Despite a vast network of Dutch "coffee shops" known globally for their cannabis sales, adult-use cannabis is not technically legal to produce in the Netherlands, though retail sales are tolerated and licensed with certain restrictions. These policies have led to a thriving, largely unregulated gray (verging on black) market, as coffee shops can sell in small quantities but lack access to legal supply. In recent years, Dutch regulators have begun modifying their approach, looking to rein in the gray market in favor of a better-regulated framework. A closed coffee shop chain experiment will commence in 2021, in which coffee shops in ten municipalities will be granted access to a legal source of supply from up to 10 cultivators who will be selected through a government tender.

149 companies applied for consideration in the tender, for which applications were accepted until July 2020. The government plans to announce a maximum of 10 successful applicants in ‘early 2021’. Applicants were required to demonstrate capacity to cultivate at least 6,500 kilograms of flower per year, with an additional option to produce hashish and edibles.

Ten municipalities of varying sizes will be included in the trial – covering 9.2% of the country’s population. Because the 79 participating coffee shops are already established, consumer access points for cannabis and trial-related changes will be minimal and so participating firms should retain a level of business roughly equivalent to what they had while operating in the gray market. This is likely to provide researchers with an effective vantage point from which to observe and analyze the options available for developing a legalized adult-use cannabis framework in the Netherlands

Although the country has had a medicinal cannabis program for almost two decades it remains extremely restrictive, making the Netherlands' medical cannabis market one of the smallest in the world. Only a small number of products are available for patients, and typically only as a last resort after other treatment has failed. Barring unlikely regulatory changes to further open the market, the medical program is not forecasted to grow significantly despite expected price drops following an increase in supply driven by the selection of a second domestic supplier. This is because competition from more convenient and price-competitive coffee shops remains rampant and patients are not reimbursed for medical cannabis prescriptions.

Since 2003, the Office of Medicinal Cannabis (OMC) has been the government agency in charge of overseeing the production of cannabis for medicinal and scientific purposes. While medicinal cannabis has been available to patients via pharmacies (as well as pharmacy-holding GP’s, hospitals and veterinarians) since September 2003, the OMC is the sole authority that can import, export and supply medicinal cannabis to domestic retail outlets and other nations. Furthermore, growers that are appointed by the OMC must produce cannabis under strict, controlled circumstances, and every crop is tested by an independent laboratory to ensure it meets quality requirements.

There are five strains of cannabis available in pharmacies, all currently supplied by Bedrocan:

• Bedrocan and Bedrobinol are available as whole dried flower (flos)
• Bediol, Bedica and Bedrolite are sold as finely-ground flower (granules)

Cannabis oil, with varying levels of THC and CBD, is also available on prescription as a pharmaceutical preparation from pharmacies. All doctors in the Netherlands are authorized to prescribe medical cannabis. In consultation with the patient, the doctor will determine the type of cannabis, consumption method, proper dosage, and usage guidelines. Medical cannabis is typically prescribed when standard treatments and medicines are ineffective or cause too many side effects. Although prescriptions are not limited to certain conditions, the guidelines highlight its effectiveness in treating chronic pain, muscle spasms, cramps, symptoms of MS or spinal cord injury, nausea and vomiting caused by medication or radiation, Tourette’s syndrome, glaucoma, and various forms of epilepsy. The cost of medical cannabis is not reimbursed by health insurance companies, which has restricted the growth of the market in comparison to its European counterparts with favorable reimbursement policies such as Germany.

On the adult-use side, though many consider the Netherlands to be a "cannabis paradise" due to the wide availability of cannabis-carrying coffee shops, cannabis is technically not legal; rather, use of the substance has been decriminalized and its public consumption is "tolerated" by authorities. Dutch drug laws are based on the Opium Act, which categorizes drugs into two categories: List 1, which contains “hard drugs” that are harmful to health and List 2, “soft drugs” that pose less risk. Although the law clearly states that possession of any drug, regardless of the category, is illegal, the use of cannabis - a soft drug - is tolerated by local authorities. Sales are permitted only through coffee shops, but to avoid sanctions, shop-owners must abide by certain rules:

• They cannot sell more than the equivalent of 5 grams of cannabis per person per day
• Minors cannot purchase these products
• Alcohol may not be served
• Product may not be advertised
• They can only serve residents of the Netherlands

Even these rules, however, are not followed universally, nor are they enforced consistently or to the same extent for each violation. For example, selling to minors is considered much more serious than selling to non-residents. This selective, loose enforcement (particularly in Amsterdam) has allowed for gray market canna-tourism in particular to thrive in the Netherlands. Another notable barrier to fully-legal status for adult-use sales is sourcing, referred to as the ‘backdoor problem’. Although coffee shops are allowed to sell cannabis to consumers, the production and supply of cannabis is not tolerated in the Netherlands (with the exception of home-grown product for personal use), making these activities illegal for commercial purposes.

