When it comes to German cannabis company DEMECAN, there have been some major developments announced recently. The company has received a cultivation license under the new MedCanG law, allowing the company to double its production. On top of that, it has successfully completed a financing round, with participation of new investors from the USA. "The industry developments of this year have changed the mindset about the cannabis market," says Philipp Goebel, Managing Director at DEMECAN. "Up until now, it was already an exciting industry to be in, but it was definitely a different market. There is a new positivity and there are great opportunities."
Philipp Goebel
Increased capacity and variety
Philipp explains that DEMECAN already had the capacity to produce two tons, but that they could not use it. "We were only allowed to deliver up to one ton to the German government. We've used parts of the remaining capacity for R&D purposes, so that we would be prepared with new strains once we could increase production." Up until early summer, DEMECAN was only allowed to cultivate two strains for commercial purposes. "Under this new license, we can cultivate as much product as we want." And while the current capacity is two tons, they can quickly extend that to 4 tons in the future. "It's a large facility with much room for us to even grow further. Although many may think that production costs in Germany are higher than in other markets, we can clearly show that we have a very competitive cost structure which gives us a clear margin advantage relative to imported flower."
This increased production is necessary, as the demand has increased significantly since the reclassification on April 1st. "Every gram we have is basically sold out. There are no reliable market figures yet, but there is a significant growth in demand since April," Philipp says. "We expect that this growth will continue, as long as the regulatory framework doesn't change. Pillar 2, the commercial supply chain pilot, is currently being discussed. That may lead to another positive shift in the market, depending on how they frame it. But for now, as long as the regulations stay like this, we expect the demand to continue to increase. An increasing number of doctors sees cannabis as a valuable alternative treatment and more patients are realizing that cannabis can be prescribed much easier, without needing a narcotic prescription."
Is competing with the black market a challenge for the legal industry? "The black market is still very large in Germany. However, meanwhile you pay less in the pharmacy than on the streets. The pharmacy prices depend on the quality of the product, but they are definitely competitive with the black market. That makes the legal products very attractive for patients. Many patients who previously bought cannabis on the black market can now buy it easier and much safer in the pharmacy," Philipp explains.
Investment from the U.S.
Besides cultivation, DEMECAN engages in the whole value chain, from seed to sale. The company's recent successful financing round will be used for accelerating growth in all four profit pools: wholesale, GMP services for third parties, international sales and eCommerce business, for which DEMECAN developed a software solution for pharmacies. "The manufacturing process done at pharmacies currently takes quite a lot of time," Philipp says. To solve this challenge, DEMECAN developed a SaaS solution that enhances pharmacies' efficiency. "It's an ERP system that handles everything, from inventory to finances and shipping documents. Everything is in one system." On top of that, the company is investing in its own online pharmacy platform, Herbery, which they will continue to scale up. "On top of supplying our own product, these are two major aspects with which we want to support the market."
Philipp mentions that the recent funding round was particularly special, as it is their first institutional investment from a U.S.-based lead investor. "In our case, the investor particularly liked the combination of our own cultivation and our eCommerce initiatives." Overall, Philipp notices that the mindset about the cannabis market has changed. "Up until now, it was a different market. We have fortunately been able to position ourselves well within the top players in Germany. It was already exciting, but the times were different. There are now major developments happening and great opportunities in the industry, and we're excited to be a part of that."
For more information:
DEMECAN
[email protected]
www.demecan.de