BUSINESS MAVERICK

Dabbling in weed could be good for democracy

By Ruan Jooste 10 April 2019

The Cannabis Expo at Grand West Arena on April 05, 2019 in Cape Town, South Africa. In just less than a year since the home use of cannabis was legalized, Cape Town is hosted an expo where, more than 100 exhibitors showcased a variety of cannabis-related products and services from all sectors in the industry including health care, medicinal, growing, harvesting and processing technologies, product retailers and innovators, legislation groups and government. (Photo by Gallo Images/Brenton Geach)

It appears that cannabis’s moment has arrived. Lobbyists agree that the time has come for it to emerge from the shadows and start flourishing, not just as a crop, but as an investment opportunity. Benefits for both the fiscus and business owners could, well, high. The world cannabis business could reach upwards of US$630-billion in market value by 2040 — and that has investors reaching for their rizlas. But one African country is lagging. Guess which.

It seems global governments and their citizens are now starting to better understand marijuana’s value proposition: Health and wellness benefits — some of which are yet to be fully understood — along with financial and economic benefits from the taxation and regulation of business. North American industry especially is responding rapidly, scaling up its asset base, building brands and creating strategic partnerships. Africa is also awakening to the possibilities.

Independent journalist and cannabis activist Kevin Bloom says:

There is a spectrum that sort of roams from decriminalisation in certain aspects to full legalisation. We have about 20 to 25 countries in the world and counting. There is a very definite global movement towards legalisation and towards recognition of the properties of this plant.”

He adds that when you see the legalisation in countries such as Canada and Uruguay, “you can expect that many countries are going to follow suit in the next two, three years”.

As most governments move to legalise cannabis by 2025, the Cannabis Consumer Research Team at Seaport Global Securities believes that the world cannabis market can reach upwards of US$630-billion in market value by 2040. Inside of this forecast, they believe that the adult-use market can approach US$325-billion, while the medical and ingredient market can approach US$305-billion.

The team believes that Asia has the potential to be the largest regional cannabis market in the world, followed by greater Europe and North America including Mexico. They forecast Africa will be worth US$24.127-billion by that stage.

Lesotho has already emerged as an unlikely hotspot for global cannabis production. In 2017, Lesotho became the first African nation to legalise the growth of cannabis for medicinal and research purposes. The tiny kingdom’s economy is reliant on South Africa, with water and diamonds the country’s biggest exports.

Jee-A van der Linde, an economist at NKC African Economics, told Business Report that the kingdom was brimming with potential and looked to become Africa’s staging ground for medical marijuana businesses with its friendly policy environment.

While the formal cannabis industry is arguably still in its infancy, the kingdom could unlock even more foreign investment over the next few years. This, in turn, could lead to more job creation for Basotho workers, assist in diversifying the economy and possibly see Lesotho emerge as a leading player on the global cannabis scene,” he was quoted as saying.

Zimbabwe followed suit in 2018, making dagga for medicinal and research purposes lawful, and a year later Precision Cannabis Therapeutics Zimbabwe received approval for its cannabis licence in early March 2019, which will make it the first in the country to be permitted to commercially produce medical marijuana.

Malawi is set to become the latest African country to legalise dagga farming in a bid to boost its economy. It comes as its major foreign exchange earner, tobacco, starts to see the impact of a decades-long global anti-smoking lobby. The country’s parliament has drafted a bill on legalising industrial and medicinal hemp which is expected to be tabled with the national assembly shortly.

In South Africa, by contrast, the commercial production of recreational marijuana and related products is still illegal. The political will to change this, or embrace any other developments and/or opportunities related to this crop, also seems to be lacking. Yes, a Constitutional Court ruling in 2018 gave the green light to private cannabis cultivation and use among adults, and yes, SA opened its first medical marijuana dispensary in the same year. Yes, the current legislature grants licensing to commercially grow cannabis for medicinal purposes, and yes, the House of Hemp was the first to be awarded a Cannabis Cultivation Licence for medical purposes from the South African Health Products Regulatory Authority in the first week of April 2019.

And a final yes to Finance Minister Tito Mboweni’s mention in his Budget speech of envisioned change in policy regarding the cannabis industry so that it could become a potential source of revenue. But that is where the buck stops, and the lack of a clear policy is showing the cracks of government’s current approach to the matter.

Wandile Sihlobo, agricultural economist and head of research at Agbiz, says conditions and boundaries of what the crop could mean for the economy and industry still need to be considered and legislated.

He says there is no official research or studies available to policymakers to make educated decisions. The pure focus on the recreational side — referring to the Constitutional Court ruling among other things — was a mistake, Sihlobo says.

There have been unintended consequences. More energy needs to be spent on commercial opportunities and tied up with the medicinal side.

The decriminalisation for private use might not be where the commercial value lies. The focus should rather be on exploring the possible benefits for the country through the controlled international trade in cannabis and its products and medicinal-use purposes in the domestic market,” he adds.

Sihlobo says the Department of Agriculture should be the driver of such research, which is consistent with the aspirations of the country.

