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Selling cannabis products online: The Sanity Group is bringing the hemp boom to Germany
It is not an exaggeration to say that online CBD products are having a particularly tough time. Not because there is no demand for the active ingredient obtained from the cannabis plant, but because the equation with the intoxicant is still present in many minds. Finn Hänsel, start-up veteran and founder of the Sanity Group, has nevertheless taken on this topic and founded the VAAY brand, among other things. Finn sells cannabis products online under this label.
In the podcast, the founder explains why CBD brings relaxation without intoxication, what hurdles and complications there were in setting up the cannabis start-up and why Germany, unlike other countries, is missing out on economic opportunities.
You can find the complete transcription of this episode.
The start in the start-up scene through to cannabis
Finn Hansel: I made the jump towards the start-up scene back in 2010. At that time I was working at Rocket Internet in Australia and then founded the fashion retailer The Iconic relatively quickly. It's like Zalando here in Europe. I did that for two years and realized that I like this start-up air, I like it. I then came back to Germany after two years and helped set up the incubator in Berlin for ProSiebenSat.1, from which Amorelie and Gymondo emerged, among other things. After a while there, I had the idea to do something myself. I actually wanted to start something of my own and also looked for ideas. At some point, however, my old Iconic investors came up to me and asked if I was interested in joining a new venture from those in which they had invested. That was Movinga back then, with which I spent most of my start-up career, namely four years. First as one of three managing directors and then in the end as someone who had to restructure the whole company.
But you always itch your fingers to do something of your own. And so it was with a heavy heart that I decided to say goodbye to Movinga because I really wanted to be a founder again. I then founded the Sanity Group together with my co-founder Fabian Friede in 2018, 2019 because we see huge potential in the cannabis market.
We both already have a history. Fabian has been observing the topic for a long time; ironically, I myself fought for medical legalization within the CDU in Schleswig-Holstein in 2002. And so one thing led to another.
Finn Hänsel and Fabian Friede - founders of the Sanity Group
Manuel Fritsch: So the Sanity Group, that is the parent company and VAAY emerged from this, which makes the products, for example.
Manuel: What exactly is happening there? People always think immediately when they hear this keyword: is this illegal now? How can you sell cannabis here?
Finn: In fact, we said from the start that we want to do both, the wellbeing area and this medical area, and that is why we have two business units in the Sanity Group. On the one hand, there is Sanity Medical. There we have the Vayamed brand, which actually manufactures drugs for doctors, patients and pharmacists and brings them to market. The second is Sanity Care, our wellness unit and we have two brands there. One is This Place, our premium cosmetic brand based on CBD products. And the second is VAAY, our hero brand. This is how we got the most attention.
The difference between cannabinoids and their effects
Manuel: Since 2017, cannabis has also been allowed for medical purposes in Germany. However, CBD should not be confused with a joint that is illegally rolled and has an intoxicating effect. Perhaps you would like to briefly explain again where the difference is.
Finn: What has actually only been scientifically proven for 20 or 25 years is that there is not just the cannabis plant itself, but that there are various active ingredients within the cannabis plant. These active ingredients are called cannabinoids and the plant actually has 110 of them. One of these active ingredients is what we all associate the plant with today: THC.
Manuel: Which has the mind-changing and intoxicating effect.
Finn: Exactly. This is the "anesthetic" that has mind-altering effects and what people associate with cannabis. But there are also at least 109 other cannabinoids that have completely different effects, that are not psychoactive and that can have completely different positive influences on the body. The best researched of these is CBD, CBG is yet another one that is now on the rise as well. CBD is a cannabinoid where current studies indicate very clearly that it can help eliminate anxiety disorders and reduce stress levels. We have focused our entire freely available line such as VAAY or This Place on this.
Manuel: Now you're not a medic yourself. How did the idea of founding such a start-up come about?
Finn: It's of course something completely different, it's less tech than the things I used to do. And on the other, it's much more regulated.
