The upcoming year is likely to see a shake-out in the cannabis cultivation space as producers find themselves pinched between the difficulties of accessing export markets and the lack of options if they don’t succeed.
In a sign of the times, an Atlantis cannabis cultivation facility has come onto the market as the industry heads towards a short-term down-turn. The owners of the 11 ha farm in the Western Cape have decided against investing more in the facility in order to meet SAHPRA requirements after the first inspection raised an expensive snags list. Dries Nel, who’s facilitating the sale, says it’s a good investment for a serious player as most of the slog has already been done.
The Atlantis dilemma is indicative of the general state of play. Of the 80 or so SAHPRA licensed facilities, only five managed to export any product over the past year. As a seasoned industry observer has pointed out, getting a SAHPRA license does not automatically qualify one to export, and there are still other compliance measures that need to be met in order to move product abroad. He said South Africa still had a long way to go in proving its quality credentials in a European market.
Another industry expert, who wanted to remain anonymous, agreed. “A lot of cultivators won’t survive the next 18 months. Many of the licensed facilities have over-capitalized and will never get a return, and now we see flower being dumped on the illegal market.”
His view is that a cannabis “stand-alone” projects are “too risky right now”. Cannabis needs to be part of a bigger picture that involves other elements of health and wellness or foodstuffs.
South Africa’s most successful cannabis export business is probably Felgate Medical Cannabis in Stellenbosch which is specializing in exporting cannabis tissue culture rather than flower.
Besides the “For Sale” signs that are likely to be going up in the next few months, the other signal is Cilo Cybin’s failed listing attempt on the JSE. Of the R500 million that founder Gabriel Theron was hoping to raise, only R20 million materialized and that wasn’t enough to meet the JSE requirements for his Special Purpose Acquisition Company (SPAC). The money will be repaid to investors and Theron is making alternative arrangements to grow the company, the only one in South Africa that has three GMP licenses.
“We haven’t yet reached the tipping point” says Darryl Weisz, CEO of Silverleaf Investments, which recently raised R11 million from a public subscription through EasyEquities. “When the Constitutional Court ruled in 2018 that the private consumption of cannabis was legal, we expected a commercial framework to come into play within five years. Truth is that it is going to take a lot longer”.
He says until such time as an over-arching regulatory framework is put in place, institutional investors will remain wary of the sector.
The chief culprit is the Drugs and Drug Trafficking Act, which continues to define cannabis as an “undesirable, dependence-producing substance”, despite the fact the National Cannabis Master Plan seeks to have it defined as an agricultural crop. Despite Government’s stated intentions to decriminalize cannabis, its legal draftsmen continue to do the opposite, leaving the private sector in a quandary.
Desmond Greaver and Siseka Maposa of Inkwazi Farming Group, have written an open letter in their personal capacities, highlighting the Drugs Act problem and that of current THC% restrictions in hemp, which they say effectively shuts South Africa out of the global CBD market.
They say” “the cannabis regulatory environment remains unclear, highlighting deep policy incongruence and regulatory uncertainties. One of the biggest problems is that cannabis remains a prohibited substance in terms of the Drugs & Drug Trafficking Act. In addition, despite a 2018 Constitutional Court ruling that it is no longer a criminaloffence for an adult to use or be in possession of cannabis in a private place, the recreational use of cannabis remains technically illegal.
“Making matters worse, the Department of Justice appears to have stalled in amending the Drugs Act, which classifies cannabis as an undesirable dependence producing substance, to align with the Constitutional Court’s ruling. The Act provides for harsh penalties, including jail terms of between 12 months and 25 years for persons found to have violated its stipulations.
“Several serious investors have flagged this grave misalignment of policy that has resulted in relatively few investments in the sector.