Germany cancels stalled tender plan

Leaves some Canadian firms in limbo

TORONTO • Cannabis companies eager to grow product in Germany are back to square one, after the German government officially cancelled a tender process last week that had been stalled since March.

The German government had been looking to award the country’s first cultivation licences, and put out a call for companies that could supply it with a total of 6,600 kilograms of medical-grade cannabis, grown in-country.

A number of Canadian companies, including Canopy Growth Corp., MedReleaf Corp. and Aphria Inc. (through its acquisition of Nuuvera Inc.), were on the short list with their domestic partners, say people with knowledge of the tender process.

Last week, the department in charge of Germany’s medical marijuana regime sent out letters informing finalists that the tender was cancelled.

“Nothing about what is happening is unexpected, at least to me or anybody else who’s involved,” said Pierre Debs, managing director of Canopy’s European division.

The tender process, which began last summer, had not budged since March, when a Dusseldorf higher court judge halted it due to petitions from companies that felt the process had been unfair.

“Between the first and the second phase (of the tender process) they did not give enough time for interested parties to submit documentation,” said Debs. “In the end it was a European procurement formality that was what stopped it.”

“It’s supposed to (restart) soon,” he added. “But the tendering authority is under no obligation to set a date when they tell us. We’re just waiting for it to come out.”

Even if the cancellation has been expected since March, it’s still a setback for some of the finalists who had placed significant financial bets on the tender going through.

Most notable is Aphria, which spent roughly $425 million to acquire Nuuvera in February, largely due to Nuuvera’s position as a finalist in the tender process.

“There are still assets that we are absolutely working with that came with the acquisition. But the gem of that acquisition was Germany,” said Aphria chief executive Vic Neufeld.

“Had we known that that was all going to be thrown out the window and they’re going to restart the whole process, no we wouldn’t have paid as much.”

Neufeld said he’s confident Aphria will be a finalist in the next tender process, using the relationships and infrastructure Nuuvera built.

But there will be more competition this time.

“It’s going to start all over fresh. So basically what that is now saying is the 30 or 40 major LPs in Canada, everyone can get back into the party,” said Neufeld.

That’s good news for companies that missed the tender last time — particularly those that didn’t meet certain requirements, such as three years experience as a federally regulated cultivator, last summer, but may meet them this time around.

As with much in the nascent medical cannabis industry, it’s still unclear how important these small, early-stage cultivation licenses will be in the long run.

Germany, where medical cannabis is sold in pharmacies and covered by public health insurance schemes, is expected to become a major medical marijuana market.

But it may be cheaper to grow product in other parts of the European Union, and sell directly to pharmacy chains, rather than grow in country and sell to the government.

Several cannabis executives said the tender’s delay was not a concern, as they were already shipping product to Germany.

Longer term, the importance of in-country cultivation comes down to whether the German government decides to prioritize its own jobs and economic development.

That seems likely, said Ben Ward, chief executive of Maricann Group Inc., which is aiming to expand its operations in Germany.

“In five years time, almost all product in Germany will be produced domestically. But it takes time for the market to develop, much like in Canada” said Ward.

“We were an importer at the beginning from Bedrocan in Amsterdam, and now we have our own supply incountry. So I think there’s a near-term opportunity for exports to Germany for the next two to three years, then they’ll have their own domestic supply. We just see that as a natural progression.”