MoFo research assistant Tim Stripling contributed to this article.
In November 2021, in its coalition agreement, the newly elected German Federal Government announced its plans to legalize cannabis for recreational use. Since then, it has been hotly debated by the cannabis industry in Germany and abroad what legalization of cannabis in Germany could look like in practice. On On October 26, 2022, the German Ministry of Health finally released a highly anticipated first official paper on its upcoming reform, which outlines key points of the planned cannabis legalization proposal for the upcoming legislative process (“Key Points Paper” or “Paper”).
The Key Points Paper is an initial, non-binding, regulatory proposal. Based on the response from the industry and politics, the Ministry of Health is planning to publish a draft law. Nevertheless, it is of high relevance for stakeholders in the industry as for the first time it gives insight on the overall framework of the upcoming government draft bill and allows for evaluation of market opportunities for the nascent German cannabis market, which, according to a recent study by the University of Düsseldorf, is expected to be worth at least EUR 4 billion.
Key points of the Paper are:
- Cannabis should no longer be subject to the German Narcotics Act (GNA).
- Possession limit of 20–30 grams per person.
- Distribution through specialized stores and, possibly, pharmacies, with clear rules and licenses.
- Estimated retail price of EUR 10–15 per gram, including a new cannabis tax.
- No tetrahydrocannabinol (THC) limits for customers age 21 and older; possible THC limits (10–15%) for customers between 18 and 21 years old.
- No import of cannabis for recreational use for the time being.
- Prohibition of advertising for cannabis products.
It must also be pointed out that the legalization efforts of the German government still face a number of key challenges that need to be overcome. While the reform has the necessary political majorities in Germany to be passed in parliament in the future, the EU in particular could delay the project. The European Commission (EU Commission) is now being consulted by the German government to check whether the German plan is compatible with EU law. If the EU gives the green light, a draft law will be formulated. However, if the Commission were to make it clear that the German model was not compatible with EU law, the legalization on the basis of the Key Point Paper would be off the table.
This article will take a closer look at the content of the Key Points Paper and the legal challenges cannabis reform faces on the international level and will also give an outlook on how the legislative procedure will continue in the future.
In Germany, cannabis is subject to the rules of the GNA. Thus, any act of import, possession, or sale is prohibited by law, if not exempted. In 2017, medical cannabis was exempted from the general prohibitions of the GNA, so that pharmacies were allowed to dispense medical cannabis to patients with prescriptions. However, only three licenses to cultivate medical cannabis in Germany were issued, and the amount to be produced was capped at 10,400 kilograms over four years. Thus, to satisfy the increasing demand, the imports grew to 5,700 kilograms in 2021 over previous years. It is expected that over a million German patients will have access to medical cannabis by 2024, and the German medical market alone will be worth USD 8 billion by 2028.
On the other hand, the black market for recreational cannabis is estimated to amount to USD 13.1 billion in 2020 and is expected to grow to USD 16.6 billion by 2025. The upcoming legislation legalizing recreational use of cannabis is intended, among other things, to disrupt the black market and to protect the health of children and minors.
The Key Points Paper
The Key Points Paper provides a first glimpse on how the legislature is likely to deal with the following issues:
1. Basic principles
According to the Key Points Paper, cannabis will no longer be subject to the GNA. The purchase and possession of 20–30 grams of cannabis will be decriminalized for adults. Private cultivation will be legal, but only for up to three plants per person.
Distribution of cannabis will be possible through licensed shops and, most probably, pharmacies. Online distribution, on the other hand, will not be permissible at first. However, the Paper indicates that sales in online stores could be allowed over time.
Shop licenses from the German authorities will likely have several requirements. Shop owners must be proven to be competent and reliable. Shop locations must guarantee to have minimum space and must not be located close to schools and childcare facilities. The sales personnel will need to be trained in the handling of cannabis, addiction prevention, protection of minors, etc. Advice must be offered for every purchase, and the risks of consumption must be pointed out.
Also, cannabis products for smoking and inhalation and for intake in the form of capsules, sprays, or drops will be allowed. So-called edibles, such as cookies or sweets containing cannabis, will likely not be allowed for the time being. The same applies for synthetically produced cannabinoids.