You have to deal with regulations, authorities, European laws, German laws, state laws every day.
At the same time, one must not lose sight of the goal, namely to manufacture good products and good medicines for patients and customers. That's something completely different. At that time I fought a bit for medical clearance in the Junge Union, it was really almost 20 years ago. I talked to many doctors, some of them professors from the University of Kiel, and asked, "What is it about this cannabis?" It was then that I realized for the first time that cannabis can actually have a medicinal effect. At the time, I even spoke to doctors who told me that they privately grow their own garden to provide patients with cannabis under the palm of their hand because it was banned in Germany. That was when my curiosity was aroused. I did a tremendous amount of research and looked where cannabis is used in the world. Israel was such a front runner at the time who recognized the medical potential very early on.
Medical cannabis from Vayamed - a Sanity Group brand
So it came to my request in 2002 that cannabis should be legalized medically. That was rejected in the CDU at the time. 15 or 20 years later they were smarter and waved it through in the Bundestag.
It was such a personal story why I believed in this market very early on. I wasn't even familiar with CBD then, I've only known it for five or six years. When a good friend of mine said - he knew that after a half marathon I always have so much sore muscles and couldn't move for two days - give CBD a try, it's anti-inflammatory and works on the muscles, so your muscles don't over-acidify and therefore you have less sore muscles. I got up the next day and was still in pain, but it was no comparison to the seven-year half marathon that I had already done by then, where I sometimes couldn't climb stairs for days. It wasn't that blatant afterwards and I immediately thought that it must be due to the CBD. That was a reason to say that you do not only do the purely medical side, but also a freely available one that can be of interest to athletes, but also to people who have muscle pain or other problems. For example, my favorite product of ours today is still the sports gel, which is used again and again.
Medicinal efficacy or herbal medicine - what can cannabis do?
Manuel: Is your direct to consumer brand VAAY comparable to natural cosmetics in drugstores? There is already this proven medicinal effect in there, or is that herbal medicine in the broadest sense?
Finn: It is both. It's proven effectiveness as well as herbal medicine. This is called phyto-drugs, that is, drugs that are based on natural ingredients. The cannabis plant is actually a very, very strong plant.
Manuel: In addition to the sports gel, you also have two other products that focus more on relaxation. Would you like to say something about that?
Finn: Basically we have a relatively broad portfolio. We have so-called diffuser pens, which are inhalation sticks, because the cannabinoids are very well absorbed through the lungs. We have something on the subject of sleep, that is combined with melatonin. We have massage oil and this sport gel for the area of sport. And we have the normal CBD oils that you know from the press and advertising. We have three different areas of application: Relax, Recover and Sleep. So for Relax the pure CBD, to relax and come down in stressful times. The second is the topic of Recover, with the topic of anti-inflammation, i.e. minimizing sore muscles after exercise. And then the third topic sleep, which we usually combine with other substances such as valerian, 5-HTP or melatonin, because in addition to the effect of CBD, you also have a shorter time to fall asleep. The sleep products are almost our bestsellers, because people immediately feel a better effect and sleep more deeply than before.
Manuel: You still have to grow cannabis plants to get these cannabinoids without running the risk of being considered a drug-growing area. How would you describe that? How does this work?
Finn: Our two divisions, Medical and Care, basically have two different supply chains. For all of the CBD products in the care sector, we mainly use German industrial hemp, which we also process in Germany. The industrial hemp can be grown in fields in Germany as long as the end product has less than 0.2% THC in the end product. That means that it doesn't even need to be grown behind walls. In Germany only certain varieties are allowed for industrial hemp cultivation and all of these varieties have this low TCH content.
Sometimes the village youth come by in the evening and cut off the flowers. The only thing they reap is disappointment.
Cannabis - the plant that everything revolves around
Manufacture and legal position of CBD products
Manuel: So it's not worth going to your fields and thinking, you can have a big party there?
