By Edward Tsumele, Cannabis Business Africa/CBA Editor
After spending eight years in London as an investment banker servicing African clients, Sibusiso Xaba, a CFA Charterholder and B.Bus.Sci Finance graduate from the university of Cape Towndecided to move back to South Africa to become an entrepreneur focused on the cannabis industry.
“I’ve always been passionate about entrepreneurship’s potential to move Africa forward, and I saw the cannabis industry as the perfect opportunity to transition from corporate to entrepreneurship. Although relatively settled in banking in London, I decided that the risks associated with a move out of banking and back to South Africa were worth taking. Ramaphosa’s presidency also provided assurance that the country was on a new path and I was wanted to be part of that.
I wanted to use the skills and networks I’d developed to contribute to the success of the cannabis industry in Africa. As someone who wasn’t an activist and knew little about cannabis, I stumbled across the opportunity while researching agricultural businesses in India and Africa. Numerous investors, operators and entrepreneurs were reaching out to me and enquiring about opportunities in the African cannabis industry. I was initially dismissive, but decided to do my own research to understand what was causing this sudden keen interest. After months of thorough research, I was blown away by the industry’s potential to impact multiple industries, especially for Africa,” says Xaba.
Today, the former investment banker, who worked for Goldman Sachs and Investec in London, is one of the entrepreneurs at the centre of the development of the emerging cannabis industry in Africa. He is based in South Africa ,one of Africa’s pioneering countries in the legal cannabis industry.
The South African government is currently at an advanced stage of finalizing legislation relating to the multi-billion Rand industry, estimated at R27 billion by 2023. These policies will be the basis on which new legislation and regulations for the cannabis industry will be promulgated. The legislation will be the rules of the game in the cannabis industry, and therefore, the current process of consultation is being closely scrutinized by the industry and several government departments such as Agriculture, Health, Justice and Police are playing a key role in driving the process forward.
Currently there is a flurry of activity in the emerging sector, with cannabis webinars, events, industry engagements, government consultations all working towards developing a path forward for the industry that satisfiesa broad range of stakeholders. Xaba and ACA Group have been active in leading and participating in many of these discussions. With experience in raising capital for numerous market participants, structuringa broad range of transactions across the continent, andproviding risk management solutionsto African clients, Xaba bring much needed expertise and knowledge to the African cannabis industry.
Africa Cannabis Advisory Group works with various industry stakeholders including governments, regulators, corporates, entrepreneurs, institutions and communities. The company assists in the development and execution of cannabis projects. Some of ACA’s services include strategy formulation, investor-readiness, technology solutions, capital-raising, compliance solutions, and global sales and distribution.
“I had thought about starting my own medical cannabis company, but I realised that I could leverage my skills and experience to benefit the broader African cannabis industry. This was an especially important consideration for me, as the cannabis industry is extremely complicated, capital intensive and difficult to navigate .I saw ACA as being an enabler that could help the African cannabis industry reach its full potential, and not have a situation where we only see a hand full of well-resourced companies succeed and dominate the market. We have a broad range of clients, but we have a strong focus on enabling women, youth and black entrepreneurs toaccess the industry. ” Xaba told Cannabis Business Africa (CBA) in an interview this week.
Xaba founded ACA Group in 2019, after spending 9 months researching the industry. 4 of those months were spent on a global research and networking trip. This included spending time in Israel, Canada, Europe, Lesotho and Eswatini. Over the trip, Xaba attended many globalcannabis conferencesand met leading industry executives, entrepreneurs, researchers, policy makers and activists.This trip was the foundation from which ACA was created.
“It was during that time that I realized that the risks associated with developing a successful cannabis operation were extremely high. Information asymmetry, scale capital and an ever changing regulatory environment were just a few of the challenges the industry presented, more so for Africa which is 5-7 years behind North America when it comes to industry development. Building a successful African cannabis industry would requirecutting edge global insights and the ability to anticipate how the industry would evolve.” he said.
