Cannabis is seen as one of the “Big Five” drivers in South Africa’s new Country Investment Strategy (CIS). The document drawn up by the Presidency, identifies four cannabis sales channels, differentiated by THC potency.
The CIS says the most viable part of the cannabis industry to develop at an industrial scale is high-THC cannabis for medicinal use. It says the market for recreational cannabis “is still a highly uncertain value proposition both locally and internationally, requiring extensive legal and institutional evolution”.
The four cannabis sales channels identified in the CIS are:
High THC medical use
High THC ‘recreational’ use
Low THC hemp for multiple uses
Low/No THC for biofuel feedstock
The CIS was released for public comment on 27 May 2022.
The CIS notes there is “a global shift towards the industrialisation of cannabis as a legally and globally traded commodity; feeding what is now projected to grow into a USD 278 billion global marketplace by 2028. In the South African context, Cabinet resolved in July 2019 to aggressively pursue the commercialisation of cannabis as a part of the re-imagined industrial policy. The sector was subsequently identified as a candidate for its own masterplan, which is at an advanced stage.”
The “Big Five frontiers of strategic investment opportunities are:
Next generation digital
Special Economic Zone
Hyperscaling ESG (Environmental, social and government) impact investment
In terms of cannabis, referred to as “Big Frontier # 4", the CIS says that while high THC medical cannabis would be the most obvious sector to ramp up to an industrial level, the production of high-THC cannabis for the recreational market “is a highly uncertain value proposition”.
The rest of this article is taken directly from the CIS section on cannabis:
There are broadly four sales channels for cannabis plants processed at different stages of growth:
a) Plants with high THC content grown and processed for medicinal use
b) Plants produced with broadly the same defining features as (a) but intended for recreational use
c) Plants with low or no THC content produced as hemp, which has a wide range of commercial and industrial uses, including as a durable and cost-competitive substitute
d) Plants with low or no THC content produced as biofuel feedstock
Of these, given South Africa’s agricultural competitiveness profile, the most viable competitive sales channel to pursue at an industrial scale is channel a). Channel b) is still a highly uncertain value proposition both locally and internationally, requiring extensive legal and institutional evolution. However, capabilities developed for medicinal production can be very rapidly deployed to service recreational demand from either local or international markets.
Channels c) and d), while promising, will need to be closely tied to offtake agreements to ensure competitiveness and sustainability.
This could be enhanced if access to large scale land parcels not supportive of other cash crops can be released or fast-tracked as cannabis plantations, thereby exploiting the fact that the plant prospers in much poorer water and soil conditions than is the case with most other crops.
This provides for novel land assembly arrangements that can support the redevelopment of rural land assets, aligned to the provisions and aspirations of the country’s poultry and sugar masterplans in particular. The most significant barrier to industrialisation of channel a) is the legal framework within which exporters must operate, which places very high compliance burdens on licensees, who are currently producing exclusively for export markets.
A supportive legal framework which both streamlines scale production for export (including through inclusion in the SEZ network) and opens up domestic market access through clear, sensible regulation of medicinal cannabis is where the CIS prioritises investment mobilisation and enabling activity. When combined with the opportunity to position agro- processed commodities serving the new African single market, as per Big Frontier 3, the industrial cannabis approach constitutes a core investor mobilisation strategy for frontier areas with significant land assets and linkage to supportive infrastructure via the SEZ and logistics networks serving the AFCFTA.
CIS aims to achieve this through:
catalysing a new investment model to address current under-investment;
attracting quality greenfield investments into South Africa;
identifying high-impact and high-growth industries which will accelerate contributions to GDP;
supporting existing industries and developing new industries;
consolidating and strengthening existing capacity in identified priority sectors through enhancing policy certainty; and
argeting areas of intervention, accompanied by the mobilisation of resources and improved institutional co-ordination.