Finn: No exactly. We hear again and again from farmers that they say, sometimes the village youth come by in the evening and cut off the flowers. The only thing they reap is disappointment because you would have to smoke a lot of it to have any effect at all. So that's why it's not really worthwhile. But what happens then is that we take this industrial hemp and then convert it into an extract. That means that you have a CO2 extraction that pulls the cannabinoids out of the plant, converts them into an extract and that is then the raw material for the CBD oil. If this is the only way to extract the plant, the percentage of cannabinoids will remain the same as in the plant. This means that if there is 0.2% in the original plant, there is also 0.2% THC in the extract. One would like to minimize this THC content even further because the Federal Institute for Risk Assessment says 0.2% THC is still too much for a consumer product.
Strictly speaking, the THC has to be virtually undetectable.
That is exactly what we do in the second step in what is known as chromatography. We try to completely remove the THC from the extract. This never works completely, but you end up with THC levels of 0.01% or 0.02%. Then you are in the legally safe area and then the product can be launched on the market. You still have 0.01%, but that has absolutely no effect on the human body. Driving is not affected, doping is not a problem and so on.
Manuel: But do these requirements, the legal situation in Germany and the Narcotics Act still apply?
Finn: Exactly. You have to be very careful. If you read the press, there are always raids in Germany, where suddenly some CBD stores were blown up. This is mostly the case because there is a basic suspicion that this extra chromatography step has not been carried out and that the products still contain too much THC. It is very, very important that you position yourself as an absolute clean man and that you can also prove that in the laboratory. All of our products are analyzed by TÜV Süd before they are launched, where we can see exactly how high the cannabinoid values are. We have also recently founded an association called “Initiative pro CBD”, where we have launched a voluntary commitment for all companies involved. This states that we voluntarily undertake that the THC must be below the detection limit so that one can become a member of this association. This is also a kind of signaling effect that one would like to send to the regulators: We take it seriously and we are clean.
On the medical side, there is something else too, of course we also have high-THC products. These are then not grown in Germany, but with special varieties in southern Europe. Of course you have up to 20% THC. They fall under the Narcotics Act and are then subject to a prescription from doctors. But there you have a completely different safety precaution, regulation and so on.
Legalize it? The international legalization development
Manuel: You also did a survey: 84% of Germans would support the regulated legalization of cannabis. Why is politics so ineffective? You can see that the topic is actually suitable for the masses, right?
Finn: Yes. It's a stigmatized subject. What few people know, the cannabis plant was a medicinal plant in ancient Egypt for 3000 years and in ancient China cannabis was used to cure diseases through tinctures. This 3,000-year history was interrupted by a 40-year period of so-called prohibition that originated in the United States, where marijuana was stigmatized as a deadly and dangerous drug. Because the USA was an absolute world power back then, much more so than it is today, to which everyone orientated themselves, most other countries jumped up and it ended in the UN Narcotics Drug Convention, where cannabis was stigmatized as a drug.
I think that since the 90s and early 2000s we are slowly realizing what potential this plant actually had before this prohibition.
The more the positive health aspects of the plant are researched, the less fear of contact with the plant will be. Now in December there will be a decision by the UN whether to reclassify cannabis in this drug convention. The WHO, the World Health Organization, recommends that cannabis be rated significantly better than it is today. Even the WHO, where medical experts from around the world sit, says the risk is overrated and the potential is underrated. You can see the development little by little, even now with Canada, which was the first country to fully legalize it. Recently, quite a few states in the US have legalized it further. I think 30 out of 50 now have some form of legal cannabis.
You can tell that it spills over to Europe.
