The recently released Global Cannabis Report says South Africa is well positioned to be a major player in the global cannabis market if the Government got its act together. It says Government inaction is the biggest impediment to realising cannabis’s economic potential as the country continues to wilfully squander its golden opportunities.
It is the view of ACA Group and Prohibition Partners who put together the African Cannabis Report 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.
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.
The country is 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. Limited progress has been made with regard to the plan. However, Parliament is looking to finalise the Master Plan by 2023.
However, this 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.
Although the cannabis fraternity had hoped that the Cannabis for Private Purposes 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.
Smallholder 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.
It is Cannabiz Africa’s view that “not realising its potential “ would be the more favourable outcome going into 2023, rather than the anticipated “spiralling out of control”, as, in our view, the lack of a clear cannabis regulatory framework is sending the South African cannabis industry into a recession for at least the next year;
The following bottlenecks to developing a legal cannabis market in South Africa identified in the Global Cannabis Report are:
Government’s lack of a clear vision and the resultant policy paralysis;
Government’s inability to communicate with stakeholders on any level;
The lack of a cannabis “monograph” that would act as an industry standard;
The continued criminalization of cannabis through the Drugs and Drug Trafficking Act, which makes investment in the hemp industry a high-risk game;
The exclusionary nature of the current regulatory framework in that significant capital needs to be invested in a facility before SAHPRA will approve a license; this eliminates traditional growers
SAHPRA’S lack of capacity and the slow pace of license inspections and approvals;
The lack of clarity as to whether Section 21 medical cannabis patient schemes are here to stay or whether they are a stop-gap measure;
The 0,2% THC limit imposed on hemp and CBD products which is not based on scientific evidence and is locking South Africa out of the export market for CBD/hemp products;
The high cost of CBD products, which limit consumer access;
The 50 ha cap for hemp permits and the fencing requirements which are inhibiting any large scale investment in hemp;
The lack of a local supply of hemp seed;
No registered hemp seed source;
The Report raises major concerns about the economic viability of the fledgling hemp market, saying that under current regulations hemp farming isn’t feasible.
“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” says the Report.
“The pace of SAHPRA 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.
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.
The Report says the lack of clarity around a domestic medical cannabis policy is also an inhibitor.
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.
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.
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.
As one stakeholder commented, “if only Government had the capacity just to get itself out of the way, that would be good, but it can’t even do that even though it knows it would be for its own benefit!”