This is an extract from the Global Cannabis Report 2022.

South Africa leads the way as Africa’s largest cannabis and industrial hemp market, and it is well positioned to be a globally competitive international player should the government put into action its plans for the sector.

The country has a relatively mature and accessible CBD market that commenced in 2019, and a medical cannabis cultivation licensing regime that began in the same year.

Commercial hemp permits were introduced in late 2021, and commercial hemp cultivation has now started in the country. The cannabis and hemp sectors have steadily progressed since 2018, at which point the Constitutional Court ruled that the cultivation and consumption of cannabis in a private space is a human right. Thereafter there has been a spike in personal growers and consumption across the country.

The 2018 Constitutional Court ruling that effectively decriminalised cannabis gave parliament two years to make the necessary amendments to law that would ensure alignment with the court ruling. This resulted in the drafting of the Private Purposes Bill, which is still being finalised by parliament and is well past the constitutional court deadline.

Although the cannabis fraternity had hoped that the bill would go further than simply setting the parameters for decriminalisation, and create a framework for a commercial adult-use market, there seems to be limited political will to achieve this under the Private Purposes Bill. South Africa is also in the process of finalising its draft National Cannabis Master Plan, a policy framework that the country plans to use to action key stakeholders including labour, government and the private sector, in priority sectors and economic initiatives.

The draft Cannabis Master Plan was published in August 2021, and is currently being developed under the Department of Agriculture, Land Reform and Rural Development (DALRRD) which is spearheading cannabis policy development in the country, having taken over from the Department of Health in 2021. Limited progress has been made with regard to the plan. However, parliament is looking to finalise the Master Plan by 2023.

South Africa’s government has been amongst the most vocal about its intentions to prioritise the cannabis industry for economic growth, rural development and job creation. However, progress has been frustratingly slow for local stakeholders. The lack of a coherent policy has also resulted in local investors being apprehensive about investing in the sector in its current state due to regulatory uncertainty.

Smallhold traditional growers, and other legacy market growers in South Africa have also not been explicitly integrated into the current legal cannabis framework, causing continued discontent. South Africa is estimated to have over 900,000 traditional cannabis growers, and inclusion of these stakeholders is seen as critical, if the cannabis and hemp industries are going to have the desired broad-based economic dividend.

South Africa Medical Cannabis Regulation

Since 2019, South Africa has accepted applications for licences for the cultivation of bulk medical cannabis flower as an Active Pharmaceutical Ingredient. To date, it’s estimated that around 80 licences have been issued by the regulatory body, SAHPRA (South Africa Health Products Regulatory Authority). The Medicines and Related Substances Act of 1965 mandates SAHPRA to regulate the availability and quality of medicines, ensuring safe and effective medicines for consumers.

This mandate requires SAHPRA to apply standards to the cultivation, manufacturing, sale, marketing, distribution of medicines and medical devices. A licence from SAHPRA is a prerequisite for the cultivation, processing, extraction, testing and manufacturing of cannabis products.

Unlike Lesotho, SAHPRA requires that a licence applicant must build their facility before being considered for an audit. This process poses significant challenges for aspiring cannabis operators, due to the fact that they would typically need to raise capital to build the facility without any guarantee that the facility would be approved. It also poses significant hurdles for aspiring operators who have been previously disadvantaged and who don’t have access to capital for developing their facility.

Once a facility is developed, SAHPRA inspects the facility including; facility staff qualifications, operational procedures, quality management systems, safety infrastructure and security standards. Operators will also have to apply to the Director General of Health for a permit to handle cannabis. Upon receipt of a licence, SAPHRA would also provide a quantity limit on how much cannabis can be produced by an operator.

The pace of licence approvals has been a source of frustration for many aspirational operators in the South African cannabis industry. The slow pace of inspections and approvals has been mainly attributed to an underfunded and understaffed regulator, with market participants lobbying the government to address this problem as a matter of urgency.

In South Africa, medical professionals are permitted to apply to SAHPRA to utilise unregistered medicines for patients.

South Africa is estimated to have just under 1,000 registered patients to date.