Luxembourg will become the first European country to completely legalize it. Holland has a decriminalization strategy, but they are now starting to do model projects for complete legalization. For me that is not a question of whether, but just a question of when the topic will come up. Germany is a country that is very security-oriented when it comes to the health of the population. It is probably a little too optimistic to expect that Germany will rush ahead as a country and say that it has to become legal. But you can see the first tendencies in Germany. The Greens have always been in favor of legalization anyway, and just last week they reinstated the cannabis control law in the Bundestag. As expected, it failed because of the votes of the CDU / CSU and SPD. In addition to the Left and the Greens, who have actually always been in favor of legalization, the FDP has also been positioning itself for legalization for several years, and in fact completely new, the SPD spoke out in favor of legalization for the first time at the beginning of the year. In other words, the CDU / CSU and the AfD are actually the only groups in the Bundestag that are still against legalization. W.
If the cards are reshuffled in the next federal election and there is a possible coalition of black-green or red-red-green or Jamaica, then the topic will get a new dynamic.
Manuel: Since you are a start-up in the field, you still have to struggle with this stigma. You would definitely not suffer any disadvantages from legalizing stronger THC plants.
Finn: No, just the opposite. In the US, for example, you can see that where legalization has taken place, the number of medical patients is falling.Of course, what you don't want is for patients to think they know better than the doctor and then start treating themselves with over-the-counter cannabis. I think that is a problem: if legalized, its status as an effective medicine could possibly be called into question. Of course we want to avoid that. In addition to the thought that the plant has a lot of potential and I am definitely in favor of it being handled more liberally, one should of course never underestimate the medicinal potential of the plant. If you should legalize, you have to look at how best to do it, so that it is not either or, either medicinal or stimulant. You have to find a kind of parallel existence without actually making the medicinal product cannabis less valuable.
Manuel: I believe that this decline in patient use goes hand in hand with legalization because prescription abuse happened before that. Or is that absurd?
Finn: Yes. That can be true. But just so that you have heard, guess how old the average cannabis patient in Germany is who is prescribed it.
Manuel: You would probably expect something in the Twenties now, and it's probably a lot higher.
Finn: Yes, 65. That already shows that the doctor's abuse to obtain cannabis privately is limited. One would probably assume that “consumers” between 20 and 40 at most and not in age groups between 60 and 80. These are chronic pain patients. Accordingly, I believe that abuse in Germany is very, very low. Canada and the USA are a different topic because it is much easier to get medical cannabis than here.
Stigmatization: Germany is missing out on economic opportunities in the cannabis market
Manuel: What I wouldn't underestimate either would be the economic factor. I have the feeling that Germany is missing out on the chance here to simply see this huge growth market that this industry can deliver.
Finn: That is a completely correct topic. We just saw a statistic before that legalization is now two years in Canada. Certainly not everything is great there, there are of course still a lot of construction sites, the black market is still there. But what jobs, economic power, innovation, and research are now being carried out by Canadian companies and how valuable these companies are now - together they are worth billions of dollars - shows how much this train is passing Germany or other countries, because they are legal framework here is not the case.
Even the biggest players in the medicinal and CBD market in Germany are often Canadians. This is of course an opportunity, if we do not see them as Europe, we can face the problem that instead of local players who can innovate early on, it is the Canadians who come to Europe and who have a much greater financial power here have than the local players.
I would guess the cannabis industry has a four-digit, if not five-digit number of jobs attached to it.
That could probably be increased tenfold, or perhaps even a hundredfold at some point, with legally better conditions. If you look at how strong the sector is now in Canada, it shows that we are only at the beginning here in Germany. It is sometimes underestimated what kind of impact that can have, from a tax point of view. The Canadians or the states in the USA can use it to rehabilitate their entire households.
Manuel: I read once that you said you had a hard time saying I started in the cannabis field. Something like that would also be omitted. Many people who work or want to research in this area may also have this inhibition threshold, as you have felt it?
Then do people all think I'm a drug dealer?
