offers sufficient flexibility to serve both needs.

When recreational cannabis will be officially introduced remains uncertain. However, what is certain, is that the current market will continue to develop and grow. Those who act strategically now will benefit in the long term. Consequently, it could be wise to seize the opportunity to position a business model at this stage of the market to benefit from the developments!

For more information please contact:

Oppenhoff & Partner Rechtsanwälte Steuerberater mbB

Franziska Katterbach | Partner, Lawyer (Rechtsanwältin)

[email protected]

+49 69 707968 217

Franziska Katterbach advises and represents clients in the Life Sciences industry on all product- and service-related matters from both commercial and regulatory perspectives. Her work encompasses the entire lifecycle of a product or service in the areas of pharmaceuticals, biotech, medical devices, and diagnostics: from the initial idea, technology transfer, research and development, and commercialization, to exit strategies. For over eight years, a key focus of her work is the regulatory framework surrounding medical cannabis.

2. Canadian Capital Markets – The Next Stop for German Cannabis Operators

Canada has garnered a reputation for its expertise in capital markets, particularly within highly regulated industries. While mining serves as a prime example of international companies seeking to list in Canada, similar trends have been observed in the cannabis sector, which we anticipate will continue. We foresee comparable developments in healthcare as well as emerging technologies.

For German Cannabis operators, recent changes to Germany’s Cannabis legislation to remove cannabis from the German Narcotics Act provides a significant opportunity for local operators to rapidly develop and expand their business to expand market share in Europe’s largest legal cannabis market. As the German and broader European market grows, owners and operators will need access to capital while existing shareholders will also seek liquidity opportunities.

As the second country in the world and first G20 nation to legalize cannabis for recreational purposes, Canadians are extremely familiar with the industry and the highs and lows of cannabis investment. As a result, Canadian investment banks, securities commissions and stock exchanges are extremely well versed in the complexities associated with such a highly regulated product and this capital markets expertise makes Canada a unique marketplace for German companies that may opportunistically look to Canada’s bustling marketplace and consider going public on a Canadian stock market.

Canadian markets are well situated, stable and provide easy access to capital and greater liquidity options than in other international jurisdictions. In particular, as discussed below, the TSXV (as defined below) may serve as an advantageous entry point for companies seeking to go public on a smaller scale compared to other international jurisdictions such as the New York Stock Exchange or Nasdaq in the United States or the London Stock Exchange in the United Kingdom. The TSXV also allows for capital raising and liquidity without significant market capitalization, offering a simplified graduation program to the TSX (as defined below) once the business has matured.

Canadian Stock Exchanges

Toronto Stock Exchange (the “TSX”)

The TSX is Canada’s largest senior stock exchange. The minimum listing standards on the TSX for industrial, technology and research & development companies include:

• All issuers require sufficient working capital to carry on their business; 1 million free trading public shares; $4 million held by public shareholders; 300 public shareholders each holding a board lot; and sponsorship, except as noted below.
• Issuers forecasting profitability require pre-tax earnings of at least $200,000 for the current or next fiscal year; pre-tax cash flow of at least $500,000 for the current or next fiscal year; and net tangible assets of at least $7.5 million.
• Profitable issuers require pre-tax earnings of at least $200,000 in the last fiscal year; pre-tax cash flow of at least $500,000 in the last fiscal year; and net tangible assets of at least $2 million.
• Industrial companies require pre-tax earnings of at least $300,000 in the last fiscal year; pre-tax cash flow of $700,000 in the last fiscal year, with an average of $500,000 for the past two years; and net tangible assets of at least $7.5 million but no sponsorship requirement.
• Technology issuers require funds to cover planned opportunities for one year; $10 million cash in treasury; evidence of advanced stage of development or commercialization of a business or technology; experienced management and board, including public company experience; at least two Canadian independent directors; a $50 million market capitalization; and $10 million held by public shareholders.
• Research and development issuers require funds to cover planned opportunities for two years; adequate working capital; $12 million cash in treasury; a minimum two-year operating history that includes research and development; experienced management and board, including public company experience; and at least two Canadian independent directors.

TSX Venture Exchange (the “TSXV”)

The TSXV is a venture issuer for early-stage companies, typically those that do not meet the requirements of the TSX. The initial listing requirements for industrial, life sciences and real estate companies are split into Tier 1 and Tier 2 Requirements and include:

• All issuers require adequate working capital; management, including the board of directors, should have adequate, relevant and public company experience; at least two independent directors; 20% of the issued and outstanding shares held publicly; and sponsorship may be required.
• All Tier 1 issuers require sufficient resources to carry out their business plans for 18 months or $200,000 of unallocated funds; a public float of 1 million shares; and 250 public shareholders each holding a board lot with no resale restrictions.
• All Tier 2 issuers require sufficient resources to carry out their business plans for 12 months or $100,000 of unallocated funds; a public float of 500,000 shares; and 200 public shareholders each holding a board lot with no resale restrictions
• Tier 1 industrial, technology and life sciences issuers require $5 million in net tangible assets or revenue (in the event of no revenue, issuers requires a two-year plan demonstrating a reasonable likelihood of revenue within 24 months); a significant interest in a business or a primary asset used to carry on the business; and a history of operations or validation of the business.
• Tier 2 industrial, technology and life sciences issuers require $750,000 in net tangible assets or $500,000 in revenue or a $2 million financing (in the event of no revenue, issuers require a two-year plan demonstrating a reasonable likelihood of revenue within 24 months); a significant interest in a business or a primary asset used to carry on the business; and a history of operations or validation of the business.
• Tier 1 real estate issuers require $5 million in net tangible assets; a significant interest in real property but no prior expenditures or work program requirements.
• Tier 1 investment issuers require $10 million in net tangible assets; and a disclosed investment policy.
• Tier 2 real estate issuers require $2 million in net tangible assets or a $3 million financing; a significant interest in real property but no prior expenditures or work program requirements.
• Tier 2 investment issuers require $2 million in net tangible assets or a $3 million financing; a disclosed investment policy; and 50% of available funds must be allocated to at least two specific investments.

