Sophisticated cannabis value chains starting to take shape in South Africa as start ups pull resources together

By Edward Tsumele, Cannabis Business Africa/CBA Editor

There is no doubt that the cannabis industry in South Africa is on a trajectory of lberalisation and growth, even though the pace of legal reforms that would smooth this growth is slow, according to players in the industry.

For example The National Cannabis Master Plan, which honestly speaking still needs a lot of fine tuning, especially for it to deliver meaningful benefits to this emerging industry, is still a subject of discussions at Nedlac, and it is not yet known when those discussions will be concluded.

The government however through the department of Agriculture, Land reform and Rural development, which is now the custodian of the NCMP, through its minister Thoko Didiza has already made an announcement that come October this year, the first hemp licenses will be announced, opening the way for preparations for cultivation to commence. Initially hemp was controlled by the Department of Health, whose stringent restrictions proved to be unhelpful to an industry that aims at growing exponentially as per the current global  trends.

While the government system of policy formulation and clarity seems to be moving slowly with regards to the conclusion of policy decision, formulation and implementation, the industry however seems to be fully prepared to produce cannabis products both for the local market and the export market.

In fact a sophisticated value chain of the cannabis industry is currently quietly taking shape, especially in the ranks of the big players, who are readying themselves to stake their claim in the cannabis industry, in South Africa. While there appears to be entities that  are aiming at doing everything from growing, manufacturing to trading in the products, especially among the small players, the big boys and girls of the emerging industry are steadily choosing specific areas of concentration. Some of these corporations do it on their own, while others are doing so by forming vertically integrated companies.

For example F.. which specilaies in the grow value chain for medical cannabis for the export market has teemed up with Puregene,  whose area of expertise and specialization is the breeding of cannabis seed varieties.

This means that Puregene supplies specific varieties to F–, something quite important especially for the medical cannabis market which needs consistency in the quality of its cannabis flowers, which … grow and harvests before ex[port them to its overseas markets.

On its website, Puregene claims that it “develops varieties, best suited for market demands, utilizing proprietary DNA-based breeding technologies. By stacking relevant traits, Puregene combines proven characteristics in its varieties. Ultimately each cross and field trial performed is progressing cannabis. Puregene’s novel varieties are unique genetics and exhibit predictable characteristics, maximizing production potential and minimizing risk.”

Potential for a pharmaceutical company:

“Cannabinoid varins, those comprising of a C3 rather than a C5 side chain, are prized by both the retail and pharmaceutical industries, due to their unique interactions in the human body and effects. CBGV, CBDV, and THCV are all included in this group and have, to date, received varied amount of attention from pharmacologists. Puregene has mapped the varin trait and is now enriching its varieties in CBDV, CBGV and THCV.

“Puregene’s Trait Discovery department developed a strategy to breed high-yielding, stable and healthy plants with high levels of cannabinoid varin traits. The proprietary Breeding Pipeline within Puregene guarantees the implementation.

“We identify the traits on the genome, We deliver a trait-stabilized variety. We guarantee complete IP protection. You integrate it in your breeding or R&D cycle. With these four simple steps we will reduce the uncertainty for discovery, so you can concentrate on your core expertise,” Puregene says..

Felbridge, Felbridsge itself,a leading South African cultivator and supplier of cannabis and hemp starting materials made history last month, June, 2021, when it made its first international export deal, exporting South Africa’s first commercial shipment of Dry Cannabis Flower to Switzerland..

The Stellenbosch based cannabis start up shipped 320kg shipment, dispatching it from the Cape Town International Airport and in the process establishing Felbridge as a leading producer for the global market and directly linking African cultivation with European consumption. The shipment was the first of a significant multi-year offtake agreement with similar size shipments expected to be exported in line with the company’s production schedule, according to the cannabis start up at the time.

The export follows the announcement by Felbridge that it had recently exported its first shipment of cannabis in-vitro tissue culture to a licensed producer in North Macedonia.

IN this development, its is obvious that the business vertical integration between a seed producer, Puregene and a grower and export trader Felbridge is mutually beneficial for both entities pursuing different but complimentary cannabis value chains.

The combining of resources between Felbridge and Puregene, follows a similar development involving two major players in the cannabis business in Southern Africa,  the announcement in June 2021 of the vertical integration of Cape Town based cannabis lifestyle brand GoodLeaf and Lesotho based cannabis grow company Highlands Investments.

 The merger of two of the leading cannabis companies GoodLeaf and Highlands Investments  in a deal worth R650 million gave a boost to this emerging industry in Africa. Again this merger saw a cannabis manufacture and trading company pull resources together with a grow entity.

Goodleaf Company (“Goodleaf”), is a leading cannabis brand in South Africa, and Highlands Investments (Highlands), was formerly known as Canopy Growth Africa, specializes in growing cannabis.

The transaction in fact resulted in the largest vertically integrated cannabis operation in Africa, with an investment in excess of R350 million (USD ~ $25 million) to date.

“We are delighted to have successfully concluded this merger, and in doing so created Africa’s first truly seed-to-sale offering,” says Warren Schewitz, Founder and Chief Executive Officer of Goodleaf. “It has always been our intention to create a world-class global brand, and as we achieve scale, it is essential to ensure we have access to high-quality supply, which Highlands affords.”

“We are seeing renewed interest in the cannabis industry globally and this transaction brings together two of the biggest cannabis players in Africa,” says Jody Aufrichtig, Founder – Highlands Investments. “Highlands is the first ISO 22000 grade cannabis producer in Africa, the quality of our product is world-class, and I believe that this combined offering will enable us to make significant inroads globally, because we can compete both on quality and price.”

In recent months, the country’s first cannabis Fund SilverLeaf announced its first investment in a cannabis start up.

In a statement released on Wednesday, June 2, 2021, SilverLeaf  announced that  it had  entered into a joint investment with Druids Holdings, a licensed medical cannabis cultivator with a growing facility near Johannesburg.

The grower is one of the first to secure a major, multi-year international supply agreement with a leading Australian pharmaceutical company, according to the statement.

“We were set up when we looked at the 12J rules and our objective was to get investment into small companies and employ people. We are disappointed that the government’s decided to end it [J12].

And there isn’t a better opportunity than cannabis! It employs people in the rural areas and can include small farmers.

They received a permit a couple of years ago. They’ve now got a full-blown medical cannabis license from Sahpra [South African Health Products Regulatory Authority] and they’ve got some accreditation from Australia…

Cannabis loves South Africa… Some very famous strains come from this area… For investors that get on the green bandwagon, they’re going to get substantial returns,” said Pierre van der Hoven joint Chief Executive Officer of SilverLeafd, commenting on the fact that the 12 J rules ceased to exist in June at the time when the company announced its first investment in a cannabis company.

Howeve it is becoming increasingly clear that as the industry takes shape, there is likely to be more activity relating to forming of new companies pursuing specific value chains tied to the emerging industry, such as legal services, financial services, advisory services and educational services.

And already some of these services are being offered in the industry, such as the Cheeba Academy based in the Vaal, which offers various cannabis courses, some of which are certified by the University of Limpopo.

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