Recreational cannabis could be the agriculture sector’s green gold

With the Cannabis for Private Purpose Bill having been passed by the National Assembly and likely to be passed by the National Council of Provinces soon, it is most fitting to reflect on SA’s overall cannabis development project.

The project is anchored by an export-orientated development agenda which is echoed in government’s draft cannabis master plan and SA’s Country Investment Strategy (CIS). Within this export growth narrative, government has also prioritised specific cannabis markets, namely those for medical cannabis and hemp.

Regarding medical cannabis, the CIS goes as far as saying “cannabis grown and processed for medicinal use is the most viable competitive sales channel to pursue at an industrial scale”.

To date, more than 50 medical cannabis licences have been issued by SA’s health products regulator, Sahpra. But local actors have noted severe challenges, including difficulties in securing capital investments and effective market linkages, the exporting regime, and allegations that Sahpra has issued licences to mainly international companies, effectively excluding local players from participation.

In the hemp market, which focuses on the cultivation and sale of hemp-derived products such as textiles and construction materials, the department of agriculture, land reform & rural development has over the past year encouraged prospective cultivators to acquire hemp cultivation licences.

Similarly to the medical cannabis market, local actors have raised several concerns, including inadequate government funding and low investment, policy blind spots and misunderstandings by officials, poor market linkages and a lack of processing capabilities.

Recreational cannabis does not fall into any of the government’s plans for the sector. Some cultivators operate outside the law (specifically section 21 of the Drugs Act) and so SA’s recreational market remains illicit, with no specific legal or regulatory pathway for the cultivation and sale of cannabis for nonmedical purposes.

The government’s reluctance to create a legal pathway is indicative of the fact that it remains out of sync with global market realities. According to consumer data provider Statista, the recreational cannabis market is expected to surge, with revenue projections suggesting it reached €22.48bn in 2023 and growing to €47.74bn by 2028.

The growth of the illicit cannabis market is dire for the sector and country. Illicit profits are being used to fuel other forms of criminal activity, and at the same time the government continues to lose revenue as untaxed illicit activity thrives.

Furthermore, the sector has no quality and safety standards, posing a major health risk. This should be cause for significant concern for health authorities across the country.

In the absence of an effective regulatory regime to legalise and commercialise the sector, which would otherwise provide the government with the necessary controls to regulate the sector, many of these problems are likely to proliferate in the coming years.

The reality is that given the current state of the economy, the government’s export-led growth agenda through medical and hemp cannabis markets is increasingly unattainable. Except for a handful of companies located in predominantly urban zones, which have managed to attract capital investments from local and international actors, most local farmers — particularly those in rural communities — find it extremely difficult to penetrate the market.

SOPHISTICATED

These rural farmers, predominantly located in the Eastern Cape, KwaZuluNatal and Limpopo, have grown cannabis for decades but they are now being asked to find the financial and technical capacities to access and compete in sophisticated medical and hemp markets. They do not have the means to apply for exorbitant medical cannabis licences (which can cost up to R25,000 for a single application) and set up manufacturing facilities, which cost no less than R10m per facility).

Hemp operations are just as difficult to establish since, on the one hand, farmers are required to cultivate hemp cannabis at scale if they wish to make worthwhile profits, while, on the other, they are challenged by poor market linkages and a lack of processing capabilities. Without the necessary access to market and processing capabilities for beneficiation, hemp operations are a non-starter for rural farmers. Simply put, high barriers to entry exist for rural farmers in both the medical and the hemp markets.

The provincial departments of the Eastern Cape, Limpopo and KwaZuluNatal ought to be championing the full legalisation and commercialisation of the recreational cannabis market.

One thing that is well understood about investments (both local and foreign direct investment) is that they tend to skip rural zones and focus on urbanised areas, where professional enterprise is established and infrastructure and urban amenities provide for better incubation of investments.

In the absence of capital investment, cultivators in rural areas will find it increasingly difficult to tap into medical and hemp value chains. Yet indigenous knowledge systems, which include centuries of invaluable knowledge concerning cannabis cultivation in SA’s climate, mean these provinces are best suited to drive recreational market development in SA.

Given that cultivating cannabis for recreational use requires less capital investment to set up operations, this would provide a valuable entrance point for local cultivators into the wider cannabis market. The provinces concerned should therefore be lobbying national government for the creation of enabling commercialisation policies. Such policies must also provide clear market linkages enabling rural cultivators to effectively tap into the cannabis value chain.

The government needs to rethink its approach to recreational cannabis, with a clear view of adapting its cannabis development project to fit the specificities of the current market. It may need to investigate effective ways of bringing SA’s illicit recreational market into a sensible and forwardlooking regulatory regime, in ways similar to what it has done with alcohol and tobacco through laws such as the Liquor Bill and Tobacco Bill.

Key components of its thinking on the matter ought to include the complete legalisation and commercialisation of the recreational cannabis market through sensible, market-driven regulations. This should include policies on propagating material aimed at preserving local cannabis strains, cultivation, manufacturing and retail; increased investment and government funding directed at capacitating rural cultivation facilities; and improved banking access for local cultivators.

Government should also develop commercial cannabis centres where local cultivators can sell their cannabis; increase research & development initiatives with a focus on creating product diversity; improve education and awareness, particularly as it relates to youth access prevention; establish industrywide product quality standards; and create an effective and fair tax regime.