Investors can participate in medical cannabis in these six countries provided they get permits from authorities
By Edward Tsumele
In Southern Africa six countries are leading the way in instituting legal reforms that will see the rehabilitation of these restrictive laws, almost all of them embedded in history and its colonial legacy, open doors for a new cannabis industry to emerge.
Already these countries, that is South Africa, Zimbabwe, Malawi, Zambia, Lesotho and the Kingdom of Eswatini have either legalized medical cannabis farming or in the process to do so, opening investment into this emerging industry. In the case of South Africa, the continent’s second biggest economy after Nigeria, a bill to legalise recreational private use of cannabis is before Parliament.
According to a new recent study released last year by a private research consultancy Birguid, the culture of cannabis consumption for recreation purposes goes back many years in the black market as until recently, cannabis was a banned substance entirely in the region..
However now that medical cannabis has been legalized in these countries doors are now open for companies, and already companies, especially from Canada, the UK and the US are already setting up shop in South Africa, investing in medical cannabis. Some overseas companies are setting up partnerships with local companies operating in the medical cannabis industry to mainly export to overseas countries . Currently no medicine has been registered locally by the South African Health Regulatory Authority, even though medicine from the cannabis plant may be prescribed by a medical practitioner, but that medicine can only be allowed in the country provided permit is granted from SAHPRA under strict conditions.
Getting into farming cannabis and extraction of cannabis derived by-products such as CBD or hemp oils or textile products, one needs a permit from the Department of Health and a license from SAHPRA. However one can get into the retail sector for cannabis infused products such as CBD infused products such as energy drinks and edibles provided they get their supplies from a registered supplier and these products have to comply with a number of specification, including daily doses. This is under current exemption from SAHPRA for such products, It is for this reason that a number of CBD infused products are in the market, ranging from oils to capsules. However no medical claim must be made by manufacturers as that remains illegal under the current legislation.
However there are still obstacles to be dealt with in these countries, ranging from the long process of getting the permit or license from authorities, and in South Africa’s case this can be daunting, especially for new entrants wishing to get in to the market. Currently the cannabis sector is controlled by the Department of Health, and as such, the environment of participating is restrictive, and there is talk that the responsibility, particularly the farming part of the cannabis plant, will in future be placed in the Department of Agriculture, paving the way for especially rural communities to participate in this potentially lucrative sector.
” Birguid’s recommendation is that although the cannabis market offers opportunity, stakeholders need to further assess viability of the industry and be aware of issues such as stigma and legislation that could raise the risk of investing within the sector. In addition, working together with respective governments and local citizens should also be prioritised to develop respective local markets and sustain demand during the next five years, and particularly over the longer term.
Most of the cannabis consumed for recreational purposes is smoked, with the remainder being consumed as edibles and vapours. Birguid’s study revealed that, at present, nearly all of the revenues are generated from the recreation segment. In 2019, the regional cannabis market is estimated to have generated just over $1-billion in revenue, with approximately 90% of the revenue generated from the recreational market. Strains like Malawi Gold (Malawi), Binga Gold (Zimbabwe), Swazi Gold (eSwatini) and Durban Poison (South Africa) are some of the recreational segment’s best-selling cultivars based on their potency. The aforementioned also sell at a premium and are expected to continue to account for a majority of the industry’s revenues during the forecast (2020-2024).
Because most of the cannabis grown on the continent (estimated at 28 000 tonnes per annum according to a UN report) is being consumed recreationally; albeit illegally, a critical first step for growth and progression of the industry is overcoming the negativity associated with it. Going forward it will be important to transition the industry from being a preserve of cannabis enthusiasts. Transitioning cannabis into a mainstream industry has already started with the legalisation of cannabis for medicinal and industrial purposes. Another suggestion would be to consider legalising it for recreational purposes. Currently, South Africa is the only country (of the profiled states) that has legalised cannabis for recreational purposes (private cultivation and consumption) but there are a few positives that could come with this stance from both a regulatory and economic contribution standpoint.
For starters, as a result of recreational cannabis being traded on the black market, farmers of the commodity earn extremely low incomes for their produce. They do not have connections to the end market and only deal through intermediaries (dealers). Dealers purchase cannabis from growers and sell it on at prices that have been reported to be five and in other cases 10 times more than the prices they pay the farmers. Legalising the recreational component could contribute to these farmers earning better prices for their produce and empower them to take better care of their families.
A second consideration is potential tax earnings. Per Birguid’s research findings, Southern Africa’s cannabis market generates just over $1-billion a year and could double over the next five years. Most of this revenue is earned on the black market and thus does not generate tax. Legalising cannabis for recreational purposes could, therefore, enable respective countries to earn taxes from the commodity. In addition to tax earnings, countries could also earn further income from the industry through aspects such as “cannabis tourism” which is already taking place in countries such as Malawi (although “illegal”). Formalising these complementary industries could, therefore, generate more revenue for the state.
The medical cannabis segment is the sector where most of the investment is currently being injected. For now, most of this investment is coming from countries that include Canada, the United States and the United Kingdom. A setback to local investment is exorbitant pricing for operating licences which average at about $35 000. Smallholder farmers within each of these countries have echoed the same sentiment and feel their governments have let them down from a licence fee viewpoint and should consider discounting the fees for citizens who apply.
Based on the stigma that exists around the industry, however, governments have defended the higher licence fees as a measure to screen and get worthwhile investors on board. Despite this, a recommendation of Birguid’s study is to prioritise the inclusion of citizens in developing the industry from a farming,” points out James Maposa, the founder and managing director of Birguid, a research and strategy consultancy that produced a cannabis research report recently.
And encouragingly, the Premier of Gauteng, the richest province in South Africa, David Makhura revealed in during his 2021 Sate of the Province address that his administration has identified the west of Johannesburg a place that will be the hub of hemp processing facilities.
He however has not given further details as to when these facilities will be launched. He however revealed that the provincial government will work with the industry to facilitate doing business entry into the hemp sector. The issuing of permits and license is currently a national government responsibility under the relevant department.
The outcome of a high profile court case involving a grow club in Cape Town is however being watched closely by the industry as a court decision either way will have far reaching repercussions in the cannabis industry.