Cannabusiness in South-Africa is Worth Billions

The socioeconomic effect of legalising marijuana in SA would lead to lower government expenditure on law enforcement coupled with increased tax revenue.
Dec 20, 2016

A stop at a Dutch coffee shop has for long been on many a tourist’s bucket list — less for the coffee than the opportunity to buy and smoke weed legally.

In Cambodia, many tourists pop into a “happy restaurant” to sample cuisine cooked with the herb. More recently, a weekend of gardening in Alaska might involve tending to six weed plants in your own home. A fun craft activity in Colorado could be a joint-rolling class or, to really relax, a deep-tissue marijuana massage.

A fine-dining experience in California now includes having a private herbal chef cater for your party for a truly magical — and presumably insatiable — culinary experience.

Less than 100 years after the criminalisation of cannabis globally, the prospects for “cannabusiness” are fast-changing as an increasing number of countries, including South Africa, have begun to relax laws controlling its medical or recreational use. Investors cannot seem to pile in quickly enough.

In the United States, alongside the presidential elections that saw Donald Trump’s surprise victory, four states — Maine, Massachusetts, Nevada and California — voted to legalise the recreational use of cannabis, joining four other states. In Montana, North Dakota, Florida and Arkansas, the electorates voted in favour of legalising it for medical use, joining 16 other states.

But its use remains illegal under US federal law, meaning it can be difficult for those in the industry to transact through banks, which must comply with federal law, or to rent commercial premises from landlords paying off loans to the banks. Even so, according to a study by the Arcview research group, the legal marijuana industry in those states is expected to grow from $5.7-billion in 2015 to $7.1-billion in 2016. Legal market sales are expected to surpass $22-billion by 2020.

In Canada, where cannabis is expected to be legalised at a national level by as early as next year, company stocks have soared — so much so that it has sparked widespread concerns about a stock market bubble, akin to that of the dotcom craze, when the highly anticipated tech boom failed to live up to investor expectations and company share prices crashed.

This week, the highly anticipated recommendations of a task force looking at the legalisation of cannabis in Canada was at last publicly released, which pushed the pot stocks even higher.

In South Africa, there has been some progressive movement to allow easier access to cannabis — or dagga if you’re South African — for medical use, something the department of health claims could be in place as early as next year.

Two years of deliberations, investigation and research was prompted by the Medical Innovation Bill, which was brought before Parliament by the Inkatha Freedom Party’s (IFP) late Mario Ambrosini, an MP who was battling with terminal cancer. His crusade was to make affordable and innovative cannabis treatment accessible to all South Africans. The IFP credits the Bill for spurring the government into action.

On November 23 this year, the department of health told the parliamentary portfolio committee it is going to introduce regulations that will make cannabis available to patients with some medical conditions and will also issue some licences for the herb to be grown.

These regulations will be released for stakeholder comment by the end of January and could be implemented as early as April next year.

“We hope that through this the South African public will not be solely beholden to Western medicine and its associated astronomic costs, but have a viable alternative medicine that is just as, or more, efficacious than its Western treatment counterpart,” Narend Singh, the chief whip of the IFP said.

The party also hoped that, because of the Bill, South Africa will be able to conduct more research and develop viable, innovative, efficacious and cost-effective medicinal alternatives that all South Africans can afford, Singh said.

Medicinal cannabis will also open up economic opportunities for those issued with growers’ licences, he said. “At this stage we do not know how many licences will be issued or upon what basis they will be issued.

“It will also open up research opportunities for local pharmaceutical manufacturers and allow for greater medical research and innovation to take place at our universities,” he said.

Once the regulations come into effect, Singh said, patients will be able to source cannabis directly from the department through its preferred supplier base.

Singh stressed that “it is most emphatically not a Bill that seeks to decriminalise recreational use of cannabis”.

Julian Stobbs, the director of social activism for the nonprofit organisation Fields of Green for All and one half of the so-called Dagga Couple, said: “The economic implications are absolutely astronomical if you look at what is going on in the rest of the world.”


The socioeconomic effect of legalising marijuana in South Africa would lead to lower government expenditure on law enforcement coupled with increased tax revenue, according to a thesis by Vladislav Lakcevic, an analytical strategy development professional who specialises in economic studies in Africa.

He submitted a research report on the subject as part of his MBA to the University of Cape Town’s Graduate School of Business in December last year. It joins a small volume of locally focused research material on the topic.

Lakcevic’s research shows that, despite actively enforced prohibition, South Africa is a major producer and global supplier of cannabis. The United Nations Office on Drugs and Crime estimates up to 9.1% of the South African population use cannabis. Tax revenue would be a key benefit of legalising it, Lakcevic argued.

In Colorado, for example, tax and licence-fee revenue from marijuana grew from $46-million in the second half of 2014 to $74-million in 2015, according to ArcView. A federal tax of $23 a pound (0.45kg) of marijuana, similar to the federal tax on tobacco, could generate $500-million a year, as estimated in May this year, the US Tax Foundation said. Alternatively, a 10% sales surtax could generate $5.3-billion a year.

Besides the economic potential of medical and recreational cannabis, there is also the production of hemp, according to Lakcevic.

Local commercial production of hemp is not allowed by law but industrial cannabis or hemp can be used in the production of 25 000 consumer products and “is as competitive, if not more so (once environmental considerations are taken into account), than many incumbent raw materials used in paper production, textiles and petrochemicals”, Lakcevic wrote. And many parts of South Africa are likely to favour the cultivation of hemp.

The cost of enforcement should be weighed up. Extrapolating from existing documentation, Lakcevic’s research concludes the national cost of enforcement pertaining to drug-related crime was about R2.6-billion in 2013, and the value of drugs seized was about R117-million.

