Southern Africa’s cannabis industry offers opportunity for open-minded investorsPosted by On


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Legalisation of cannabis for medicinal purposes within a few Southern African states (Lesotho, South Africa, Zambia and Zimbabwe) has been received with a great deal of enthusiasm. Most of these countries’ governments consider that the industry could contribute sizeably to their respective economies, through foreign earnings and reduced foreign pharmaceutical expenditure. 

This optimism has stretched to the point of some of the aforementioned nations proclaiming that cannabis exports have the potential to replace commodities such as tobacco which over the years have witnessed a decline in demand. For these states, cannabis is now thought of as “green gold” and an asset that can be exploited to attract investment, create employment  and progress these industries through localised downstream opportunities. 

Despite these positives, a major obstacle to the progression is stigma, as confirmed in a recent study on Southern Africa’s cannabis industry by Birguid. Until recently, cannabis has been an illegal substance within the region’s profiled countries (South Africa, Zimbabwe, Lesotho, Malawi, eSwatini and Zambia). Because of this classification, cannabis is a commodity that is traded on the black market and widely used for recreational purposes. 

Most of the cannabis consumed for recreational purposes is smoked, with the remainder being consumed as edibles and vapours. Birguid’s study revealed that, at present, nearly all of the revenues are generated from the recreation segment. In 2019, the regional cannabis market is estimated to have generated just over $1-billion in revenue, with approximately 90% of the revenue generated from the recreational market. Strains like Malawi Gold (Malawi), Binga Gold (Zimbabwe), Swazi Gold (eSwatini) and Durban Poison (South Africa) are some of the recreational segment’s best-selling cultivars based on their potency. The aforementioned also sell at a premium and are expected to continue to account for a majority of the industry’s revenues during the forecast (2020-2024). 

Because most of the cannabis grown on the continent (estimated at 28 000 tonnes per annum according to a UN report) is being consumed recreationally; albeit illegally, a critical first step for growth and progression of the industry is overcoming the negativity associated with it. Going forward it will be important to transition the industry from being a preserve of cannabis enthusiasts. Transitioning cannabis into a mainstream industry has already started with the legalisation of cannabis for medicinal and industrial purposes. Another suggestion would be to consider legalising it for recreational purposes. Currently, South Africa is the only country (of the profiled states) that has legalised cannabis for recreational purposes (private cultivation and consumption) but there are a few positives that could come with this stance from both a regulatory and economic contribution standpoint. 

For starters, as a result of recreational cannabis being traded on the black market, farmers of the commodity earn extremely low incomes for their produce. They do not have connections to the end market and only deal through intermediaries (dealers). Dealers purchase cannabis from growers and sell it on at prices that have been reported to be five and in other cases 10 times more than the prices they pay the farmers. Legalising the recreational component could contribute to these farmers earning better prices for their produce and empower them to take better care of their families. 

A second consideration is potential tax earnings. Per Birguid’s research findings, Southern Africa’s cannabis market generates just over $1-billion a year and could double over the next five years. Most of this revenue is earned on the black market and thus does not generate tax. Legalising cannabis for recreational purposes could, therefore, enable respective countries to earn taxes from the…

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