Well-intentioned compliance laws may boost the black market
Leading dispute resolution lawyer Shaad Vayej has warned that red tape is tying up South Africa’s cannabis growers, and unless policymakers take note, the future cannabis economy will remain largely in the hands of the criminal underworld.
The Cliffe Dekker Hofmeyer associate wrote in Farmers Weekly on 4 March 2022 that South Africa was laying the groundwork for “a flourishing cannabis economy in line with international trends”, but that well-intentioned compliance laws threatened to make the industry unviable and ultimately boost the illegal market.
Two hard questions for Government to answer
Vayej said two important questions that needed to be asked of Government:
- Is the regulatory process taking place fast enough?
- Are the legislative mechanisms stifling domestic enterprise, reinforcing the flourishing illicit market and further disenfranchising local communities who stand most to benefit from a thriving cannabis economy.
Vayej writes in South Africa’s leading agricultural publication that “the regulatory distinction between medical and industrial cannabis continues to serve as a means to effectively excludes small- to medium-scale cannabis farmers from participating in the more lucrative side of cannabis”.
He said prospective hemp farmers would have “onerous reporting requirements” in terms of the industry guidelines and would rely heavily on inspectors, local police and authorized testing facilities.
Hemp permit application system encourages ‘rent-seeking behaviour’
“For example, hemp farmers are required to notify their nearest police station within 28 days of planting and must make use of authorized testing facilities, and licensed applicants have to obtain the signature of their local police station commander on their local application forms. While these requirements are reasonable in principle, the potential for rent-seeking behaviour does exist, and close attention needs to be paid to how the authorisation, monitoring and inspection process unfolds over time”.
Vayej says that these issues all contribute to pushing up production costs, increasing the risk of commercial non-viability due to regulatory non-compliance, and ultimately discouraging many existing illicit cannabis farmers from participating in the legitimate cannabis value chain.
“This further encourages the back market and a loss of potential tax revenue, and diminishes the transformative potential that a thriving legitimate cannabis industry could have on our economic status quo”.
He said that the 0,2% THC limit for hemp was a “particularly problematic regulatory hurdle, as research and experience shown that cannabis grown in the warmer southern African climate tends to have increased levels of THC, potentially rendering crops commercially non-viable should cultivators not hold a Section 22 C license in addition to a hemp license”.
Vayej: look more closely at the economics of hemp
He said another problem was that hemp farmers who wanted to also sell their flower for CBD would also have to get a Section 22 C license even if they were licensed in terms of the Plant Improvement Act.
He quoted House of Hemp’s trading prices to illustrate the scope of the problem in terms of incentivising farmers to focus purely on hemp:
Hemp Dust R2/kg
Hemp fibres R20/kg
Hemp Hurd (stalks) R56/kg
CBD Oil R1 500/kg plus
Vayej wrote that given the country’s turbulent past in which black farmers were consigned to marginal lands, “the country’s cannabis regulatory regime should aim to empower previously disadvantaged groups by incorporating them in a profitable, sustainable value chain and by allowing them to derive the maximum lawful benefit possible from their endeavours.
“This can be done by easing barriers to entry to the medicinal cannabis secgor, removing legislative hurdles that increase the costs of production, facilitating eduction of would-be farmers in both the cultivation and compliance aspects of the cannabis industry, and providing opportunities for small, medium and micro-enterprises throughout the value chain”.