German government anticipates huge windfall with legalization of cannabis

Estimates suggest that approving the consumption and possession of marijuana would contribute around $5 billion annually to the state budget

German government
A demonstration in Berlin last May calling for the legalization of cannabis.Annette Riedl (dpa / Getty Image (dpa/picture alliance via Getty I)

In November 2021, when it was announced the German government would send a law to the Bundestag to legalize the consumption and possession of marijuana - which was approved on August 16 - a team of researchers led by Justus Haucap, professor of economics at the Heinrich Heine University of Düsseldorf, published a study that made the German Finance Minister, Christian Lindner, the leader of the liberal party that had been one of the primary backers of the idea along with the Greens, very happy indeed.

The Düsseldorf researchers constructed an economic scenario based on the consumption of 400 tons of cannabis per year, a scenario that would bring provide the public coffers with around €4.7 billion ($5.1 billion) per year. To determine the potential capital inflows to the state, they included both expected tax revenues, the costs of legal cannabis stores, and savings applied to the police and judiciary. According to the calculations, the cannabis tax alone would bring in €1.8 billion annually to the treasury.

Furthermore, there would be additional revenues from corporate tax, trade tax and value-added tax totaling some €735 million ($797 million), as well as from social contributions (€526 million / $570 million) and wage tax (€280 million / $303 million), which would be generated by up to 27,000 legal jobs in the cannabis economy.

More importantly, controlled sales would put an end to the illegal black market, which would also allow for better protection of young people and more effective prevention of addiction and put an end to the criminalization of millions of marijuana users.

“The market has existed for a long time. The only thing that does not exist is taxation,” said Haucap, who based his calculations on a price of €10 ($10.85) per gram of marijuana.

The bill to legalize the consumption and possession of marijuana gave a boost to a small group of companies that since 2017 have produced around 2.4 tons of cannabis per year for medicinal purposes.

“In terms of population, Germany will become the largest country in the world to allow the sale of cannabis,” says Constantin von der Groeben, CEO of Demecan, a local grower. “It’s a great opportunity for us.” Lars Müller, meanwhile, announced that his company would create what he describes as the Starbucks of marijuana, a chain that would offer the full range of cannabis-related products. “We want to create a chain with an identical level of quality throughout Germany,” says the CEO of Synbiotic.

But the law passed by the government, which must be debated in the Bundestag and Bundesrat for it to come into force, ended these companies’ million-dollar dreams for the time being and has created an atmosphere of frustration due to a legal technicality: the law does not allow free sales and restricts consumption to so-called marijuana clubs.

The clubs must be organized as cooperatives, will require a permit, and can have a maximum of 500 members. Each member may buy a maximum of 25 grams per day and 50 grams per month. People aged between 18 and 21 can consume a maximum of 30 grams per month. The plants will be grown on a “community” and “non-commercial” basis and will be financed by membership fees. The greenhouses must be safeguarded against theft and have a privacy screen.

Marijuana clubs, also known as “growing associations,” may not engage in advertising or sponsorship. In addition, smoking weed will not allowed on the premises, but within a distance of 200 meters. The same restriction applies to schools, children’s and youth facilities, playgrounds, and publicly accessible sports facilities.

In addition, each club must appoint a prevention and addiction officer, who will have to be trained and attend regular refresher courses.

Initially, the coalition government had planned a much wider project: the legal sale of cannabis nationwide in specially licensed stores. But, despite sounding surprisingly confident at first, it failed with its plans due to resistance from the European Commission. Under the current legal situation, the supply and sale of the drug must be sanctioned within the EU, but the Commission has no say in non-commercial domestic cultivation.

“Now it’s about implementing plan B,” says Niklas Kouparanis, CEO of Frankfurt start-up Bloomwell. “We want to supply cannabis clubs with things like plant cultivation equipment, cannabis seeds and infrastructure.” According to Kouparanis, thousands of clubs are needed to meet the demand for cannabis: “The focus will be on metropolitan areas.” Other start-ups are also looking at cannabis clubs as a possible source of revenue until the second phase of legalization arrives.

Model regions

In addition to the marijuana clubs, the federal government has announced a second project: in the future there will be model regions in which the legal sale of cannabis will be tested. Where and when this will be implemented is still up in the air. Some cities such as Frankfurt, Offenbach, Berlin, Cologne, Dortmund, and Münster have already expressed interest in becoming a model region. Health Minister Karl Lauterbach intends to present a regulation in the autumn that would allow the sale and trade of marijuana in licensed specialty stores in these model regions.

“We are looking forward to the planned second law for the implementation of scientific pilot projects for the controlled sale of marijuana in specialty stores in Germany,” says Thilo Grösch, an executive at Sanity Group, a Berlin-based company specializing in the production of medical marijuana. “From our point of view, it is of utmost importance that this is tabled as soon as possible after the parliamentary summer recess so that no more time is lost.”

It will be then that the millions will start to pour into the German state coffers, but the final word lies with Lauterbach, a Social Democrat politician who has promised much but so far delivered little.

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