Lessons from Africa: High time for South Africa to refine its cannabis licensing mechanism

Lessons from Africa: High time for South Africa to refine its cannabis licensing mechanism

Essay by Professor Mzukisi Qobo[1] and Wandile Sihlobo[2]

A spectre of cannabis is hovering above Africa. The boom is on the horizon and for some countries, it will be a slow burn.

A number of countries in Africa have in the recent past reformed their cannabis regulations – moving it away from being a prohibited drug to a source of income as an exportable commodity. This is motivated by the promise of riches, with many policymakers viewing the burgeoning cannabis industry as offering prospects for boosting rural economic growth and job creation.

It is thus not surprising that reforms in the regulatory regime have been championed mostly by politicians and lawmakers. This is in contrast to trends in advanced industrial economies such as Canada, the US, Germany, and Italy where citizens and private businesses have been the leading advocates for decriminalisation and legalisation of cannabis and its products. The large users of cannabis by value are in advanced industrial economies. They consume the product for medical, recreational and industrial purposes. Moreover, demographics play a part as many Western countries have ageing populations who often require medical attention.

A number of African countries are finalising their cannabis regulatory reforms, and global output may rise. Lesotho was the first African country to decriminalise cannabis in 2017, and the first licence for production was issued in 2018. The ministry of health is the licensing authority. Applicants are vetted through the Lesotho Narcotics Control Board. The licensee has to meet a number of requirements, including access to land and commitment from off-takers, so as to curb diversion to illicit markets. The process can take up to six months.

The fee to obtain a single licence in Lesotho is equivalent to R540,000, which is a steep amount for smallholder farmers. The licence has to be renewed annually at R130,000. This poses a risk of deepening socio-economic stratification, with Lesotho’s cannabis sector likely to be dominated by big players, and smaller producers pushed to the shadows of illegality. Since Lesotho’s output is mainly for export, the country may not develop a thriving sector across the value chain.

Zimbabwe issued its first cannabis licence in March 2019. Export markets and foreign exchange earnings are the key drivers for cannabis regulatory reforms in Zimbabwe. The licensing regime in Zimbabwe has changed a few times in the past year. The licence was initially set at R700,000 ($50,000), and there were suggestions that this could be revised downwards to R140,000, which will still be prohibitively high in view of Zimbabwe’s tough socio-economic conditions.

At the time of writing, only one medical cannabis project had been approved, Precision Cannabis Therapeutics, with more than 37 licences still under consideration. Skewed moral concerns raised by communities and religious leaders have undermined progress in the licensing process. Further, the uptake by Zimbabweans has been low due to the expensive licensing regime and ambiguities about how to obtain licences.

Other countries like Eswatini (formerly Swaziland) have also put in place a draft bill regulating cannabis. Similarly to Zimbabwe, cannabis production in Eswatini is restricted to medicinal purposes and scientific research. Decriminalisation has been actively championed by the Minister of Commerce, Industry and Trade, Manqoba Khumalo, who sees this as an avenue for economic development.

The licence is valid for five years and can be renewed. Licences are approved at ministerial level in the department of health, with applicants having to meet 13 requirements. The proposed licence fee is prohibitively high at the equivalent of R1-million. So far, only one company has been granted a licence, Profile Solutions Inc from Florida, and this is for a minimum of 10 years to produce hemp and medical-grade cannabis.

Malawi has moved glacially in putting in place its own licensing regime. The factors influencing a shift towards decriminalisation are similar to those of other African countries: to diversify foreign exchange earnings in response to depressed prices for other commodities and to create jobs. Malawi’s tobacco economy has come under pressure as a global shift away from cigarette smoking in developed countries intensifies as a result of regulation and health concerns.

Although parliament has given the go-ahead for the drafting of the Medicinal Cannabis Cultivation Bill, encompassing industrial and medical hemp, progress has been extremely slow, in part due to elaborate consultative processes and technicalities related to distinguishing the banned Indian hemp from medicinal cannabis. Malawi has a thriving hemp association that lobbies strongly for decriminalisation.

In short, many African countries are gradually considering decriminalising the cultivation of cannabis for medical and scientific purposes. Those countries where reforms are in motion are using the Canadian code as a guide in developing their licensing regimes. For many of them, the major motivating factor will be foreign exchange earnings to diversify their income. Broadening their tax base is another important consideration. However, constituencies championing decriminalisation are either non-existent or outnumbered by religious and other conservative groups.

Unlike in many other African countries, South Africa has a diverse consumer base for cannabis. This includes Rastafarians, ordinary users, and medical patients who have been at the forefront of lobbying for legalisation. Data from New Frontier suggests South Africa has a market of $1.2-billion of cannabis and its products as of 2018. Apart from low-income consumers, South Africa has a potential market at the high-end for products such as edibles, cannabis-infused beverages, nutritional foods, textiles, topical lotions, essential oils, and medical cannabis.

South Africa can draw important lessons from the nascent cannabis regulatory regime on the continent. The first is that the country should take a value chain approach and emphasise economic inclusion. This means the licence fee should not be prohibitive.

Take the example of Lesotho where a licence is R540,000. For communities in fertile areas such as Lusikisiki in the Eastern Cape, this means a farmer would need to sell 54 head of cattle to obtain just one licence if we were to follow the Lesotho example. This does not take into account the capital expenditure on constructing greenhouse tunnels, water systems, energy, storage, and security measures. High licensing fees can be anti-development.

Second, South Africa should have a very clear and sound licensing regime with a single authority that can make a determination between the various types of licences, such as for scientific and medicinal use, dispensary, and industrial hemp production. This would mean a recognition of cannabis as an agricultural crop through rescheduling, as well as a key ingredient for medical uses. The licensing process should take less than a month since longer periods undermine the ease of doing business.

Third, South Africa should avoid being trapped in primary production. The policy should aim to enrich the value chain, including R&D, seed breeding, and biotechnology on the medicinal side; as well as supporting the production of high-value products on the industrial hemp side to improve niche-based competitiveness in the clothing and textiles sector in line with the country’s industrial policy. This could lead to positive spill-overs in knowledge upgrading, and help stimulate job creation across the value chain.

Finally, this sector offers an opportunity for the government to create a unique suite of incentives to promote the participation of black players in this sector, and to uplift smallholder farmers and rural communities. In addition to labour-intensive jobs, new opportunities could be created for agronomists, master growers, lab scientists, compliance officers, as well as give rise to side-stream jobs in branding, packaging, and logistics and transport.

It is important that South Africa has a simple, clear, and predictable licensing regime that is aimed at promoting economic growth, competitiveness, and economic inclusion. For the country to reap benefits, speed and purposeful action will be critical.

[1] Mzukisi Qobo is Associate Professor: International Business & Strategy, Wits Business School.

[2] Wandile Sihlobo is Chief Economist at the Agricultural Business Chamber of SA (Agbiz).

*Written for and first published on the Daily Maverick on 28 July 2019.

Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Pin It on Pinterest