We talk about agriculture being a focus area to drive economic growth and create jobs — why not investigate whether there is value in cultivating marijuana and related products like hemp, and back it up with scientific research?”

He says cannabis as an economically viable cash crop is new to everyone, and like the rest of the world, we need to clearly define the rules of the game, before entering it.

We need to ask ourselves if Lesotho and Malawi are starting to issue licences, what are we missing? If the US is establishing an industry, why aren’t we? If China is making over US$1-billion a year from exporting hemp, why aren’t we looking into that?” asks Sihlobo.

He refers to the local financial industry with the emergence of Bitcoin and blockchain.

When cryptocurrencies and the underlying technology became an apparent local industry, the Reserve Bank and tax authorities immediately commissioned research into both fields. They investigated the impact on the industry and the ways to harvest the benefits for local institutions and government. Why have the agricultural sector and related policymakers not done the same when it comes to the growing of cannabis phenomenon?”

The department’s annual value chain study it releases on every crop cultivated in the country could be the perfect platform to include such research,” Sihlobo says.

I am not arguing for any particular policy position regarding cannabis, but rather for increased research that would assist policymakers in evaluating the benefits, and possible unintended consequences, of growing and trading cannabis. The research should take stock of the changing perceptions surrounding this crop globally, as well as its growing demand and commercial value.”

Flying blind and being complacent about the fact has already brought unintended consequences. Bloom says rural farmers are increasingly being locked out of the market. He says the green rush has fallen heavily on commercial interest and government has done nothing to change that.

The market has been flooded following the Constitutional Court case with every Tom, Dick and Harry growing ‘weed’ in their backyard. Not to mention big commercial players like Bayer and Monsanto — the company which provides the poison to the police to eradicate illegal dagga fields currently — wanting to enter the space. So around 900,000 traditional growers, who have been doing this for many years in the Eastern Cape and Pondoland, and who keep the body and soul of 3-4 million people alive, are being increasingly excluded from the system.

None of the legislative progress matters if traditional growers can’t sell their crop,” Bloom says.

Government has done nothing to help them. Mboweni’s Budget proclamation, Rob Davies and the Department of Trade and industry’s report: The economic growth potential of the cannabis plant and the Cannabis Development Council of South Africa’s vow of empowering traditional farmers have turned out to be hot air. It is all talk and no action and has turned out to be a national tragedy.”

There is also a lot of vested interest and corruption in the current system that authorities haven’t even got their heads around, not even mentioning weeding it out,” he says.

The licensing practice as it stands is already a contentious issue. The South African Institute of Race Relations (SAIRR) has been vocal about the slow progress in this regard. It says the country will lose out on the potential growth prospects if feet continue to be dragged.

It’s an enormous global market. SA is already behind the likes of Lesotho on so on in promoting commercial cultivation. It could be a major export crop and earner of revenue, especially for smaller producers. We would recommend that policymakers move with haste to position SA to play a leading role in the global marijuana market. From a legislative reform perspective, a lot of good could be done here by granting growing permits to small scale producers in poorer areas of the country. But lawmakers are asleep on this issue,” the SAIRR says.

That is its second argument. Its primary argument is the pro-liberty one.

Gabriel Crouse, an associate at the SAIRR, says the lobby situation is complex. South Africans have proven rather conservative, and the view on drugs is a hard one.

In our Q3 2018 demographically representative poll we had an open-ended question on biggest two concerns in SA. Drugs and related abuse came in second. Jobs topped the list by a considerable margin (47%), followed by concerns about drugs and drug abuse (23%) and crime (20%). The latter is closely linked to drug abuse as well.”

He says the community needs to be better educated on the wealth of benefits that investment in the cannabis market can bring.

It is not just about allowing people to get high, and it is going much further than medical treatment.”

The estimated yield per square foot, as estimated by Seabrooke for American farmers, could be much higher in South Africa, Crouse says, not to mention cheaper input costs. The focus will be outdoor, which is much cheaper to cultivate.

We have the space, the appropriate weather and the established know-how among rural farmers.

If we could tap into the future US$123-billion North American cannabis market, when cannabis will be fully legalised by 2021, with primary produce exports, and back it up with beneficiation products such as vaping oils and hemp thread, for example, it will be a game-changer for the South African economy,” he says.

Where we have the upper hand on our African neighbours is that we have the ports and distribution networks in place and we are hooked up to Agoa,” says Crous, “and we need to exploit that advantage sooner than later.”

Where competition from other countries is concerned, our low-cost labour and our proximity to Europe in relation to other continents such as Asia or South America will entice investors.

Tackling some of the existing issues hindering the efforts to exploit the cannabis crop for the greater good could see large-scale hemp production to build RDP houses, a revitalisation of the manufacturing industry with hemp fibre and punting unique recreational products like Pondo Gold.

We also have enough capacity to beneficiate via the CSIR. The Department of Science and Technology and the University of the Free State are already looking into it. So, what are we waiting for?” says Crous. DM

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