Is cannabis Africa’s next economic saviour?

Over the last few years several African governments have changed their stance and put policies in place that legalise cannabis cultivation, manufacturing and processing for mostly the export market. In Southern Africa Lesotho led from the front, with SA, Zimbabwe, Malawi, Zambia and eSwatini also coming to the party in an effort to capitalise on what has been positioned as a future answer to dwindling foreign currency earnings for crops like tobacco.

What is enticing to these countries is the existing size and purported potential of the industry over the next few years. A March report stated that global cannabis sales amounted to $21.3bn in 2020, a 48% increase on 2019. The report also forecasts a compound annual growth rate of 17.7% and annual earnings of some $55bn by 2026. With numbers like these, no African nation would want to miss out on the opportunity, particularly what it could bring to respective nations in terms of foreign investment, employment creation, taxation and foreign exchange earnings.

Legalisation has therefore been a necessary first step in a drive to stake a claim in the budding global cannabis industry over the longer-term. However, despite these numbers being quite enticing, a reality check is required by most member states with regard to how these revenues are split and whether the industry will be as big as it is projected to be.

How big is the global cannabis industry? Numbers vary depending on the researcher and reporting house. However, for consistency we will align with the $21.3bn estimate of the aforementioned report. When we look at trade in hemp, cannabis and associated products (trade code 5302: True hemp “Cannabis sativa L.", raw or processed, but not spun; tow and waste of true hemp, incl. yarn waste and garnetted stock) via the trade map portal www.intracen.org, 2020 world cannabis exports amounted to $49.4m with imports totalling $33.5m. Exports and imports of cannabis therefore accounted for less than 0.5% of what the report recorded in sales.

The above suggests that if this is the case, for Africa’s cannabis industry to be viable a sizeable local market is necessary. Legalising for export may not bring the returns states are looking for. Research on the viability of cannabis as an input into medicinal drugs is also extremely limited, with clinical trials still ongoing. Selling beyond the cannabis enthusiast will take a lot of convincing. Proof is needed beyond reasonable doubt that a cannabis infused drug is better than what is traditionally available. Ultimately, the industry may look big based on the shared numbers, but is quite small on what is traded officially.

Studies by Prohibition Partners and Birguid on Africa’s cannabis industry revealed that most (90%+) of the cannabis that is grown on the continent is traded for recreational purposes. The medicinal and other use categories account for less than 10% per annum in earnings. Yet it is the medicinal and other use categories that are being legalised.

Only SA has legalised cannabis for recreational purposes (private consumption with no permission granted to sell), and the other countries' stances are currently an absolute no. This has resulted in almost all of the industry’s revenues being earned “illegally”, and this trend is expected to continue until sustainable resolve is found.

One recommendation is to partner with countries that have legalised and commercialised recreational cannabis sectors, such as the Netherlands and a few US states, to understand how it can be done sustainably and for the mutual benefit of citizens and states. Traditionally, African cannabis farmers have cultivated high THC cannabis strains that are largely consumed recreationally, and converting these farmers to growing low THC, high CBD cannabis will require a lot of resources, particularly infrastructure.

Most of the set standards for cannabis to be exported to lucrative markets such as the EU and US require the growing of the cannabis in controlled environments, a preserve for the elite across the continent from an affordability standpoint. Access to these markets is also hindered by the need for a cannabis grower and processor to also obtain Good Manufacturing Practices (GMP) certification, another significant cost for the local grower. The above implies that recreational cannabis growing is an option that needs to be considered based on the premise of earnings (90%+ per annum) and what is currently being grown by the continent’s existing group of cannabis growers.

The global cannabis industry is growing, and African states should seek to be a part of the value chain. However, to do so sustainably local market development is key. A first step would be to further investigate recreational legalisation and how it can be commercialised to benefit the farmer (reduced losses, cutting out middlemen and better pricing), the citizen (product standardisation and better pricing) and the state (reduced cost of policing, earning of taxes and where possible foreign exchange). A second step would be to offer tiered pricing to ensure inclusion of locals in the development of the value chain.

License application fees range from $1,000 to $250,000. A10-year exclusive hemp growing, processing and distribution license was awarded to a Canadian firm by the eSwatini government. Most of the continent’s hemp farmers cannot afford the lower end of the license fee and governments should, therefore, provide a better licensing fee system to enable local farmers to legally participate in sector growth and progress.

A third step would be to facilitate downstream market development over the longer-term. If medicinal cannabis is the route most governments want to take, they should facilitate its integration into the local pharmaceutical and healthcare industries through the sponsoring of further scientific research and partnering with pharmaceutical companies to produce these drugs for local sale, and where possible for export. Currently, all the hemp that is used as an ingredient for drugs and other uses is imported. This needs to change if the continent’s cannabis industry is to sustain over the longer-term.

Looking inward to grow the continent’s cannabis value chain is paramount. Before the Covid-19 pandemic, investment in the Africa's cannabis industry was happening at great pace. However, since the pandemic most international investors are reconsidering their investments, with some halting, postponing or cancelling announced continental cannabis-related projects. Those that had been rolled out are being executed at a slower pace due to financial constraints.

The onus therefore lies on member states to empower locals to develop their respective industries through enabling policies and facilitation of downstream sector development.

• Maposa is founder and MD of  market research, strategy & monitoring and evaluation consultancy Birguid. This article is based on research Birguid concluded on Southern Africa’s cannabis industry, including market forecasts across SA, Zimbabwe, Zambia, Malawi, Lesotho and eSwatini, the profile of key projects, developments (legal and economic) and opportunities.