Licensed Stores vs. Social Clubs – Germany up in smoke?

An overview of the key points for the new cannabis law

In the coalition agreement of 2021, the coalition parties agreed on the introduction of controlled sale of cannabis for consumption to adults in licensed shops. The decisive factors here should be to control the quality, to prevent the transfer of contaminated substances, to guarantee the best possible protection of minors and health protection of consumers as well as to curb the black market. The 1st Key Issues Paper of the German Federal Government regarding this matter was presented in October 2022 but was met with significant concerns in light of European law and international law from various sides.

The Bavarian State government, for instance, commissioned a legal opinion regarding the compatibility of cannabis legalization with European and international law. The legal opinion by Prof. Bernhard Wegener of the University of Erlangen-Nuremberg was presented in March 2023 and found that the intended legislation of cannabis contradicted international and European law requirements, in particular, the relevant UN conventions on drug control.

There have recently also been opposite views in European jurisprudence. A legal study by the University of Nijmegen which was published in a specialist article, for example, has found that under certain circumstances the introduction of a government-controlled national license system for cannabis for consumption by a EU member state is possible under European and international law. Yet, the specialist article by the University of Nijmegen also views the UN conventions on drug control as a high - but not insurmountable - obstacle for the legalization of cannabis.

The question regarding the compatibility with European and international law has certainly played a significant part in the fact that the draft bill planned for March 2023 has not yet been presented. Instead of a draft bill, Mr. Lauterbach, the German Federal Health Minister, recently declared that the key issues presented in October 2022 had been revised. The revised key issues have now been presented by the Federal Ministry of Health.

According to the revised key issues, now a so-called 2-pillar-model ("club cultivation & regional model/CARe") is planned. Accordingly, there initially will be no unrestricted sale in licensed stores, as originally intended, at least not nationwide. This is supposed to be put into practice as a 2nd pillar for the time being only in model regions (districts/cities in several federal states according to the opt-in approach) for a project duration of 5 years under scientific supervision. Thereafter, companies will be enabled to produce, distribute and sell cannabis for consumption to adults in a licensed and state-controlled framework under the application of a geographical limit. However, this offers the first opportunity to enter a legal cannabis market in Germany. ADVANT Beiten will be happy to support you with our expertise in this regard.

The 1st pillar, in contrast, provides, in addition to a limited penalty-free cultivation of cannabis, that non-profit associations (up to 500 members) are allowed to grow cannabis for consumption collectively under a narrow, clearly defined legal framework and distribute it to their members for their own final consumption. The nature, structure, financing, etc. of this association will still have to be discussed and will require legal review and, in the future, legal support for the process of establishing such associations. ADVANT Beiten offers the necessary knowledge to accompany this process. The cannabis may only be distributed to members and not to third parties. Additionally, penalty-free possession for own consumption of up to 25 grammes is supposed to be possible. However, it is open whether these intended regulations will actually lead to a curbing of the black market. Here, the draft bill remains to be waited for.

The revised Key Issues Paper further provides with regard to the concerns under European and international law that the proposed regulations regarding the 1st pillar should be formed in such a way that no notification requirement and no requirement of consent by the Federal Council (Bundesrat) is triggered. However, it is still assumed that there will be a notification requirement for the proposed regulations regarding the 2nd pillar.

In addition to the questions of European and international law, the consequences of legalization under criminal law will also be discussed. The German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) could soon make a decisive contribution in this matter. The BVerfG announced that it will decide on various judges' submissions on criminal law provisions in the German Narcotics Act (Betäubungsmittelgesetz, BtMG) which concern the cannabis ban until early summer 2023. In this respect, the BVerfG could even pre-empt politics and legislation and, thus, bring new momentum into the matter, perhaps even opposing the revised key issues paper.

Not only politics and jurisprudence have been eagerly awaiting the draft bill, but also the business community. Medium-sized companies and start-ups see new business opportunities in the legalization of cannabis, but of course also companies from countries where the legalization of cannabis is already more advanced. Initial considerations assumed a turnover of 1.2 to 2.3 billion euros per year that could be generated due to legalization. From the point of view of the Federal Republic of Germany, this alone would have had the side effect of an estimated EUR 350 million in additional tax revenue just from the sales tax on legal sales. Here, it remains to be seen how the key issues will be legally implemented and finally how the "project" model regions will develop. Nevertheless, Germany will open a new cannabis market soon, creating new opportunities for companies to enter another cannabis market, for the production and sale of cannabis, to establish new companies or to acquire existing companies. In all of this, ADVANT Beiten has a competent team to provide legal support and assistance in the implementation of these new opportunities.

A first draft bill for the 1st pillar of the 2-pillar-model is to be presented before the end of April, and then the draft bill for the 2nd pillar.

As many details are still unclear, anyone wishing to enter this market should seek advice early on.

Dr Silke Dulle
Moritz Kopp
Robert Schmid