In South Africa, any doctor registered with the South African Health Professions Council is able to utilise Section 21 to prescribe medical cannabis. Doctors are not limited to specific indications when prescribing cannabis, but must provide a rationale on why medical cannabis is suitable for their patient’s medical condition. 

Medical cannabis is not currently covered by medical aid or health insurance in South Africa. The fee for a Section 21 application is currently R350 or roughly US$20.

A number of international cannabis companies, such as The Green Organic Dutchman, have also exported medical cannabis to South Africa under Section 21, with only a select few local producers being integrated into the supply chain. The lack of clear communication and an established framework for local cannabis distribution has been a source of frustration in the industry. For example, South Africa currently doesn’t have a monograph or any well communicated guidelines for doctors, patients, and cultivators with regard to medical cannabis.

It’s still unclear whether the Department of Health and SAHPRA intend to scale this scheme in a similar way to Australia, or whether the scheme is still intended for exceptional medical cases. 

It’s the view of ACA Group and Prohibition Partners that South Africa’s cannabis industry growth potential is hampered by not allowing for broad access to the medical cannabis supplied by local cultivators. Countries such as; Germany, Australia and Israel have over 150,000 registered medical cannabis patients supporting the development of the sector, further improving their global competitiveness, R&D investment spending and international integration.

Prominent facilities featured in South Africa include; FarmaGrowers, SafriCanna, Felbridge, Cilo Cybin, Rascal Seed Research Laboratories, Chroni-Co and Geo Greenhealth.

South Africa’s CBD Industry

The South African government made international headlines in 2019 when it announced a 12 month exemption for CBD products, effectively descheduling CBD products that had less than 20 milligrams daily dosage and didn’t make any medical claims.

On 22 May 2020, the Department of Health provided new regulations for cannabis and CBD. CBD was reassigned from Schedule 7 of the Medicines Act, to Schedule 4 (from highly regulated, to simply requiring a prescription for use).

However, products with less than 600 milligrams CBD concentration per sales pack, with a maximum of 20 milligrams per daily dosage, were moved to Schedule 0.

These products can only make general low risk health claims. Schedule 0 CBD products also include CBD products that are made from raw cannabis plant material for ingestion with less than 0.0075% CBD and less than 0.001% THC in naturally occurring quantities.

This move by the Ministry of Health resulted in a flurry of international CBD brands expanding into South Africa in order to gain market share and boost sales.

This also resulted in local CBD brands being established in South Africa, including Goodleaf, which opened the first CBD retail store in Africa in 2019.

Goodleaf is the most recognised CBD brand in South Africa, with their products being available in most recognised retailers across the country.

Some of the other leading CBD brands in South Africa include; Elixinol, Rethink, ADCO CBD, africanpure and Koi CBD. CBD Market Structure By our estimates, there are currently +85 CBD brands being sold in South Africa.

Most sales happen through physical retailers, pharmacy chains and CBD or health-focused online marketplaces such as Takealot (South Africa’s Amazon). The industry is highly competitive and fragmented.

Due to the high price point of CBD products, CBD is currently bought by affluent consumers. Furthermore, due to South Africa’s ailing economy, we expect premium CBD product sales to lag behind comparable international markets.

South Africa’s major retail pharmacy chains, Clicks and DisChem, both stock a number of CBD brands across most of their +700 retail stores. These include; Rethink, Releaf, Elixinol, africanpure and ADCO CBD.

The range of CBD brands being stocked by these retailers has reduced significantly over the last 18 months. At the beginning of 2020, approximately 15 brands were listed across these retailers, now between three to seven brands are listed on average.

Many independent pharmacies in South Africa also list CBD brands. The brands listed across independent retail stores vary widely, with over 20 different brands being listed across these independent retail pharmacies.

Most major grocers such as; Pick n Pay, Spar and Checkers also stock a broad range of CBD products. Online marketplaces are a significant avenue for sales in South Africa, with over 50 brands selling products through their own websites and through third party online stores.

The most popular online CBD store in South Africa is, The CBD Shop. Health and wellness online stores such as; Faithful to Nature and Wellness Warehouse are also popular sites for the purchase of CBD products. CBD product variety in South Africa is limited relative to other markets, with tinctures, CBD infused water and capsules making up the majority of CBD products available on the market.

