German Start-Ups Lay the Groundwork for a Marijuana Bonanza

FRANKFURT — The first sign that something is different about the centuries-old former winery in a sleepy hillside German village surrounded by grape vines is the door leading to the estate. It is brand-new and reinforced with a steel grate. Behind it, a start-up has built a multimillion-dollar testing and processing facility and is getting ready to cash in on Germany’s next big wave: the possible legalization of marijuana.

“Germany is traditionally conservative and has always been politically very cautious,” said Finn Hänsel, a founder of Sanity Group, the start-up that built the high-tech facility, where a dozen well-paid technicians in white coats use chromatography to test the makeup of imported cannabis plants. The company asked that the exact location of the farmhouse remain a secret for security reasons.

The idea that marijuana could become legal “is still somehow unbelievable to me,” Mr. Hänsel said.

Germany’s new government announced that it would legalize recreational cannabis for adults in its coalition contract presented in October. Although no bill or official schedule for a law exists yet, experts believe one will be passed within the next two years.

Medical marijuana is legal in Germany, and small quantities of the drug for personal use were decriminalized years ago, but companies like Sanity are scrambling to make sure they are ready to supply a recreational market.

“The legalization of cannabis is a paradigm shift,” Kirsten Kappert-Gonther, a medical doctor and Green member of Parliament, said in an email. “Anyone who would prefer to consume a hash cookie instead of an after-work beer in the future should be able to make that decision and stay on legal grounds.”

Recreational marijuana is legal in a number of U.S. states and in a few countries, including Canada and Malta.

While the arrival of legal marijuana is being anticipated by businesses around Germany, Jakob Manthey, a scientist at the Center for Interdisciplinary Addiction Research at the University of Hamburg, warns of rash decisions.

“A huge market is being created here and that could ultimately also be a reason — or an important factor — that will ultimately lead to the voices of scientists being considered less carefully than the voices of business interests,” he said in a recent interview.

Although he approves legalizing marijuana, Dr. Manthey says that Germany’s legal market — in Europe’s biggest economy — will have a signaling effect on the rest of the European Union, where several nations are slowly coming around to legalization (tiny Malta being the first). Lawmakers need to be aware of that bigger responsibility, he said.

Mr. Hänsel co-founded his cannabis company in 2018 after successfully starting several conventional businesses. He said he saw a great business opportunity in legal cannabis.

Right now, the work at the converted farmhouse is focused on the medical and wellness sectors, but it is set to scale up as soon as the recreational market comes online. Sanity Group says it has received more than 65 million euros, or about $73 million, in funding to date from international and national investors, including Casa Verde, Snoop Dogg’s investment fund; the musician will.i.am; the actress Alyssa Milano; a German soccer star; as well as more conventional investment funds.

No one knows exactly how much can be made once weed goes fully legitimate. But a recent study estimated that legalized cannabis could generate nearly €5 billion annually in tax revenue and savings in policing. The study, led by Justus Haucap, an economist at the Düsseldorf Institute for Competition Economics, also estimates legalization could create 27,000 new jobs. According to Professor Haucap’s research, the legal market could generate demand for 400 tons per year.

Some lawmakers, though, insist that the main goal of legalization is not the state’s bottom line, but the societal danger of the drug if left unregulated.

“We need to get cannabis out of the grungy corner,” said Andrew Ullmann, a medical doctor and American-born member of the German Parliament.

Dr. Ullmann, who is a pro-business Free Democrat, is likely to help shape the law as a member of the health committee. One of the most important aspects is to ensure that marijuana is not sold to people under 18. “Our intention is to eliminate the black market,” he said.

The plan is to sell cannabis in licensed distribution sites, where quality can be ensured, sales taxes can be collected and it can be kept out of the hands of minors. The most likely route, say many, is that pharmacies — which now dispense medical marijuana — continue to sell the drug.

That would solve the problems of having to create and regulate a new commercial distribution system, as has been the case in many American states, or of having not enough government-licensed distributors, as was evident during Canada’s rollout.

For Germany, known for its burdensome bureaucracy, legalization within two years would be a relatively quick change.

But German start-ups say they will be ready and waiting.

Stefan Langer, who uses medical marijuana to treat his A.D.H.D., founded Bavaria Weed. He bought one of the last Cold War bunkers to be built in Bavaria and installed a production line that is capable of packaging 20,000 individual doses a day. Keeping his business above board, which includes filing to both a medical authority and a controlled-substance authority, each with its own rules, is more than a full-time job, Mr. Langer said.

Neither Sanity nor Bavaria Weed grows their own plants, although there are some German companies that do, so they import the product from far-flung places like Portugal or Canada, all of which has to be licensed and documented for the German authorities.

In a lab at the former winery that is dedicated to extraction and production, which is kept under positive air pressure and only accessible through a clean room, a team works out methods to more efficiently extract and better render THC, the cannabinoid responsible for the classic buzz, and CBD, the substance said to help relieve stress.In its current configuration, the processing plant can handle 21 tons of cannabis a year, according to the company.

Sanity Group also built an 800-square-foot controlled-substance storage vault on the winemaker’s grounds. To satisfy historical preservation laws, the structure had to be wood-clad, but its security cameras and alarm system link directly to the local police station, its walls are armored and nearly a foot thick, and its heavy metal door would put a bank to shame.

Germans appear to be coming around to the idea of legalizing marijuana. A recent survey by Infratest Dimap for the first time found more respondents in favor of legalization (49 percent) than against it (46 percent). In 2014, only 30 percent said they were in favor of legalization.

Kevin Roth, biopharmaceutical engineer who studied cannabis and is overseeing the building of the laboratory on the winery property, said there had been a shift from the stigmatization of marijuana after it was authorized for medical use.

On a recent open-house day, the lab invited neighbors to come and see what was being done in their village. The employees were apprehensive at first but said they were met with much more acceptance than they had expected from the conservative rural community.

“It turns out there are a lot of similarities between vintners and people in the cannabis business,” Mr. Roth said.