In recent years several African governments have changed their stance and implemented policies that legalise cannabis cultivation, manufacturing and processing, mostly for the export market. In southern Africa, Lesotho led from the front with South Africa, Zimbabwe, Malawi, Zambia and Eswatini also coming to the party in an effort to capitalise on what has been positioned as a future answer to dwindling foreign currency earnings for crops such as tobacco.
What is enticing for these states is the existing size and purported potential of the industry over the next few years. A March 2021 BDSA report stated that global cannabis sales amounted to $21.3-billion in 2020, a 48% increase when compared to 2019. The report also forecasts the market to grow at a compound annual growth rate of 17.7%, to reach an estimated $55-billion in 2026. With numbers like these, no African nation would want to miss out on this opportunity, particularly what it could bring to them in terms of foreign investment, employment creation, taxation and foreign exchange earnings.
Legalisation has, therefore, been a necessary first step to take to draw as much of a stake in the budding global cannabis industry as possible over the longer term. But despite these numbers being enticing, a reality check is required by member states on the dynamics of the industry, in terms of how these revenues are split and whether the industry will be as big as it is projected to be.
How big is the global cannabis industry?
Numbers on the size of the global cannabis industry vary depending on the researcher and reporting house; for consistency we will align with the aforementioned $21.3-billion BDSA estimate. But when we look at trade of hemp, cannabis and associated products (trade code 5302: True hemp “Cannabis sativa L.”, raw or processed, but not spun; tow and waste of true hemp, including yarn waste and garnetted stock) via the trade map portal (www.intracen.org), 2020 world cannabis exports amounted to $49.4-million, with 2020 world cannabis imports amounting to $33.5-million. Exports and imports of cannabis, therefore, accounted for less than 0.5% of what the BDSA report said was recorded in sales.
This suggests that for Africa’s cannabis industry to be viable, a sizable local market is necessary, as legalising for export may not bring in the returns that member states desire. Research on the viability of cannabis for medicinal purposes is also extremely limited, with clinical trials still ongoing. Selling beyond the cannabis enthusiast will take a lot of convincing, and proof is needed beyond reasonable doubt that a cannabis-infused drug is better than what is traditionally available. So at the end of the day, the industry may look big based on the shared numbers, but is quite small on what is traded officially.
What is actually traded?
Studies by Prohibition Partners (https://prohibitionpartners.com/) and Birguid (http://birguid.co.za/) on Africa’s cannabis industry revealed that a majority (90%+) of the cannabis that is grown on the continent is traded for recreational purposes. The medicinal and other use categories account for less than 10% per annum in earnings, yet it is the medicinal and other use categories that are being legalised. Only South Africa has legalised cannabis for recreational purposes (private consumption with no permission granted to sell) but in the other member states it is currently an absolute no.
This has resulted in almost all the industry’s revenues being earned “illegally”, with this trend expected to continue until a sustainable resolution is found. One recommendation is to partner with countries that have legalised and commercialised recreational cannabis sectors such as the Netherlands and a few US states, to understand how it can be done sustainably and to mutual benefit for citizens and states.
Traditionally, African cannabis farmers cultivate high THC cannabis strains that are largely consumed recreationally; converting these farmers to growing low THC, high CBD cannabis will require a lot of resources, particularly infrastructure. Most of the set standards for cannabis to be exported to lucrative markets such as the EU and US require the growing of the cannabis in controlled environments, a preserve for the elite from an affordability standpoint.
Access to these markets is also hindered by the need for a cannabis grower and processor to also obtain Good Manufacturing Practices (GMP) certification, another significant cost for the local grower. This implies that recreational cannabis growing is an option that needs to be considered based on the premise of earnings, and what strains are currently being grown by the continent’s existing group of cannabis growers.
The way forward?
Admittedly, the global cannabis industry is growing, and it is advisable for African member states to want to be a part of the value chain. However, to do so sustainably, local market development is key. A first step would be to further investigate recreational legalisation and how it can be commercialised to benefit the farmer (reduced losses, cutting out of the middlemen and better pricing), the citizen (product standardisation and better pricing) and the state (reduced cost of policing, earning of taxes, and, where possible, foreign exchange).
A second step would be to offer tiered pricing to ensure inclusion of locals in the development of the value chain. Licence application fees range from S$1 000 to $250 000 (the 10-year exclusive hemp growing, processing and distribution licence awarded to a Canadian firm by the Eswatini government). Most of the continent’s hemp farmers cannot afford even the lower end of the licence fee and governments should, therefore, provide a better licensing fee system to enable local farmers to legally participate in sector growth and progress.
A third step would be to facilitate downstream market development over the longer term. If medicinal cannabis is the route that most governments want to take, then they should facilitate its integration into the local pharmaceutical and healthcare industries through the sponsoring of further scientific research and partnering with pharmaceutical companies to produce drugs for local and, where possible, export purposes. Currently, all the hemp that is used as an ingredient for drugs and other uses is imported. This needs to change if the continent’s cannabis industry is to become sustainable.
In conclusion, looking inward to grow the continent’s cannabis value chain is paramount. Before the Covid-19 pandemic, investment into the continent’s cannabis industry was happening at great pace, but since the pandemic, most international investors are reconsidering their investments — halting, postponing, or cancelling some of their announced continental cannabis-related projects. Those that had been rolled out are being executed at a slower pace due to financial constraints. So, the onus now lies on member states to empower locals to develop respective industries through enabling policies and facilitation of downstream sector development.
This article is authored based on research that Birguid concluded on Southern Africa’s cannabis industry including market forecasts across six states (South Africa, Zimbabwe, Zambia, Malawi, Lesotho and Eswatini), including the profile of key projects, developments (legal and economic) and opportunities. For further information please visit www.birguid.co.za or contact James Maposa on [email protected]