Industrial Hemp in South Africa

South Africa’s Department of Agriculture, Land Reform and Rural Development began accepting applications for commercial hemp cultivation permits from October 2021 and began approving applications from April 2022.

The number of approved hemp cultivation permits is not made public, however, based on engagement with industry participants, we estimate that over 300 permits have been granted to date.

With the growing season for hemp in South Africa being from September to May, the delay in establishing the permit regime has meant that most farmers will only begin scale commercial cultivation from October 2022.

Although this is a step in the right direction, concerns remain about the viability of the hemp industry under current regulations.

Firstly, hemp in South Africa is defined as ‘cannabis plant material’ containing less than 0.2% THC. This is considered to be a low threshold for South Africa’s climate where cultivation has historically seen higher average levels of THC based on farmer engagements. This would make it difficult for producers to harvest compliant hemp crops and could result in significant quantities of a harvested crop not meeting regulatory approval for further use.

A 1% THC threshold similar to the Czech Republic and Switzerland has been proposed by the Cannabis Research Council of South Africa, and feedback from the Department of Agriculture seems to indicate that this may be implemented.

Secondly, the requirement for fencing around the earmarked cultivation areas adds significant set up costs that limits the ability of previously disadvantaged and cash strapped farmers to enter the industry.

This is particularly challenging as financing support for emerging hemp farmers is currently limited in South Africa. Thirdly, due to the fact that cannabis is still regulated under the Drug and Drug Trafficking Act, there are significant limitations to the development of hemp, including challenges with registering local hemp seeds.

All hemp seeds need to be imported. The lack of testing and data on the performance of these seeds across South Africa increases the risk of failed or suboptimal harvests. Lastly, the permits only allow for cultivation on a maximum of 50 hectares.

Due to hemp being a high volume, low margin crop, cultivation on such a limited space may make hemp extremely difficult in terms of commercial viability at this stage. The local hemp supply chain is also still in its infancy, with very few local industries having any knowledge on how to integrate hemp material into their businesses.

This could pose a challenge for when hemp is grown and processed at scale, with limited established demand for the processed biomass. However, as more participants and potential buyers of hemp-based end products are educated on its use, and benefit from government led incentives, (some proposed in the National Cannabis Master Plan), there is significant potential for the hemp industry to contribute meaningfully to economic growth over the next few years.

Adult-Use Cannabis

Due to the cultivation and consumption of cannabis in a private space being decriminalised in South Africa, there have been a growing number of cannabis grow clubs being established. These clubs allow for individuals to pay for professional growers to grow cannabis in a private space, on their behalf, for a fee. This model is designed to ‘outsource’ the growing of cannabis for users who may not have the space, time or expertise to grow their own cannabis.

Famously, The Haze Club (THC), took the South African government to court after its grow facility was raided by police, and its plants seized in October 2020. The application to the court was dismissed in August 2022 as the court argued that permitting the cannabis grow club model would circumvent existing cannabis laws, and that legislature should be responsible for amending existing laws to allow for commercial cannabis cultivation for adult use.

The outsourcing of personal use cultivation is therefore not permitted. Despite the Constitutional Court Judgement, and four years of decriminalisation and widespread arrests, cannabis seizures are still prevalent in South Africa. In September 2022, this prompted South Africa’s first mass cannabis protest in four years, with cannabis activists marching to government buildings across South Africa demanding government intervention in policing, the expedition of necessary legislative amendments for a robust commercial industry, and government support for legacy cannabis growing communities that had been neglected under existing laws.

It is the view of ACA Group and Prohibition Partners that South Africa is best positioned to develop the largest and most globally integrated medical cannabis, adult-use and industrial hemp sectors in Africa. 

This is due to the country’s globally competitive agricultural, pharmaceutical and medical research sectors. South Africa also benefits from strong existing global trade links, well capitalised local financial markets and a highly skilled labour force.

Despite the competitive edge that South Africa has over many African and international countries, the government's slow pace to finalise sensible regulations could result in the country not realising its potential in the industry.

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