Legalization and licensing – the next challenge in the cannabis debate!

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Deutsche Version im Original auf Krautinvest


No rapid decriminalization for the time being

A quick decriminalization of cannabis users and unprocessed industrial hemp products will not happen for the time being according to the will of the traffic light coalition, despite urgent demands of the interest groups of DHV, LEAP Germany and the EIHA. The officials of the coalition fear an early decriminalization could endanger the entire project of the legalization. This altogether very cautious tactic seems incomprehensible, since both projects are covered by a full government majority in the Bundestag. According to Federal Health Minister Karl Lauterbach, however, there will not be a draft before the beginning of 2023, so that we must expect further, hundreds of thousands of criminal proceedings until well into the year 2023. However, this consequence is apparently being accepted.


Clear signals are necessary!

Not only the judges and prosecutors in the ongoing criminal proceedings, but also the industry, which wants to prepare itself for the new situation, therefore need clear signals. Clear signals that this is not just lip service, but that active work is being done on the reform process. As proposed by Carmen Wegge, a member of the SPD Bundestag group, Germany could terminate the Single Convention timely, which currently still stands in the way of legalization. This would give a clear signal to law enforment, the industry and abroad that the new government is serious about its intentions and that we can slowly begin to adapt to the new situation.


How? Where? What?

Without a bill this year, it will be a very free debate in which many will participate. After the question of immediate decriminalization, we should now discuss the delivery model that we really want. Because this point will become one of the biggest challenges for the legislator in the reform project. And what interests the industry most: the retail licensing model! As we know from Canada and California, the black market there could only be suppressed sluggishly because too few dispensaries were licensed.


No Caps! – No number restrictions

In the Cannabis Control Act, the Green Party’s draft law on legalization, the federal states are authorized to set restrictions on the number of cannabis stores (so called „caps“). A corresponding demand was also recently made by addiction medicine societies. We have seen such „caps“ in Germany in the case of pharmacies, and currently still in the case of gambling halls. Restrictions on the number of commercial operations pose a serious constitutional problem, as they encroach on the fundamental right of freedom of occupation under Article 12 GG of the Constitution (Grundgesetz, GG). In 1958, the Federal Constitutional Court took the decision of a Bavarian authority as an opportunity to develop its three-stage theory, which is still valid today. In that case, a pharmacy license was not granted because there were already sufficient pharmacies in the relevant area.


What are the possible consequences?

If caps were actually introduced for German dispensaries, they would have to be measured against the constitutional court case law on Art. 12. They would be objective conditions of admission of the third level, which are independent of the personal characteristics of the holder of the fundamental right, and their fulfillment is entirely beyond the control of the individual.


Protection of the individual and the population

If the free choice of profession is restricted by objective admission requirements, this intervention must be imperative for the protection of an overriding common good. For this reason, particularly strict requirements are to be placed on them and they are only permissible if they are justified in order to avert demonstrable or highly probable serious dangers to this common good, according to the Federal Constitutional Court in the Pharmacy Judgment of 1958.


Theory meets practice

So much for the theory. Neither in the Cannabis Control Act nor in the position paper of the addiction medicine societies is there any corresponding justification for which overriding community good establishment restrictions are necessary. At the time, the Federal Constitutional Court ruled in favor of the plaintiff pharmacist. It is true that public health would, in principle, be an overridingly important common good that could justify the introduction of objective licensing regulations. After extensive discussion, however, it could not be established that the abolition of restrictions on establishment could lead to ruinous competition among pharmacies with the associated dangers to public health.


A possible argument for a restriction of dispensaries would certainly not be a possibly ruinous price war between the stores. Rather, there seems to be a concern that an oversupply will generate increased demand among the population. However, we know from existing data in countries where legalization has already taken place that the consumption of cannabis products is not increasing.


Exclude incentive character

The Cannabis Control Act already provides regulations to exclude an incitement or incentive character to cannabis consumption. For example, there is a general ban on advertising cannabis and the external appearance of the cannabis store may not be designed with conspicuous advertising or other promotional materials.


These regulations governing the practice of the profession represent a much milder means of preventing the generation of additional demand in the population, and thus serve to protect „public health.“ From a constitutional point of view, it may be doubted whether objective restrictions on admission are still necessary.


The consequence of a restriction of the freedom of establishment would cause legal disputes, and not only at the constitutional level. Competitors who lose out in the first round of licensing due to a number restriction could challenge the authority’s decisions in competitor actions brought before the administrative courts. And they could do so by arguing that the authority made an incorrect discretionary decision. Of course, all other requirements must be met, such as the prescribed social concept, the offering of safe products, trained employees and safeguards, etc. However, if several competitors meet all the requirements equally, it becomes almost impossible for the authority to make a discretionary error-free selection. The company that has received a license can then consider whether to take the risk and start operations, even though the license may well be subsequently revoked. If the start of operations is not impossible from the outset due to interim judicial arrangements. There is obviously a risk here that too few specialist stores will open and the goal of legalization, to dry up the black market as quickly as possible, will be thwarted.



If we completely do away with restrictions on the number of cannabis stores in the federal states, there will certainly be an oversupply in the first two to three years, which will then consolidate again as the market shakes out. The stores with the best offer and the best service will then prevail. In addition, there would be sufficient licensed dispensing outlets from Day 1.


The last alternative would be a lottery, as seen in Canada and America. A lottery has the advantage that the authority does not have to make its own decision when issuing the license, and thus cannot make any mistakes. Rather, the selection is left to chance. However, such a solution would face the same constitutional concerns as the „caps“.


In the Pharmacy Act, milder means are also used to prevent price wars between pharmacies and to achieve the best possible supply for the population. The State Treaty on Gaming also provides that the federal states can limit the number of permits to be issued in a municipality. As at present, however, authorities do not invoke this provision (due to the high constitutional requirements); instead, the lack of a minimum distance (in some cases up to 500m) to other establishments is usually used as a mitigating measure. The player should thus be given „an inner distance“ from his own gambling behavior, and not be given the immediate opportunity to gamble again.


Allow mail order?

Most recently, the FDP, as a classic economic liberal party, with its member of parliament Kristine Lütke, has spoken out in favor of allowing the distribution of recreational cannabis via mail order. Online retail would most likely emerge as the dominant market model in a very short period of time, thus taking significant pressure off the licensing issues of brick-and-mortar retailers. Online retailers would be able to build up a huge supply of different flowers and finished products, which would be available at any time. Online trade is rejected in the draft CannKG, since the basic idea of social responsibility underlying the draft can, in the opinion of the Greens, only be ensured through personal counseling and prevention work. Here, however, as Kristine Lütke also believes, there will be technical possibilities to ensure the protection of minors.


CONCLUSION: Restrictions on the number of cannabis specialty stores meet significant constitutional concerns, and are not necessary to protect the public from an increase in cannabis use. There are milder means to achieve these goals. Moreover, they would jeopardize the most urgent goal of cannabis reform, which is to suppress the black market effectively, quickly, and completely.


The minimum distances to youth facilities and other specialty stores must also be carefully discussed, as they will determine the character and size of the stores. Do we want small units also in the inner cities, where detailed, owner-managed advice can be given and „responsible sales“ can take place, as the Greens demand in the CannKG? Should consumption also be allowed there in a protected space? Or will the specialist stores be forced into large new buildings in the commercial areas and on the arterial roads, where it is only a matter of „fast“ selling?



Kai-Friedrich Niermann, KFN+ Law Office