AS Germany edges steadily closer to launching an adult-use cannabis market, investment interest into what is already Europe’s largest medical cannabis market has grown in tandem.
Deals continue to grow in size, as do their respective valuations of the market as it transitions into what German pharmaceutical wholesaler, importer and exporter AlephSana‘s Co-Founder and Managing Director Boris Moshkovits calls a ‘pre-rec’ market.
This influx of interest is, according to Mr Moshkovits, a double-edged-sword, threatening to see valuations outrun reality and Germany repeat the same mistakes made by Canada four years earlier.
Can you walk us through the history and thinking behind AlephSana?
We started with the assumption that we would import from Israel, but IMC-GMP is not EU-GMP as we know. Up until now I don’t think there’s any Israeli flower in the market. But that was the starting point,we had a lot of trust in Israeli expertise.
We keep it a friends and family invested company, so far it’s a group of businessmen and a family office. We’ve come a long way as a very agile company with a lean structure, meaning we have a core team and for everything else we hire external companies to cater all of the services that are necessary to operate as a pharmaceutical wholesaler.
Within two years we managed to get all the licences and sell the first product. We started in 2019, by 2020 we were already selling the first product to German pharmacies.
We’ve got our own digital system, we’ve got a B2B online platform for pharmacies to make their orders live in real time. And that platform obviously one day can also be a B2C platform, if permitted by law.
The three or four big players in Germany remind me of the three four big players of Canada. And when we look at the Canadian stock exchange, we know where that ends.
We’re working on creating a kind of ‘pre-rec’ situation where on one hand, we supply the pharmacies with dried flower, extracts and formulations like Dronabinol. On the other hand we also plan to supply patients with everything they need to consume in their preferred mode of delivery.
At AlephSana we also work as a medical company. We are ramping up our medical sales team, which will educate doctors and clinics. Currently our focus is on educating pharmacists and raising awareness for cannabis therapy for patients, of course within the regulatory constraints. So we work as well as we can with the resources available to us since we cannot promote our products to patients directly.
We’re now – after three years – reaching breakeven, which in an industry where everybody has huge burn rates means we’re economically quite responsible.
I strongly believe this is also one of our strengths. No matter what the storm will bring, we’re not burning money. We’re creating actual value over time, maybe slower than others, but consistently.
Where are you getting product from, and where are you selling to?
For the time being our focus on sales is primarily Germany. We are also exploring new markets with new partners. We are currently looking at establishing partnerships with Poland and the UK and are exploring new opportunities in Switzerland, Spain and Portugal. The products that we sell as a multibrand wholesaler are from Canada, Denmark, Portugal, the Netherlands, Australia, and within the next six months we’re looking at products from New Zealand, South Africa and Columbia.
We’ve been looking at opportunities also from the southern hemisphere. There are different THC or THCV levels, there’s other properties within the plant, and we are looking into widening our portfolio that also covers different ranges of THC. There’s currently a certain hype about high THC. While looking for solid high-THC strains, we also look beyond THC level as such and don’t give into the hype.
What we are bringing to the market is a consistent high-end supply for the patient. I’m not willing to enter the battle over who brings in the cheapest flower, as now there are companies that can deliver at €3 to the pharmacy.
We like to look at it as if we’re looking at a craft product. The effect needs to be right, but also the look and the taste.
Another thing our research does is look at which indications we see throughout the world, even though we have a lack of clinical studies. What we can do is listen to patients and patient forums, understand what helps them and see how we can bring that back to the community.
Next year is where we live up to the promise of a medical company, understanding that some patients regard it as a ‘pre-rec’ market, still catering enough product for them in the form of flower and vapable oils.
We’re ready for the transformation of the medical market once the recreational market opens, which could potentially happen in 2025 in Germany. And if it doesn’t open, we’ll be able to cater to the growing medical market, which will then explode.
There has already been so much change in Germany since the possibility of a recreational market was announced, what are your views on how it has developed?
I do want this market to be successful. Germany started with 1000 patients that fought in front of courts for the right to consume cannabis as a patient, and now we have around 300,000 patients in Germany, that’s a huge development.
At the same time, the whole market is only €150 to €200m. That includes the readymades, the final finished products like Sativex and Epidyolex. It includes 30% market share for Dronabinol, and includes 5% to 10% for full spectrum extracts.
That means it leaves around 60% for flowers, divided among 182 distributors. On top about 60% of the market is being sold through five online pharmacies who source their products directly from the producers. So there are maybe 10 distribution companies that are successfully selling directly to the remaining cannabis pharmacies, and a growing number of distribution companies that are hardly generating any sales. I believe these companies, who are just waiting for the rec market to start will run out of funds and ideas.
So what I see is a huge exaggeration of market dynamics that recent deals, going big on the news, have taken advantage of. Big liqueur and big tobacco have gone down that road before.
My biggest concern right now is that investors’ decks remind me of Canada five years ago. I see an over-evaluation. Of course every market needs money to grow but we’ve already seen the failure in the States and we’ve seen the failure in Canada for different reasons. Companies are being delisted and their market caps are crumbling.
One of the biggest challenges for us when we look for partners and suppliers, is that some of them give into the hype of other companies that promise minimum off-take quantities of a ton per year. This is ridiculous compared to the reality of where we are.
There are strains that sell at five kilos a month, that’s 60 kilos a year. If you have a winner you sell 25 kilos a month, which adds up to 300 kilos a year.
So the difficulty is that the companies need the funding to guarantee supply agreements that they can’t live up to. That puts everybody else under pressure.
I hope venture capitalists will start looking beyond numbers and decks and focus on people and the market reality. We’re a small company, we’re lean, we’re cost effective, we’re breakeven and we’re looking for the right partners for expansion to build within that market.