In addition to the existing sales tax, companies selling cannabis will also be taxed with a new cannabis tax (Cannabissteuer), depending on the THC content. A higher THC amount will lead to a higher cannabis tax rate. The goal of the tax will be to bring the price of legal cannabis in line with the price on the black market. This would likely mean a price of EUR 10–15 per gram for the consumer.
3. Partial THC limits
There will be no general limit of the THC amount contained in cannabis sold to customers over 21. Only cannabis that is to be sold to 18–21-year-olds may have a restriction on the THC amount (possibly around 10%).
This approach is good news for the industry. In a leak of the Key Points Paper from last week, the Ministry of Health had still envisioned a THC cap of no more than 15% in general but has changed its position following criticism from politicians and various stakeholders of the German cannabis industry.
4. Import is a critical topic
The Key Points Paper explains that, at least for an initial phase, the German cannabis demand may only be met by cannabis cultivated in Germany. Imports from other countries will not be feasible as this may cause foreign trade issues with the EU and violate international law.
Regardless of the origin, strict government control is required at all stages to prevent illegally sourced cannabis from the black market from entering the legal supply chain—and vice versa. The entire supply and trade chain (cultivation, processing, transport, wholesale, retail trade) will be subjected to a control system (track and trace) that includes documentation of the individual steps in the chain. As recreational cannabis will not fall under the GNA, it is clear, however, that strict quality standards like the Good Manufacturing Practice (GMP) and the Good Distribution Practice (GDP), as applied to medical cannabis, are not required be followed.
5. Total prohibition of advertising and branding
Last but not least, the Paper suggests that advertisements will not only be restricted, but generally prohibited. Even the branding of products must be neutral and should not contain any advertising. This approach follows the Dutch way of cannabis regulation. It remains to be seen if it will make its way into the legislative proposal in strict form.
Internationally, Germany has committed itself to prevent commercial cannabis activities outside of scientific and medical purposes in three international treaties: the Single Convention on Narcotic Drugs of 1961, the Convention on Psychotropic Substances of 1971, and the Convention Against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988. To avoid the violation of these treaties, withdrawal and re-entry under the condition of allowing recreational use was previously discussed. Now the federal government plans to send an “interpretive statement” to the other states first.
On the EU level, the Schengen Implementation Convention and Council Framework Decision 2004/757/JHA of October 25, 2004, force the member states to prevent all commercial activities involving cannabis outside of scientific and medical purposes. Next to that, the EU itself is a contracting party in the Convention Against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988.
The German government is aware of this EU legal problem and is counting on close cooperation with the EU Commission. The EU Commission has yet to submit its assessment of the German plan. If the Commission gives the green light, a draft law will be formulated.
The outcome of the EU Commission’s consultation is difficult to predict. On one hand, Germany is not the first country in the EU to liberalize its cannabis policy. In the case of other EU member states, like The Netherlands or Portugal, the EU Commission has never taken sanctions before (e.g., an infringement case before the European Court of Justice). On the other hand, the German proposal in the Key Points Paper goes beyond any legalization efforts in other EU member states, which have only decriminalized possession and private cultivation.
It therefore remains to be seen how strictly the EU Commission will interpret the existing legal framework. In any case, one thing is certain: if the EU Commission is against the German government’s legalization plan outlined in the Key Points Paper, no German draft law will be formulated on the basis of the Key Points Paper. This was explicitly stated by the German Minister of Health Karl Lauterbach at a press conference on October 26, 2022.
The Key Points Paper is the first step toward the legalization of cannabis in Germany. If the EU Commission green-lights the approach, the Ministry of Health plans to publish a first draft law by the beginning of 2023. However, it is currently unclear whether a response from the EU Commission will be received before the end of the year.
It must also be reiterated that the key points proposed by the Ministry of Health are not set in stone and that the Ministry of Health will take into account feedback of industry stakeholders as well as of the various political camps. The German government has already indicated its readiness to defer from this proposal by taking a much more liberal approach with the current version of the Key Points Paper, compared to a leaked version of the Paper last week that met with lots of criticism (e.g., insisting on a higher amount for personal use, no general THC cap, etc.). Yet, all government parties expressed their intention to get this reform done, since it was one major promise when this government came into office last year. Despite the difficulties at the international level, as of now, the law is expected to come into force in 2024.
Source: JD Supra