Legalisation of Southern Africa’s cannabis industry for medical and industrial purposes has created a bit of interest within the sector, with several states looking to capitalise on this opportunity through foreign investment.
Governments are looking to earn funds through attracting investment, operating license fees, foreign exchange earnings for produced wares and taxation of operating firms. Another upside to legalising the sector is the jobs the sector will create, all the way from farming to processing and where possible trading. Birguid’s recently concluded a report on Southern Africa’s cannabis market which profiled six markets (South Africa, Zimbabwe, Zambia, Malawi, Lesotho and eSwatini) estimates the industry’s revenues at just over US$1 billion (2019).
Despite the size of the market, most of this revenue is accounted for by the recreational market (between 85 and 95%) with all of the cannabis for this segment being traded on the illicit “black” market. Save for South Africa which has legalised recreational cannabis for private cultivation and consumption, all the other states have not legalised cannabis for recreational purposes. “This trend could prevail during the forecast period based on the stigma associated with cannabis,” said James Maposa, the study’s analyst. “As an example, a recently concluded survey in eSwatini reported that over half of the 1200 respondents felt that cannabis (for recreational purposes) should stay a banned substance as it comes with the risk of addiction and associated knock on effects. This thought process has, therefore, resulted in governments only legalising the growing of cannabis within respective countries for medicinal purposes.”
“An opportunity does, however, exist to legalise and regularise the industry’s recreational segment,” notes Maposa. “Perhaps taking a leaf out of the Netherlands playbook to understand how they legalised recreational cannabis within their country is one of the steps that can be looked into. First off, growers of the crop (mostly small-sized farmers) can be protected from a fair pricing standpoint. Respective governments could benefit from tax revenues and the consumer will also be protected through the buying of products that are regulated and standardised.” Another opportunity would be to create employment through “cannabis tourism” (which already exists in Malawi albeit illegally). However, instituting such an approach would require further research and a compelling case to overcome that stigma that currently exists for the crop.
“The medicinal cannabis segment is poised to witness the strongest growth during the forecast,” states Maposa. Currently, most if not all of the investment is being poured into developing this segment of the market. Zimbabwe, for example, is currently reviewing 37 applications for medical cannabis operating licenses. “The key to success for this segment is to build a sizable local market,” suggests Maposa. “Currently most of the legalising governments are pushing for the grown crops and processed products to be shipped abroad to destinations such as the Netherlands, Canada and Australia. But to fully sustain growth and progression of the industry, the local market must account for between 40 and 60% of total consumption by about 2030. This can only be achieved through greater collaboration amongst respective governments’ health ministries, local pharmaceutical companies, and medical professionals. The conduct of exhaustive research is critical to inform the development of products that can replace existing drugs and sustain further development of the sub-region’s medicinal cannabis industry.”
The industrial cannabis segment also has potential but still requires more to be done from a research standpoint. “Viability is an issue that needs to be addressed for this segment of the market to justify investment,” states Maposa. “As things stand, there’s a lot of hype centred around the cannabis industry, including its use for industrial purposes but its viability is a question that has not been fully answered. Comparative studies should, therefore, be commissioned that understand why it makes economic sense to, for example, make clothes using hemp instead of cotton. If the numbers are good, then investment into developing this segment of the market should be considered,” Maposa concludes.
“In conclusion, yes there is opportunity for Southern Africa’s cannabis industry but more needs to be done across each segment with regards to legislation, structuring and regulation, research and market development,” suggests Maposa. “Getting more definitive answers that inform how best to take advantage of existing opportunities is a recommended next step. Finding these answers requires greater collaboration between private and public sector stakeholders within each of the profiled states to come up with solutions that are mutually beneficial and viable over the longer-term.”