Quintin van Kerken of the Anti-drug Alliance of South Africa, using government statistics from Operation Fiela in 2015, has calculated that, on average, for each drug dealer arrested, 36 users were arrested. About 60kg of the total 97kg of the drugs retrieved was dagga. The immediate and long-term cost of the war on drugs in 2014-2015 was an estimated R6.74-billion, with about half of that related to dagga users. R3.5-billion, Van Kerken points out, is equivalent to building 63 500 RDP houses.

Stobbs said, although a positive aspect of the Medical Innovation Bill was that it raised the issue of legalising marijuana at a parliamentary level, the Bill itself was problematic.

“If you read through the Medical Innovation Bill line by line, there is hardly mention of cannabis,” he said. “The plant is described as ‘cannabinoid medication’ and the department of health wants scientists in white coats to produce the medicine. They are turning it into the rocket science that it isn’t.

“You don’t have to look far to find an expert … and they have already got patients who have been cured for years. But I haven’t met one yet which has a white coat on,” said Stobbs.

Stobbs said the concern was that this approach would mean the treatment would not get to the people who need it. It also excluded those who wanted to use cannabis recreationally.

Next year the Dagga Couple will take a case, which they have dubbed the “trial of the plant”, to court to seek the full legalisation of the cannabis plant, with a view to going all the way to the Constitutional Court. If the court finds it is a human right to have access to cannabis, the government will have 24 months in which to change the law, said Stobbs.

And, if that happens, the price of dagga and the quality will change drastically.

According to the Tax Foundation, although taxes are likely to push the price up, it will be more than balanced out by the price drop that would come with lower risk. Those currently involved in the marijuana trade require a higher return than the rest of the economy because of the high risk they face. Anecdotal estimates suggest that profit margins need to be 100% and can be as high as 1 000%, the Tax Foundation says on its website.

“Legalising marijuana will drastically reduce the risk involved in producing marijuana, which reduces the required return to engage in the activity.”

It adds that the lower risk should increase the entrance of new entrepreneurs in the market, which increases supply and forces down prices.

Stobbs agreed that, if legalised in South Africa, the price of cannabis is likely to drop, as it did in Colorado, where it dropped 25% across the board, he said.

The quality will also have to improve. “We know specific things, treat specific things, but right now, you are in the lap of the gods; the dealer doesn’t give it shit,” he said.

“That is the main reason we are doing this. To rip the lungs out of the black market.”

Breaking bad for a greater good

Johannesburg-based Gavin Liddiard (not his real name) started producing cannabis oil for medical use more than five years ago.

“We haven’t really done it as a business; it’s more a social good,” said Liddiard, noting he and his associates had started charging only those who can afford it for the product.

He is convinced of its healing effects. “I can’t say we have cured a cancer patient but we kind of have. From helping people sleep to helping restless legs, pain relief to managing epilepsy, to helping with skin cancer [the product is applied directly to the skin] …”

Because cannabinoid treatment works identically on the brains and nervous systems of all mammals, people are also beginning to use cannabis oil on their pets. One recipient of Liddiard’s product is a dog with a brain tumour.

He said he and others were watching very closely developments to make cannabis available for medical use. “We have been chatting to guys who know the right people and trying to set up a company. But, if we pitch, we don’t know yet who we pitch to.

“We don’t know if government will give out tenders,” he said.

“Essentially they will need to do medical trials … [so] the government is going to be importing it for the first few months, I’m sure.”

Liddiard said it is estimated that there are about 150 suppliers of cannabis oil on the market, although the quality is often substandard.

The strains of cannabis used are very important, he said. “If you are using something with very low THC [tetrahydrocannabinol] levels, you won’t get the proper medicinal effects. The main cannabinoids [chemical compounds that activate specific receptors in the immune system] are CBD [cannabidiol] and THC. Those are vital in the healing process,” Liddiard explained.

Furthermore, how the product is made affects whether it will have the maximum health benefits.

“We use a solvent to extract the oil from the plant … some people are using toxic solvents.

“From there it needs to be boiled out and so, if it’s left behind in the product, it can be really bad for you.”

Buying the product on the street can be expensive and sources in Johannesburg estimate it costs anything from R600 for a 10ml bottle of oil, small drops of which are applied directly to the tongue. — Lisa Steyn

Be sure to ask for muthi marijuana

It’s a little-known fact that marijuana can already be used for medical purposes in South Africa under certain circumstances.

The Medicines and Related Substances Act of 1965 allows medical practitioners to apply to the Medicines Control Council for permission to access and prescribe unregistered medicines, including marijuana.

“Authorisation from council is dependent on the submission of an appropriate dosage regimen and acceptable justification for the proposed and intended use,” the council said in a recent press release. “The necessary procedures for approval of the importation of suitable cannabis products for medicinal use by patients with defined medical conditions are already in place.”

Inkatha Freedom Party’s Narend Singh said, according to the party’s research since 1965, only three applications to the department of health for the use of medicinal marijuana were recorded.

The council said none had ever been approved.

“The process appeared to be cumbersome and definitely not easy to navigate for the medical patient who wanted access to medicinal cannabis or any other innovative medical treatment protocol,” Singh said.

If permission were obtained, the medicine can be sourced from a supplier in the Netherlands or Israel recognised by the department.

Julian Stobbs, of the nonprofit organisation Fields of Green for All, said marijuana legalisation activists — people from all walks of life — had bombarded the Medicines Control Council with hundreds of section 21 applications “just to see”.

“It’s protocol that won’t actually get anywhere,” he said. “They [the MCC] told us tele-phonically they would not give you it unless there’s no Western medicine available to treat your condition.” — Lisa Steyn

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