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SA’s Medicinal Cannabis Sector in Trouble as ‘Grey’ Market Flourishes

SA’s Medicinal Cannabis Sector in Trouble as ‘Grey’ Market Flourishes

Can South Africa actually crack the international medicinal cannabis market? Thus far, the signs are not encouraging. The sector is haemorrhaging while the ‘grey’ adult-use market is thriving.

Brett Hilton-Barber, Publisher, Cannabiz Africa

8 June 2024 at 07:00:00

Of the 103 entities granted medicial cannabis licenses by SAHPRA, only five or six are actually exporting medicinal cannabis. This is according to numerous industry sources. Based on an industry rule-of-thumb that it costs no less than R20 million to fund a cannabis facility based on SAHPRA’s specs, it would indicate that R200 million of investors’ funds are tied up in non-productive facilities.

One of the core problems, says a cannabis stakeholder who does not wish to be named, is that many of the first wave of cannabis investors believed that getting a SAHPRA license was tantamount to having an export license.

“That’s not the case as SAHPRA guidelines do not match the European Union specs, and so licensed growers found they had to invest further funds and endure more delays in trying to meet EU import standards. For many SAHPRA licensees this has proved a bridge too far”.

The other problem, he says, is in getting offtake agreements. Until South Africa achieves a track record of product consistency and quality there will be market scepticism.

“As any farmer knows, it can take time to develop consistency European cannabis importers would rather deal with the likes of Portugal, which is turning into a major producer country, while Germany has gone one step further and said it ultimately envisages growing all cannabis that will be consumed domestically.

The net result is that some licensed growers are now supplying the local market instead. The issue was raised first in Parliament two years ago, when Mzimvubu Farmers Support Network director Ricky Stone, said this illicit “dumping of product” on the local market was affecting traditional growers in three provinces who were struggling to sell their crops because of the competition.

SAHPRA has thus far remained silent on the issue.

As stakeholder after stakeholder has pointed out, from Parliament's Small Business Development Committee to Cosatu, South Africa’s cannabis economy will only get off the ground when “adult use” or “recreational” consumption is completely legal. And while Government has prevaricated on the issue, the market is forging ahead on its own.

Take Johannesburg. A simple Google search will show over 30 ‘cannabis retail’ outlets that one can choose from.  Many will have a resident doctor who will draw up prescriptions, others operate as private clubs. The fact of the matter is that high THC adult use cannabis is everywhere in a variety of products, none of which are technically legal.

South Africa’s medical cannabis take-up has lagged behind expectations. 

Read SAHPRA'S FAQ'S for cannabis here for the lowdown on the Red-Tape.

There are an estimated 1 000 registered medical cannabis patients in the country, way below the Statista projections that there would be over 5 000 registered medical cannabis patients by 2024, and that the sector would generate US$55 million. The absence of official statistics makes commentry a matter of speculation, but domestic medical cannabis revenue from registered patients is nowhere near that level.

Compared to the likes of Australia and Israel, who each have well over 100 000 medical cannabis users, South Africa’s showing is dismal.

Another stakeholder has noted that many of the new cannabis outlets have “resident” doctors willing to write out prescriptions for all manner of ailments. “All cannabis can be regarded as medicinal” he said, “which makes the situation impossible to police”.

“I don’t think the new Cannabis Act changes anything” one potential investor told Cannabiz Africa. 

“The black market continues to thrive and is becoming more brazen every day. The police appear to be holding back on cannabis arrests because it’s a ‘grey’ area, but until there is an over-arching law regulating the commercial trade in cannabis, investment will remain limited and the underground market will grow”.

These were realities surfaced at last June’s The Phakisa Cannabis and Hemp Action Lab, where five days of stakeholder interaction with the Presidency held the promise of far-reaching cannabis reform being fast-tracked.

Alas it was not to be. Although the Presidency got the plot with The Phakisa project, it has failed to follow through on its ‘whole plant’ approach. The radical world-first approach of classifying all cannabis as “industrial” was designed to bring traditional growers into the mainstream without forcing them to grow low-THC strains to become legal.

However, the THC restrictions of 2% on defining “hemp” have surfaced in the Cannabis for Private Purposes Act, as well as restrictions on home cultivation.

The CfPPA limits home growers to four plants, although the Department of Justice previously indicated that limitations would be governed by a directive from the Department. One of the issues here was that there were two different versions of the proposed Cannabis Bill that were circulated among stakeholders.

In the meantime, despite medicinal cannabis being touted in South Africa’s most recent Country Investor Strategy document, operators are haemorraging cash and several major facilities are on the market. Buyers will be difficult to find right now because of the high compliance costs and difficulties in getting into Europe. One of Lesotho’s biggest exporters, Highlands Investments went quietly under the hammer in November 2023 and observers believe there could be SAHPRA approved facilities up for auction later this year

The cannabis health and wellness sector is also struggling because of SAHPRA restrictions. South Africa’s major CBD brand Goodleaf, pulled its products from retail shelves last year because SAHPRA’s limitations on daily dosages undermined the efficacy of their products.

“Until the Government stops seeing THC as the enemy, the legal cannabis industry is not going to get off the ground” said the invstor. “Perhaps the new administration will introduce fresh momentum to The Phakisa, which is actually a good blueprint by the way, but that is going to require a new legislative process.  We are not holding our thumbs that South African cannabis sector will be bankable for at least another year”, including the ‘hemp’ industry which will not be a money-spinner for the foreseeable future.”


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