Venture capitalists investing in the German cannabis market must ‘look beyond the bridges and focus on people and market reality’

As Germany moves closer and closer to launching an adult cannabis market, investor interest in what is already Europe’s largest medical cannabis market has grown in parallel.

The deals continue to grow in size, as do their respective market valuations as it transforms into what a German pharmaceutical wholesaler, importer and exporter AlephSanaThe co-founder and managing director of , Boris Moshkovits, calls a “pre-receipt” market.

This influx of interest is, according to Moshkovits, a double-edged sword, threatening to see valuations overshoot reality and Germany repeat the same mistakes made by Canada four years earlier.

Can you tell us about the story and the thinking behind AlephSana?

We started with the assumption that we would import from Israel, but IMC-GMP is not EU-GMP as we know it. So far, I don’t think there are any Israeli flowers on the market. But that was the starting point, we had great confidence in Israeli expertise.

We keep it a company invested by friends and family, so far it is a group of businessmen and a family office. We have come a long way as a very nimble company with a lean structure which means we have a core team and for everything else we hire external companies to provide all the services needed to operate as pharmaceutical wholesaler.

In two years, we managed to get all the licenses and sell the first product. We started in 2019, in 2020 we were already selling the first product to German pharmacies.

We have our own digital system, we have a B2B online platform for pharmacies to place their orders in real time. And this platform can obviously one day be a B2C platform, if the law allows it.

The three or four great players in Germany remind me of the three four great players in Canada. And when we look at the Canadian stock market, we know where it stops.

We are working on creating a kind of “pre-receipt” situation where, on the one hand, we supply pharmacies with dried flowers, extracts and formulations like Dronabinol. On the other hand, we also plan to provide patients with everything they need to consume in their preferred delivery method.

At AlephSana we also work as a medical company. We are strengthening our medical sales team, which will train doctors and clinics. Currently, our focus is on educating pharmacists and raising patient awareness of cannabis therapy, of course within regulatory limits. We therefore work as best we can with the resources we have since we cannot directly promote our products to patients.

We are now – after three years – breaking even, which in an industry where everyone has huge burn rates means that we are economically quite responsible.

I firmly believe that this is also one of our strengths. No matter what the storm brings, we don’t burn money. We create real value over time, perhaps more slowly than others, but consistently.

Where do you source your products and where do you sell?

At the moment we mainly focus on sales in Germany. We are also exploring new markets with new partners. We are currently looking to establish partnerships with Poland and the UK and are exploring new opportunities in Switzerland, Spain and Portugal. The products we sell as a multi-brand wholesaler come from Canada, Denmark, Portugal, the Netherlands, Australia and in the next six months we will be looking at products from New Zealand, South Africa and Colombia.

We also looked for opportunities in the southern hemisphere. There are different levels of THC or THCV, there are other properties in the plant, and we are looking at expanding our portfolio which also covers different ranges of THC. There is currently some hype around high THC. While looking for strong high THC strains, we also look beyond the THC level as such and don’t give in to the hype.

What we bring to market is a consistent high-end supply for the patient. I’m not ready to get into a fight over who brings the cheapest flower, because now there are companies that can deliver for €3 to the pharmacy.

We like to look at it as if we were looking at a handcrafted product. The effect must be right, but also the look and the taste.

Another thing our research does is look at the indications that we see around the world, even though we lack 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 into the community.

Next year we will deliver on the promise of a medical company, understanding that some patients see it as a “pre-receivable” market, still providing enough products for them in the form of floral and vapable oils.

We are 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 can cater to the growing medical market, which will then explode.

There have already been so many changes in Germany since the possibility of a recreational market was announced, what do you think of its development?

I want this market to succeed. Germany started with 1000 patients who fought in court for the right to use cannabis as a patient, and now we have about 300,000 patients in Germany, that’s a huge development.

At the same time, the entire market is only 150-200 million. This includes readymades, final finished products like Sativex and Epidyolex. It includes 30% market share for dronabinol, and includes 5% to 10% for full-spectrum extracts.

This means that about 60% remains for flowers, distributed among 182 distributors. Additionally, around 60% of the market is sold through five online pharmacies that source their supplies directly from 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 generating virtually no sales. I believe that these companies, which are just waiting for the recreational market to take off, will run out of funds and ideas.

So what I see is a huge exaggeration of the market dynamics that recent, headline-grabbing trades have taken advantage of. The great liquor and the big tobacco have already been there.

My biggest concern right now is that investor decks remind me of Canada five years ago. I see an overstatement. Of course, every market needs money to grow, but we’ve seen failure in the United States before and we’ve seen failure in Canada for different reasons. Companies are delisted and their market capitalizations plummet.

One of the biggest challenges for us when looking for partners and suppliers is that some of them give in to the hype of other companies promising minimum removal quantities of one ton per year. It’s ridiculous compared to the reality of where we are.

There are varieties that sell for five kilos a month, that’s 60 kilos a year. If you have a winner, you sell 25 kilos per month, which is 300 kilos per year.

The difficulty, then, is that companies need financing to secure supply agreements that they cannot meet. It puts everyone under pressure.

I hope venture capitalists will start looking beyond numbers and bridges and focus on people and market reality. We’re small, we’re lean, we’re profitable, we’re profitable and we’re looking for the right partners to grow in this market.