Partial legalization of cannabis in Germany: Opportunities for the market for flavors and essences

Contents

1. Green revolution for the flavour industry
2. Historical context
3. Current legal situation
4. Market analysis – “Probably the most exciting future market for investors”
5. Opportunities for companies in the shisha and e-cigarette sector
6. conclusion

1. Green revolution for the flavour industry

Germany has taken the step: From April 1, 2024, the consumption of cannabis for adults will be partially legalized.

The focus of public attention is currently primarily on the part of the law that regulates the partial legalization of possession, consumption, private cultivation and communal, non-commercial cultivation in cultivation associations for adults within certain quantity limits: the Consumer Cannabis Act (KCanG). 

The decriminalization of cannabis in Germany means an opportunity for innovative products and unique taste experiences. This opens up new horizons for companies in the field of terpene mixtures and essences. Flavors for shisha and e-cigarettes could experience a real boom, and the demand for high-quality and creative products in the new market segment is forecast to increase. 

However, the Cannabis Act also brings with it new regulations for medical cannabis, which are anchored in the Medical Cannabis Act (MedCanG). This means that the legal distinction between medical cannabis and cannabis for non-medical purposes remains clearly defined.

Since the law was changed in 2017, patients in Germany have been able to obtain cannabis medicines from pharmacies on prescription. These medicines, which are available in the form of dried flowers and extracts, are mainly used to treat serious illnesses such as chronic pain, spasticity and anorexia. 

The Federal Institute for Drugs and Medical Devices (BfArM) monitors the cultivation of cannabis for medical purposes in Germany to ensure the quality and standardization of the plants. Pilot projects and accompanying surveys have shown that medical cannabis is used successfully to treat chronic pain in more than three quarters of cases. These developments underline the growing importance of cannabis medicines in the German health care system.

https://www.bundesgesundheitsministerium.de/service/begriffe-von-a-z/c/cannabis/faq-cannabis-als-medizin

2. Historical context

The number of people living in states with a fully regulated cannabis market is growing. The US states of Colorado and Washington State started in 2012 with a combined population of around 12.4 million people. Since then, legalization has been progressing.

Cannabis is fully legalized in Canada, Uruguay, and some states and overseas territories of the United States. In these countries, the sale, possession, consumption, and cultivation of cannabis is legal, but age limits must always be observed. In addition, Uruguay and Canada have restrictions on the maximum amounts that can be possessed, acquired, or cultivated. Cannabis is decriminalized in several countries, including Portugal, the Netherlands, Spain, Switzerland, Russia, the Czech Republic, Belgium, and Jamaica. Here, the consumption, possession, and cultivation of small amounts is treated as an administrative offense at most.

In addition to legalization and decriminalization for recreational purposes, many countries have also allowed the medical use of cannabis. Australia, New Zealand, Norway, Sweden, Finland, Great Britain, Brazil and Argentina allow medical prescriptions of cannabis. In Germany, medical cannabis has been legal since 2017. Cultivation and distribution are monitored by the Cannabis Agency, which is based at the Federal Institute for Drugs and Medical Devices, while dispensing takes place through pharmacies.

Germany is not the first country in the DACH region to partially legalize cannabis. In Switzerland, the consumption of cannabis has been legal since 2011, but with strict conditions. Cannabis products are permitted if they contain less than one percent THC. Examples include hemp flowers, scented oils, ointments or drops that are ingested. In Austria, possession of small amounts of cannabis has been exempt from punishment since 2018, but consumption remains illegal. Cannabis with an active ingredient mass of less than 20 grams of THC is considered a small amount.

The experiences of these countries show that the decriminalization of cannabis can lead to growth in the market for cannabis essences. In Switzerland, for example, the demand for cannabis terpenes has increased significantly in recent years. This offers companies in the terpenes and essences sector in Germany great opportunities to benefit from partial legalization.

One of the things that cannabis consumers want is to use flavors that subtly mask the characteristic smell of cannabis and thus make consumption more discreet. These flavors are particularly appreciated by older consumers and professionals who want to enjoy cannabis for medical reasons or in their free time.

3. Current legal situation

The Cannabis Act that has come into force allows adults to legally possess and consume cannabis for recreational purposes. People over the age of 18 are permitted to possess up to 25 grams of cannabis for personal consumption. Growing up to three cannabis plants per person is also permitted. Selling to minors and public consumption in certain areas such as schools or public transport are still prohibited. You can find more information about the Cannabis Act, as well as the applicable rules and restrictions, on the following page:

https://www.bundestag.de/dokumente/textarchiv/2024/kw08-de-cannabis-990684

The government's intention to combat the black market and control the quality of cannabis was crucial for the partial legalization. The illegal trade in cannabis was widespread in Germany and posed significant risks to the health of consumers. By legalizing and regulating the market, the quality of cannabis can be controlled and it can be ensured that consumers do not receive contaminated products.

Another key motivation for partial legalization was to end the senseless persecution and stigmatization of consumers who have suffered significant disadvantages as a result of the previous ban.

Another important factor was the desire to strengthen the personal responsibility of responsible citizens. Adults should be able to decide for themselves whether they want to consume cannabis or not. Legalization allows them to do so in a safe and controlled environment.

4. Market analysis – “Probably the most exciting future market for investors”

The market for cannabis terpenes is in a dynamic growth phase and experts estimate that it will increase significantly in the next few years.

This attracts not only entrepreneurs but also investors from all over the world who want to gain a foothold in this new and dynamic market and benefit from the immense opportunities.