Thus Dutch coffee shops continue to operate in a gray market, though the government intends to transition towards a legal, traceable supply chain initially through a limited pilot experiment. The Dutch government approved the experimental program in late 2019 to allow the coffee shops in 10 municipalities to sell regulated, quality-controlled cannabis. The main aim is to create closed coffee shop chains where up to 10 newly-licensed growers ensure both product quality and sufficient supply, as well as handling packaging. The established coffee shops will then sell the products supplied by legal growers and will be responsible for providing clear information to customers about said products and problematic use. In the meantime, independent researchers will partner with the Guidance and Evaluation Committee to monitor and measure developments in order to create legal recommendations when the trial concludes - potentially opening the door to a more straightforward, widely implemented regulatory structure for Dutch cannabis operators.

The growing permit application process began in 2020 and the program is set to begin in 2021 with a total duration of four years, though the government can choose to extend the program if regulators decide more time is required to produce useful findings.

Though a majority of Dutch residents and tourists obtain cannabis through gray market coffee shops, there is one formal market player operating on the Netherland’s legal medical cannabis market: Bedrocan (boasting the largest and oldest European cannabis cultivation operation, see full company profile here). By 2022, a second producer is expected to enter the market because, despite the country's low patient counts and Bedrocan increasing its output every year, the company has been unable to keep up with medical demand in the Netherlands.

In 2016, there were only 1,600 medicinal cannabis patients receiving prescriptions in the country, a figure that grew in 2017 to 53,000, and in 2018 dropped to 49,500. The Dutch medical cannabis market is no longer seeing rapid year-over-year growth even though currently the number of patients represents less than 0.3% of the population. Uptake has been limited for several reasons:

• Per the Dutch Association of General Practitioners, many physicians do not believe cannabis-based medicines have enough studies to be a valid medicine for patients, thus prescriptions and cultural acceptance of cannabis as medicine are limited
• The Dutch National Health Care Institute has a clear position that there is insufficient evidence to support coverage of medical cannabis on basic health insurance. Since the cost of obtaining these prescriptions is often steep in comparison to the price of cannabis at readily-available coffee shops, many patients abandon their prescriptions and instead seek product at cheaper local retail outlets

Given a thriving gray market for cannabis, the Dutch government is working to better serve medical patients and encourage fully legal use by addressing the supply shortage (and cost structure) impacting domestic patients as a result of a large proportion of sole-supplier Bedrocan’s capacity being exported. In the Netherlands, the federal government licenses, supervises, and consults the manufacturers chosen to supply the medical market, and then purchases all of the medical cannabis the company produces before distributing it to patients themselves. It ramped up efforts in June 2019, with the Office of Medicinal Cannabis (OMC) issuing a tender process to grant a new production license. This new producer, currently competing with peers in the selection process, will sell medical products to the government for less than half of the current price, bringing product to market that can more effectively compete with coffee shops on price. While cost savings are expected to push some patients from the gray market into the more formal medical market, the convenience factor and lack of insurance coverage is expected to keep the majority purchasing through the gray – or eventually, legal adult-use – market.

Under the closed coffee shop experiment, 10 growers from limited municipalities will be selected from among 149 applicants by early 2021 to supply 79 existing coffee shops in those regions (activity will likely be concentrated in the five municipalities that have greater than ten shops: Groningen, Arnhem, Nijmegen, Tilburg, and Maastricht). The participating retailers are already being prepared for the program launch and have a wealth of experience selling cannabis, thus rollouts are expected to be largely seamless and scale relatively quickly barring any significant supplier issues.

The medical cannabis market in the Netherlands faces significant competition from the thriving gray recreational market in the country. It is known that, due to the ease of access, many patients are self-medicating with products purchased in coffee shops as opposed to purchasing through formal medical channels, which requires both a prescription and a visit to the pharmacy (in most cases), or alternatively, a pharmacy-holding GP, hospital or veterinarian.

Patients will likely see a price drop in pharmacies resulting from the government/producer negotiations taking place today, as well as the addition of a second producer to the Dutch medical market to help meet demand. These price drops are expected to lead to an increase in patient enrollment and traffic - though the restrictive program and barriers (stigma among physicians, last-resort use) are likely to continue to deter growth.

Once the closed coffee shop experiment begins, the <100 experiment-authorized shops (and ~10 growers supplying them) will drive the vast majority of legal cannabis sales in the country, as most of the infrastructure for cannabis sales is already in place and reliable, and consumers are familiar and comfortable with it, thus broad demand is expected right at the onset.