Cannabis Risk Analysis: Prices Are Halving Every Three Years But This Could Be to SA’s Advantage
A risk assessment of the cannabis industry has warned that internationally and locally, prices of all forms of cannabis are dropping rapidly, with a “halving happening every three years”.
27 April 2023 at 12:00:00
The risk analysis report, included as an annex in the Western Cape’s cannabis master plan, the CanPlan warns that “Risks exist of global overproduction leading to a glut in cannabis and related products that could collapse markets”.
However, it says this could be positive for South Africa and the Western Cape: “Changing global production patterns could provide opportunities for local producers as there is a renewed focus on Africa and the global south. This could also put further downward pressure on pricing as Cannabis and hemp is grown in areas with lower production costs and favorable currencies.”
The report says “The EU overall is a key market for medical Cannabis, but with quite high barriers to entry (EU GMP is required and new pharmaceutical products will need to be registered for marketing within the EU which can be very expensive). In addition, each EU country can have specific market entry channels and requirements. For example, Germany, which is currently the largest import market for medical Cannabis, requires product to be pesticide free and generally needs to be irradiated to reduce microbial levels. In some cases, exporters have found a “work-around” by completing final stage processing, irradiation and packaging within the EU, but it is expected that this mechanism could be removed in time".
As a result, pricing is highly volatile and there are cases of overproduction, collapse and consolidation: Whilst numerous companies are investing on the assumption of these regulatory changes taking place, the actual import market growth has been slower than expected for many markets. The installed capacity for medical Cannabis, along with confirmed investments, already far exceeds the current formal market.
Medical Cannabis pricing is on a downward trajectory because of the oversupply trend and shift to lower cost locations.
There are resulting consolidations and disinvestments e.g. Canopy Growth (largest Cannabis company in the world by balance sheet for a long time) invested CanadianS$28m in Lesotho, but has since withdrawn to focus on home market/regional markets of Canada and US.
After the Farm Bill made hemp growing legal in the US, many small farmers invested and started producing. Production boomed initially, prices dropped, and many farmers had their fingers burned.
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