Africa’s budding cannabis market

A valuable market is emerging as countries across the world legalise cannabis for medical and recreational use. Shoshana Kedem reports on the opportunities for growers and investors in Africa.

Cannabis has been employed in traditional African herbal medicine since time immemorial. Today, much of the world is playing catch-up.

The multi-billion dollar global cannabis industry is booming as companies cite the benefits of medical marijuana for treating pain and inflammation and possibly even soothing mental illness and addictions. The global legal cannabis market could be worth $272bn by 2028, according to the 2018 European Consumer Staples Report from Barclays. 

With countries around the world legalising cannabis for medicinal and even recreational use, no continent is untouched by pro-marijuana reforms. Africa is no exception, as previously strict governments mull deregulation in a bid to diversify their economies and generate foreign exchange earnings.   

Illegal cultivation of the plant is a key source of income for impoverished rural areas of countries such as Morocco, and according to Dallas McMillan, founder and CEO of US firm Rhizo Sciences, Africa is the world’s biggest producer and consumer of cannabis. However, the continent’s legal industry is still in its early stages, lagging far behind its competitors in developed countries.

The industry has the potential to make $7.1bn annually by 2023, European-based cannabis market consultancy Prohibition Partners estimates in its latest Africa Cannabis Report, but a lot of work needs to be done if it is to realise its full potential.  

“Its a volatile industry at the moment,” says Eoin Keenan, a consultant at Prohibition Partners.

“But if African nations introduce pro-business legislation, enforce standards and create high-quality pharmaceutical products there’s no reason why Africa can’t be a major player in the global cannabis industry.”  

Pioneering potential  

Much of the world’s cannabis grown for medicinal use is cultivated in the Netherlands and Canada, but creating the right production climate requires plentiful energy and groundwater.   

Warm climates, rich soil, and a long history and expertise in agriculture mean parts of the continent have the potential to be pivotal markets for cultivation, say experts. 

Boosting the continent’s potential as a production hub are its low-cost land and labour with a vast horticultural skill-base. 

Experts believe South Africa has the potential to be the region’s largest medicinal cannabis market, with an estimated industry value of $667m. The wider region is seen as similarly promising.   

“As the market matures and we change the model and optimise how we create a more sustainable and economically viable industry, a lot of this cultivation is going to be outsourced to Africa,” says Keenan.

“There’s a huge value within that market in the long term as Western or North American and European companies look to outsource their cultivation model. There’s going to be a race to the bottom in cultivation as people try to cut costs. Lesotho, Zimbabwe and South Africa are beginning to compete.” 

Yet, despite the domestic popularity of cannabis – 13.2% of the continent’s population are estimated to use it – and Africa’s potential as a major exporter, the drug is still illegal in most African countries.

South Africa, Zimbabwe and Lesotho are the exceptions, having legalised cultivation of medical marijuana. Their governments are also continuing efforts to unlock the potential of their cannabis markets by laying the legal and regulatory groundwork for the sale, transport, manufacture, processing and export of a range of marijuana products. 

In 2017 Lesotho became the first country on the continent to legalise cannabis for medicinal use and export. 

The rich, high-altitude soil of the mountainous kingdom makes it fertile ground for cultivation of organic cannabis. 

Last year South Africa decriminalised the use and cultivation of cannabis. The sale of regulated marijuana “health products” was legalised in South Africa this year, but the country’s Health Products Regulatory Authority (SAHPRA) will approve a broader range of products in line with the new laws within 15 months. 

In Eswatini, known for its “Swazi Gold” cannabis strain, a law to regulate commercial production for medicinal and scientific purposes is set to pass through parliament in August or September this year, according to the Cannabis Law Report. Meanwhile Zimbabwe made it legal to produce marijuana for medicinal and scientific purposes in 2018, and plans for the country’s first cannabis farm and production plant were approved in March. 

However, while some countries are making progress, regulation on production, legislation and exporting to key international markets remains patchy, Keenan explains.  

“There’s a lot of investors waiting to pump capital into the African market, but operators need to demonstrate an ability to produce high-quality domestic cannabis before capitalising on international exports.”   

In Uganda, where use is punishable with up to five years in prison, laws regulating the industry are being drawn up as around 20 companies wait on the sidelines for growing licences, the Ugandan Ministry of Health said in April. 

Foreign investors crowd in  

Several big US and Canadian firms have already established a commercial footprint on the continent. In 2017 US firm Rhizo Sciences partnered with Africa’s first and largest licensed medical cannabis producer, Medi Kingdom, to build a $45m medical cannabis export facility in Lesotho. The plant, which has 35,000sq metres of climate-controlled greenhouses and a pharmaceutical grade extraction and manufacturing plant, can generate 35,000kg of cannabis flower annually, worth $150m to $200m a year.  

“This new production and processing centre will make Medi Kingdom the largest medical cannabis producer in the Eastern Hemisphere, and enable us to export cannabis flower, oil and products to all legal medicinal cannabis markets including Canada, Germany, the UK and Australia” said James Mather, Medi Kingdom’s CEO, at the time of the deal.  

Although Rhizo Sciences parted company with Medi Kingdom in 2018, CEO Dallas McMillan told African Business that the firm has gone on to advise US and African companies and governments in Lesotho, Zimbabwe, South Africa and Malawi on issues such as compliant manufacturing, licence procurement and setting up national regulations to clarify operating frameworks in export markets.

He explains that while governments are keen to move forward with reforms to enable local producers, in many cases they are not sure how to do so.  

Obstacles local and international champions face include access to power, a general lack of industrial infrastructure and expertise, says McMillan.

While the continent has substantial agricultural infrastructure, very few local operators have the capacity to produce extractions from plant materials, or the water and irrigation infrastructure to support mass scale operations in such a capital-intensive industry. 

“It’s a very new market and hard to develop projects at various stages because there’s other parts of the supply chain that still need to develop,” says McMillan.

“It’s a very small market that’s growing very quickly. The oldest companies in Africa are only two to three years old.

“In Canada it takes three years to launch a facility from getting a licence to selling and realising revenue. But in Africa it takes twice as long.”

A further problem is that industrial-scale agriculture threatens to exclude the smallholder farmers who predominate across the continent. With a growing permit in Lesotho costing $37,000, they can find themselves locked out of legal cultivation activities.  

Growth opportunities  

As the continent works to unlock its potential, Keenan says the winners will be those who consolidate market share by setting up infrastructure at every stage in the supply chain – a process that looks well suited to established global players.   

“As in beer, the people who are making the big money aren’t those who are owning the hop farms, it’s those owning the data, the supply chain and the brand.

“Cannabis companies who think about their sales models and understanding customers and gathering data, building an infrastructure to supply nations in a safe and reliable way, they are the ones who are likely to succeed.”  

With African businesses playing catch-up in a global market, it’s “an absolute necessity” that legislators and regulators develop a framework to ensure that local governments and companies support, develop and encourage local producers and processors, Keenan says.

While Zimbabwe prioritises local licensees, commercial growth requires a $50,000 licence fee, locking out poor farmers.  

“We want to create and promote local sustainable cannabis economies that aren’t just monopolised or dominated by foreign interests. It’s a fine balancing act because these international companies that have been growing cannabis in the Netherlands and North America for decades bring a level of expertise and intelligence, and they understand the standards and regulation of a new industry, and that’s incredibly valuable.

“It’s something that regulators and legislators really need to consider when writing those policies about who gets awarded those licences, and how we invest government resources and capital into a cannabis industry that really benefits local people.”