The rapid rise of ‘grey zone’ cannabis outlets is entirely against the law, but it’s happening anyway at a scale that’s breath-taking. This new informal sub-sector of the economy may have generated over R5 billion in the last year and the pace of expansion has left regulators flat-footed and wondering how to put the proverbial ‘genie back in the bottle’.

Authorities uncertain what to do about the ‘grey zone’

The cannabis cowboys came to town in a big way in 2024. It’s difficult to estimate exactly how many ‘grey zone outlets’ have sprung up in the last year, but the evidence is plain to see in the country’s metro areas. Cannabis outlets appear prolific, trading under a number of guise both above and below the radar.

The ”grey zone” itself is hard to define. There are many ‘walk-in’ coffee shops or bars, Section 21 ‘providers’, private clubs, outlets claiming to have traditional healers’ licenses.They range from high-end ‘dispensary clubs’ in the wealthy suburbs to township spaza shops with everything in-between. There are also cannabis delivery services plying their trade online with no bricks and mortar visibility, some serving up to 2 000 customers a month, and we haven’t talked about the medicinal cannabis WhatsApp groups that sell oils, tinctures and other plant products.

All are basically selling cannabis and related-products in open defiance of the law. This has been driven by a surge in consumer demand and the quality and variety of products available. In the public mind, cannabis has already become part of the mainstream and ‘grey zone’ outlets are cashing in. And, simplistically speaking, legal authorities just don’t know what to do. There is no clear policy, no clear law, and uncertainty as to who’s actually responsible for taking charge.

Cannabiz Africa estimate: 4 000 ‘grey zone’ outlets nationwide

Although there has been a clampdown by SAPS and SAHPRA in the past few months, it doesn’t seem to have dented confidence in the ‘grey zone’.  Many entrepreneurs of the mind and the mood that cannabis retail is inevitable and that until such time it becomes so, the business is all about market share vs risk mitigation. The ‘grey zone’ has become a free-for-all as legitimate business people rub shoulders with gangsters in vying to secure prime retail sites and niche markets.

Just how many ‘grey zone’ outlets are there in South Africa. Obviously there are no official figures or any other benchmark statistics, but, based on ongoing conversations within the cannabis community, I would like to venture there are probably around 4 000 ‘grey zone’ outlets operating nationwide:

Bearing in mind the discrepancy in sales between a pavement stand in Silverton industrial site next to Mameodi turning over a few grand a month and the upmarket clubs of Soweto and Sandton where daily sales can top R100 000 on occasion, it’s difficult to determine an average sales figure per outlet.

But here goes. Let’s settle on an average turnover/day of R5 000, which most of my informal commentators agree is a reasonable assumption. This works out to an average monthly turnover by the ‘grey zone’ of R560 mllion a month, which amounts to R6,72 billion a year!

Considering that Government officially puts the value of the illegal cannabis market at around R28 billion (and I’ve yet to see any evidence backing this up), the R6,72 million figure may be conservative. I stress that this is anecdotal canna-nomics and would welcome any input from anyone with access to reliable data to contact me to help create a realistic benchmark.

‘Grey zone’ could be earning well over R1 billion in tax for the government

Pause for a moment and think of the numbers. If a regulatory framework for the commercial sale of cannabis was instituted, well over half the ‘grey zone’ would be pulled into the mainstream, thereby easing an enormous burden on law enforcement. Although the back of the cigarette box is running out of space, and who knows how many ‘grey zone’ outlets would want to become legal given the tax implications, it would be safe to say that off the sector’s revenue of over R6 billion at least R1 billion would find its way into government coffers (municipal, VAT, dispensing licenses etc).

‘Grey zone’ outlets owe their continued existence and expansion to either appearing to be compliant and responsible or by paying off the police. It’s an open secret in the cannabis industry that there’s rampant bribery and extortion taking pace, varying in intensity from area to area. But from the calculations above, it's evident there's a lot of 'skim' money available.

I stress there is no evidence to support this amateur analysis, but in a statistical vacuum, it's a starting point of understanding the value of the ‘grey zone’ and the cannabis cash that is being generated openly.

The rapid expansion of this sector has left regulators flat-footed and slow to respond.

The Department of Trade and Industry is in the process of drafting a commercial framework for trading in cannabis products  but this still needs to go through a stakeholder engagement phase and is unlikely to happen within the next two years.

In the legislative vacuum, there is a scramble for retail locations

The Drugs Act, under which retailing is defined as ‘dealing’ remains in force only until such time as the Cannabis Act is enacted even though it has been signed into law. The NPA appears to be holding back on many cannabis prosecutions until such time there is legal clarity on the status of cannabis.

A leaked NPA document suggests that consumers who purchase from ‘grey zone’ outlets be treated leniently whereas owners should be dealt with harshly, but it all seems to come down to a case by case basis.

SAHPRA says it does not license dispensaries and has not registered any THC products and therefore the ‘grey zone’ is a matter for SAPS to deal with rather than the health regulator.

The Cannabis Master Plan is to tackle the commercialization issue, but don’t hold your breath that it is motivated by any sense of urgency.

The NPA is expected to put out a statement soon on the status of cannabis and the law.

In the meantime the ‘grey zone’ is expanding rapidly as entrepreneurs – straight and crooked – vie for prime locations ahead of anticipated regulatory changes that will allow dispensaries to operate without having to use the guise of Section 21 or private club models.