The ICBC conference in Berlin in mid-April underlined this assessment impressively: Around 1,500 visitors from many countries traveled there to exchange ideas about the cultivation, processing, sales and future of cannabis. A slightly sweet scent wafted through the halls of the congress center, while experts from various fields shared their knowledge on the podium. In the exhibition rooms, companies from the USA, Canada and China in particular presented their innovative products and services.

From wholesalers with their own cannabis farms to manufacturers of drying equipment, terpene aromas, shaking machines for joints or vertical bed constructions - the range of exhibitors was large and reflected the diversity of the industry. A wide range of suppliers are looking for new business partners in Germany in order to benefit from the liberalization of the market.

There are many reasons for the great interest in the German cannabis industry:

• Expanded market: Legalization enables companies to offer their products and services to a much larger customer base.
• Skilled labor shortage: The cannabis industry needs skilled workers in all areas, from cultivation to marketing.
• Investment Opportunities: The legalization of cannabis has led to an increase in investment in the industry.

The opportunities for companies and investors in Germany are enormous.

Companies that adapt to this new market and develop innovative products and services can benefit from the immense opportunities and play a leading role in this future market.

Investors who invest early in cannabis industry companies can benefit from high returns.

However, there are also challenges that need to be overcome:

• Cultivation clubs and medical cannabis: Cannabis extracts from the pharmacy could be treated with terpenes to achieve a specific effect.
• Competition: Competition in the cannabis industry is already very high and will only increase in the future.
• Financing: Financing cannabis businesses can be difficult because banks and other financial institutions are often reluctant. 
• Public acceptance: Cannabis remains a controversial topic, and some people oppose the use and sale of cannabis.

Despite these challenges, the opportunities presented by legalized cannabis policy in Germany offer great opportunities for companies and investors.

Those who prepare for this future market now and develop innovative solutions can benefit from the immense opportunities and play a leading role in this dynamic market.

Young consumers who value unique taste experiences are driving the demand for high-quality and innovative cannabis flavors. The variety of flavors ranges from fruity and fresh to tart and spicy and offers something for every taste.

Companies can differentiate themselves from the competition by developing innovative products with unique flavor profiles. In addition to young consumers, there are other target groups that could be interested in cannabis flavors.

Older consumers who use cannabis for medicinal reasons are looking for products that improve the taste of cannabis. There is great potential here for essences that subtly mask the characteristic smell of cannabis and thus make consumption more discreet. Terpenes play a significant role in the medical use and effects of cannabis.

The internationalization of cannabis legalization offers further opportunities for the terpenes industry. Companies can sell their products in other markets and thus benefit from the global wave of legalization.

This underlines the enormous demand for these products and shows the potential for companies operating in this market.

Euromonitor International predicts that the market for cannabis products in Germany will grow to 4.2 billion euros by 2025. These figures illustrate the enormous growth potential that the legalization of cannabis offers for the flavor industry.

The legalization of cannabis in other countries in Europe and the world opens up more markets for companies that produce cannabis flavors. For example, companies can sell their products in countries such as Canada, the Netherlands and Portugal, where cannabis is already legal.

5. Opportunities for companies in the shisha and e-cigarette sector

The legalization of cannabis in Germany opens up numerous market opportunities for companies that want to develop innovative products and technologies. 

Cannabis-infused flavors for shisha and e-cigarettes:

Technology: By using microencapsulated flavors, the release of cannabis flavors can be controlled, ensuring a consistent and enjoyable experience.

Terpene-based flavors:

Technology: Using terpene extracts and advanced extraction methods, these compounds can be isolated and incorporated into e-cigarette liquids or shisha tobacco.

CBD-infused products:

Technology: Nanoemulsion technology can be used to break down CBD into tiny particles that can then be evenly distributed in liquids and flavors.

Information about the current market for medical cannabis and the legal framework

The market for medical cannabis in Germany has grown steadily since the law was changed in 2017. Patients can obtain cannabis medicines from pharmacies on prescription. These medicines, which are available in the form of dried flowers, extracts and the active ingredients dronabinol and nabilone, are mainly used to treat serious illnesses such as chronic pain, spasticity and anorexia​ (DHV)​​ (DHV)​.

• Prescription requirement: Cannabis medicines can only be paid for by health insurance companies if prescribed by a doctor and under certain conditions.
• Quality control: The cultivation and distribution of medical cannabis are strictly monitored by the Federal Institute for Drugs and Medical Devices (BfArM) to ensure the quality and safety of the products.
• Pilot projects: Various pilot projects are underway in Germany to test and further develop the medical use of cannabis. These projects collect valuable data and can lead to further improvements and adjustments to the legal regulations.

6. Conclusions

Summary of key findings:

The demand for cannabis flavors is increasing as young consumers value unique taste experiences.

Older consumers who use cannabis for medical reasons are looking for products that can improve the taste while enhancing the effects.

Women increasingly using cannabis represent a great growth opportunity.

The internationalization of cannabis legalization offers further opportunities for companies that produce cannabis essences.

Companies that act now and develop innovative cannabis terpenes can gain a clear competitive advantage and play a leading role in this dynamic future market.

Potential investors should not miss the immense growth potential of the cannabis essence market and invest in innovative companies that capitalize on these opportunities.

The partial legalization of cannabis in Germany is a turning point that will have a lasting impact on the flavor industry. Companies that adapt to this trend and develop innovative products can benefit from the immense opportunities and play a leading role in this future market.

Our experts will be happy to assist you with further details on the legal situation and the possibilities in aroma development.