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Enabling policies urgently needed for cannabis sector to realise its potential

Home Agriculture Enabling policies urgently needed for cannabis sector to realise its potential

THE cannabis industry in South Africa is touted as a potential saviour of the country’s ailing economy. Billions could be unlocked in the local industry. In 2019 Prohibition Partners released its African Cannabis Report which forecast the South African medicinal cannabis market value and the recreational cannabis market value at R11 billion and R20 billion respectively by 2023. The projected growth rate is 28.4%.

The country is poised to become a leader in this dynamic space. South Africa enjoys a strong head start compared to others, a good reputation internationally for quality of product, and rated as number 1 in Africa, for technical competence and cost of production.

However, it remains in the very early stages of ironing out the various legal, political, economic, regulatory and social obstacles standing in the way of its potential. Its favourable climate, loosening laws, arable land and pre-existing experience in farming and hemp production makes it a formidable force.

Some advanced economies and sophisticated markets have not been shy to bestow their faith in South Africa’s medicinal cannabis industry as it grows across the globe. Germany for example has recently become the most developed market to allow the use of cannabis to treat medical conditions, with recreational cannabis (adult use) to be ratified within the next 12 months. Several European countries have also relied on South African producers to source medical cannabis products.

This may explain why the JSE-listed cannabis giant Labat Africa Group has been on an investment drive ending in late 2022, attracting investment into the country’s cannabis sector. The group is also listed on the Frankfurt Stock Exchange (FSE) in Germany.

The company has made some notable investments in the last 18 months including the acquisition of a 100% shareholding in Miami-based CBD lifestyle brand Echo Life and the rights to locally distribute American pre-rolled hemp smokable Ace & Axle for 10 years, after the acquisition. The company has also invested in the upgrade and working capital requirements of Sweet Waters Aquaponics, a medicinal cannabis cultivation and processing facility in the Eastern cape worth R11.5 million. It’s also funding a proprietary biodata observational study that looks at medicinal cannabis replacing opioids for pain management.

Its Retail Division, operationalised through CannAfrica, was also capitalised on in the same period. Additionally, it has, through the investment of more than R20 million of its own cash resources, built a medicinal cannabis value chain. The company’s strategy is to fully integrate the healthcare subsidiary with a deep focus on cannabis, and with Labat Healthcare’s investment, continue improving the company’s extraction capability which has been boosted by a collaboration with Californian partners.

According to Labat CEO, Brian van Rooyen, South Africa needs to urgently address the constraints standing in the way for the country to begin reaping the fruits of the local industry’s potential.

Ever since the Constitutional Court decriminalised cannabis in 2018, discussions around regulation have been ongoing. The Cannabis for Private Purposes Bill was drawn up and is still waiting on Parliament to be ratified. The Department of Agriculture, Land Reform and Rural Development presented Parliament with a master plan in 2021 detailing how cannabis can be incorporated into the business sector. And in last year’s State of the Nation Address, President Cyril Ramaphosa said the government is looking to streamline the cannabis regulation process, which can unlock 130 000 jobs.

The legal cogs, however, have been achingly slow.

Van Rooyen said the enabling framework needs to be changed as soon as possible so that growers can be involved in every part of the value chain. “South African businesses can obtain a licence to grow, cultivate and export cannabis. All levels of government are saying how much money can be made out of cannabis. But they will not make that money if the legislation is not changed.”

The sluggish regulatory process is due to cannabis’s stigma as a narcotic tied to illicit trading. “Development banks and potential financiers are reluctant to invest in cannabis because of its legacy reputation and is not yet dealt with as a new economic /category. They do not have a clear picture of what the commodity can bring to the economy,” said Van Rooyen.

Labat Healthcare director for business development, Herschel Maasdorp, said changing legislation means amending some laws, for best regulatory reform. Cannabis can be regulated through the Drugs Control Amendment Act or decriminalised through safety and security legislation, among others. “All of these different regulations where amendments can be issued on behalf of cannabis will inform the commodity’s commercial trajectory.”

Maasdorp said that the absence of a sophisticated policy framework is an absolute indictment on government and state agencies. “In South Africa, we should have, by now, a recommended price per gram of different profiles of cannabis, for different markets and purposes. And from the specific price point each constituent, in the value chain, gets their share.”

He added that the new auditing metrics for cannabis can potentially land the industry in the same dilemma as the wine industry whereby high-quality products were under-priced for the international market. Labat currently sells to dispensaries in Brisbane, Australia at a locally competitive price per gram. But those very same dispensaries sell the prepacked finished product at a margin as high as 600%. Labat’s Healthcare division has recently received an additional off-take order for a monthly supply of 200 kg of product to Switzerland.

“South African companies should not allow the international market to dictate the price of our commodity,” said Maasdorp. “We should not booby trap ourselves by compromising on an abject price point to suit their needs. We will run the risk of becoming the backyard for the global pharmaceutical cannabis industry.”

“If we can get the laws right, market enablers and the regulations aligned, we can attract the ideal investors. When that happens, cannabis can begin to navigate its way out of the dark alleyways of the illicit trade and into the formal economy, as a legitimate economic category.”

Labat has been building its cannabis value chain over the years, from cultivation and beneficiation to manufacturing, distribution, research, retail and recently, consulting. Through its acquisitions, Labat has expanded the value chain to include genetics, extraction, research, and consulting. “Because we have developed and harnessed a repository of intellectual property under the company called The Highly Creative Consulting (THCC), we are now assisting governments in Africa with their legislative framework at policy level,” said Maasdorp.

Some of the company’s other subsidiaries are in ICT and logistics, however, the main focus is on healthcare. Cannabis is the primary commodity under the latter subsidiary. It is the only listed cannabis company on the JSE, with a dual listing on the FSE, with 18 000 shareholders.

Thanks to the FSE listing, Labat is setting up a direct marketing and distribution channel into Europe. It plans to launch a pharmaceutical sales, marketing, and distribution company in Germany at the start of its financial year on June 1, 2023.

The country simply needs to get serious about the industry. Fostering enabling legislation across the value chain should fuel the cannabis sector to new highs, and in doing so, boost the economy and assist with economic recovery. The country already boasts high altitude, plenty of sunlight, and an abundance of land suitable for industrial hemp, making it an ideal location for productive cannabis crops.

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