Finn: Yes. We have legalized medical cannabis since 2017 and so many founding teams have not yet dared to tackle the topic. So you have a couple of great companies in the market like Cannamedical from Cologne, you also have two or three others, you have us, who we have previously gained experience in the tech area. But I think that stigma is still there. Many founders, who actually find the topic interesting, say what does that do to my public image? Then do people all think I'm a drug dealer? And such stigmas run through. I do believe that this is a huge entry barrier for many who actually find the market interesting, but in the end do not dare to position themselves in the last step. The same goes for investors, by the way. There are many investors who actually find the topic interesting, but ultimately say I don't know how it will ultimately affect my own investors and the public.
A cannabis business on Shopify
The VAAY online shop sells CBD products online
Manuel: How did you do that? How did the foundation itself work?
Finn: In fact, it developed a momentum of its own relatively quickly. We came up with the idea and ended up sharing it with a few friends. At Movinga, when I went out, I told investors that I wanted to do something about cannabis. In fact, the first Movinga investor immediately said: “Oh, wow, finally someone who has experience and takes on this topic in Germany. Can we invest? ”. But by then I was actually so far with other investors, namely Holtzbrinck Ventures, Atlantic Food Labs and so on. The combination, on the one hand, that both Fabian and I already have a track record in the field of founding and start-ups, but on the other hand, also that we know the investors personally, has led to the fact that we trust the guys who know what they do, and they won't play it off in a way that it can damage their reputation.
Manuel: Were the investment costs or the hurdle high? Was it more difficult to start up in the field?
I don't know of any start-ups that had a full-time lawyer on their personnel list from day one.
Finn: Yes. Let me put it this way, our broad line-up of doing two different business areas at the same time makes it more expensive. But especially in the medical field you have to be honest, the mills grind very slowly. I don't know of any start-ups that had a full-time lawyer on their personnel list from day one. But we had to. We have 70 employees, now two lawyers on the personnel list. And of course all the external ones too. So it is very, very time-consuming in terms of regulation. And it takes a long time until things are really ready for the market. Offering our own medicinal cannabis products took almost a year and a half to hit the market. The problem is, within these one and a half years, you still had to employ people, you have to develop the products, you have to apply for the licenses, you have to talk to the authorities. And all of this without making the first euro in sales. The same with laboratories, productions, how do you turn a flower into an extract, do you do it yourself, do you buy an extract? These are all topics where you have to ask yourself how deep do you want to go?
Manuel: Did you land directly on Shopify or how did that come about?
Finn: Yes, right.
I'm a huge Shopify fan.
Manuel: You come from the agency world a bit, that means you probably already had a bit of experience with it?
Finn: I'm a huge Shopify fan. I'm usually not that I always completely rely on one tool, but I have to be honest, we rated it very clearly at the time. I come from the Rocket Internet world, where you used to build everything yourself, where you didn't rely on tools at all. Rocket had 300 developers themselves on Payroll who started building their own shop systems. In other words, I was originally very skeptical about everything that was developed externally because I always said that a tech company has to have the tech in-house. But at some point you have to look in the mirror and say, can I really do it better in-house than a horde of the smartest developers like Shopify for example? At some point the answer is: no. With an in-house development, everything takes longer, everything has to be customized, while Shopify has standardized APIs and standardized modules that can be booked. In the end, the only question was which shop system do you use? Shopify certainly still has some development potential here and there, but in itself it is the best shop platform out there for me and so intuitive and easy to use. Even if you're not a developer, I think I would choose Shopify over and over again. That is certainly the case for all brands that we will position as end consumer brands.
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The barriers to selling cannabis products online
Manuel: As a direct to consumer brand, is it more difficult with your VAAY products due to the topic?
Finn: As a matter of fact. We are now at Shopify Plus, it took a while for you to gain the necessary confidence in our products. The same also applies to payment providers. Well, that wasn't easy at all.
There are payment providers who have as a rule: No cannabis products, no matter what.
It took a long time. Klarna was the first payment method that we were able to convince. Then the gateways for credit card payments were the next, and PayPal was now the last step, where we could finally say, now we can also offer PayPal on the website. But that is actually much more difficult than other categories.
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