Canadian Securities Exchange (the “CSE”)

The CSE is an independent and alternative exchange in Canada used for micro-cap and emerging companies. The CSE uses simplified listing regulations and its minimum listing requirements include sufficient development of the business; minimum $100,000 in working capital; sufficient public shareholder distribution; at least $1 million freely tradeable securities and 150 public shareholders each holding a board lot.

Cboe Canada (“Cboe”)

Cboe (previously known as the NEO Exchange) is an alternative senior stock exchange in Canada that is associated with international Cboe marketplaces. All issuers on Cboe require $10 million market value of public float; $1 million publicly held securities; and 150 public security holders, each holding a board lot.

In addition, listed issuers must satisfy one of the following categories:

• Equity: $5 million in shareholder’s equity.
• Net Income: $750,000 from continuing operations in the last fiscal year or two of the last three fiscal years.
• Market Value: $50 million in listed securities.
• Assets and Revenues: $10 million in total assets and revenues in the last fiscal year or two of the last three fiscal years.

Additionally, issuers are typically required to provide a two-year operating history and must demonstrate adequate working capital for 12 months and a $100,000 budget for investor relations for their first year after listing.

Ways to go Public

There are two main ways to go public in Canada – an initial public offering (“IPO”) or a reverse take-over (“RTO”).

Initial Public Offerings

An IPO, known as the “conventional” way of going public, involves the sale of new securities of an existing company (and/or securities held by existing shareholders) to the public for the first time under a long form prospectus along with a concurrent listing on a stock exchange. The prospectus is a comprehensive selling document that describes, in detail, the company, its business and its holdings, capitalization and financial status, future plans and details on the uses of the proceeds of the offering.

Reverse Take-Overs

An RTO occurs when a publicly listed entity, typically an entity with minimal assets, known as a shell company, acquires a private company and the owners of the private company become the owners of the majority of shares of the public entity. The TSXV has established a program whereby a capital pool company (“CPC”) can list on the exchange without any business interest other than for the purpose of acquiring an active business through a qualifying transaction (“QT”) for an RTO. Its intention is to provide an alternative method for completing IPOs at earlier stages in the company’s development and to gain access to public markets without significant upfront costs that come with traditional IPOs. 

As a result of a RTO, the owners and operators of a private company typically take over as directors and officers of the public entity and the business of the private company continues to operate as a direct or indirect wholly owned subsidiary of the public entity.

The CPC program is similar, in many ways, to more well-known SPAC (Special Purpose Acquisition Company) transactions, which are also available in Canada but far less common. The main difference is that shareholders of a CPC do not have redemption rights in connection with the RTO and therefore, while CPCs typically have far less cash than SPACs, the cash is guaranteed on closing as opposed to a SPAC transaction where it is unknown how much cash will remain in the business.

One particular benefit of an RTO is that the transaction is regulated by a stock exchange only whereas an IPO will require clearance from a securities commission in Canada in addition to approval of the desired stock exchange.

Additional Considerations

Corporate Laws and Financial Statements

Non-Canadian companies should expect to have their listing documentation scrutinized according to Canadian corporate law standards. In addition, financial reporting must comply with the International Financial Reporting Standards (“IFRS”) for annual audited financial statements and quarterly interim financial statements. The IFRS provides specific requirements for reporting fair value of growing cannabis plants.

Presence in Canada

There are no specific presence requirements for listing on a Canadian stock exchange, however, federally incorporated entities in Canada may have specific requirements to consider some of which are not applicable for provincially or foreign incorporated entities. For instance, there are no director residency requirements for directors of corporations governed by statues of Alberta, British Columbia or Ontario.

If you or your business have questions regarding the Canadian capital markets, the process for going public or what options in Canada may be right for you to list on a Canadian stock exchange, please contact a member of the Cassels Cannabis Group.

For more information please contact:

Cassels Brock & Blackwell LLP 

Jonathan Sherman | Partner (Executive Co-Chair)

[email protected]  

+1 416 869 5409

Jonathan Sherman serves as Executive Co-Chair, is a partner in the Securities Group at Cassels and Chair of the Cannabis Group. Jonathan’s practice focuses on emerging and high-growth industries, including cannabis, technology, natural resources, beverage alcohol, gaming, blockchain, cryptocurrency and psychedelic medicines. In his role as Co-Chair of the firm’s Cannabis Group, Jonathan is at the forefront of many of the largest industry transactions in this evolving sector, providing strategic and legal advice to a range of leading industry players on complex and innovative transactions.

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