The cannabis entrepreneur, similar to other industry stakeholders,shares concerns that the South African government has been slow inmaking progressto develop the industry. However he is encouraged by the Cannabis Master Plan, which could serve as a model for other emerging cannabis economies in Africa and across the globe.
“I know that in the industry there is a feeling that government has been slow to make progress, however I think that things are moving in the right direction as the Cannabis National Master Plan is quite comprehensive and looks to include relevant stakeholders in developing the industry, including indigenous farmers. However, it is also important that these policiesincludeappropriate controls and compliance checks, including preventing minors from being able to access recreational cannabis.” he argues.
There has also been criticism in the industry that government seems to be concentrating its efforts on medical cannabis, and not industrial hemp, which has significantly lower barriers of entry and significantly higher job creation potential.
“When it comes to medical cannabis, the rules are quite strict as one will be producing products that people will useas medicines, and there is a need to produce safe, consistent and effective products that match international health and safety standards. Currently,it is mostly well-resourced entrepreneurs and companies that have the capacity to play in this space as they canfinance the required high cost facilities, and they can afford the high compliance costs associated with medical cannabis operations. Therefore, government should create programmes and legislation that make the medical cannabis industry more accessible to ordinary South Africans. Although often criticized, big pharmaceutical companies have an important role to play in leading local cannabis research initiatives which are often very capital intensive and run over many years. So overall, a collaborative effort between various stakeholders including entrepreneurs, farmers, large corporates and government could help create an industry with broad based economic and social benefits. A balanced approach is certainly required for us to get this right,” he reasons.
“There are also significant opportunities in the hemp industry for rural farmers, agro-processors, manufacturers, and for various industries including construction, textiles, plastics, and the automotive sector just to name a few. Hemp is non-psychoactive, and therefore requires less regulation than marijuana. With compelling CO2 absorption characteristics, over 50,000 known uses, and significantly lower barriers to entry, hemp presents a golden opportunity for sustainable development in Africa. With hemp, there are significant opportunities for job creation and poverty eradication,” Xaba points out.
Xaba also argues that it is important to also cater for the more than 900,000 indigenous cannabis farmers who are growing and selling cannabis illicitly in South Africa.
“The illicit cannabis industry must be brought into the legal framework because they are about 9,00,000small hold cannabis growers in South Africa andover 2.3 millions cannabis users,” he says.
The last point stands out as one of the most contentious issues in the cannabis debate, and the industry is watching closely to see how policy makers will deal with the issue in a manner that will include indigenous farmers already illicitly producing cannabis and selling to millions of consumers to provide for theirfamilies. This is especially the case in some parts of Eastern Cape, such as Pondoland, where there is immense indigenous knowledge around growingcertain uniquecannabis strains with high THC, the psychoactive compound in the plant. Parts of Kwa-Zulu-Natal are also known for producing high quality cannabis strains, includingDurban Poison.
The Cannabis National Master Plan is currently the subject of discussions at NEDLAC , and it is unclear when those discussions will conclude.However the department of Agriculture, Land Reform and Rural Development, has indicated that it will begin accepting applications forhemp permitsfrom October this year.
In order to ensure the sustainability of the local cannabis market, Xaba feels that there is a need to develop a local consumer market, as opposed to the current trend of producing medical cannabis for international exports only.
“That has to change and efforts must also be channelled into developing the local market. This will assist in developing a robust local cannabis economy and value chain. We’ve seen this work well in the USA, where due to the federally illegal status of cannabis, states that have legalised cannabis cannot trade or move cannabis across state borders, so they have to trade and consume the cannabis within each respective state. Although far from perfect,this model has created robust localised cannabis economies, creating over 325,000 cannabis jobs across the USA. Right now, many companies based in Africa are trying to sell into an extremely competitive global market, when there are patients and consumers locally that would benefits from being able to access legal cannabis products.” the entrepreneur concludes.