3 Things to Know About the Cannabis Market in Africa
New Frontier Data published the Africa Regional Hemp & Cannabis Report this week, and the 83-page document reveals much about the accelerated activity on the continent in recent years. With a rapidly growing population and “soaring” infrastructure investment, according to New Frontier, the opportunities for cannabis seem boundless.
In 2018, the report states, Africa accounted for approximately 11 percent of the global market value of illicit cannabis. With regulatory reform unfolding around the world, leading African countries (like Nigeria, Ethiopia, Morocco and South Africa) have a chance to capitalize on that demand and put enticing market guardrails into action.
The sheer size of the African consumer base is a good starting point for a conversation about how cannabis will affect the continent.
All told, 32 percent of the world’s cannabis consumers live in Africa.
“Lesotho was the first African country to establish a legal market; the government began granting medical cannabis cultivation licenses in 2017 and issued regulations the following year,” according to the report. “Zimbabwe followed suit, legalizing cannabis for medical and research purposes in April 2018.”
South Africa’s Supreme Court legalized cannabis in the fall of 2018, but a regulated market remains elusive.
Here are three things to know about cannabis in Africa.
Regulations vary, and local navigation is key.
“Attracting foreign investment in the industry will not be a challenge, but stakeholders must carefully consider the nature and extent of foreign participation in the industry,” the report states.
As M&A trends pick up across the international marketplace, Africa has seen a number of high-profile cannabis companies acquiring cultivation facilities or greenhouse space on the continent. In late March, Stem Holdings continued building its own portfolio of cannabis acquisitions by executive a definitive agreement with South African Ventures Inc., which holds “preliminary approval to become the only licensed growing farm and processing plant for medical cannabis and industrial hemp in the Kingdom of eSwatini” (formerly known as Swaziland), according to a Stem Holdings press release.
By working with South African Ventures, Stem Holdings will have access to secured water rights, electricity and banking on the ground in eSwatini—showing the value of local personnel in international M&A transactions.
“Every market will be different,” according to New Frontier, “but some common challenges may include intermittent power and internet connectivity, limited access to water, high energy costs, high gasoline prices and fuel shortages (particularly in Zimbabwe), and poor infrastructure.”
Economic development is the narrative in Africa.
Much in the way that cannabis regulators in the U.S. are carrying out their duties in the name of job creation and social equity, a lot of the cannabis market in Africa will need to focus on economic development. “While many impoverished workers lack the skills and opportunity to increase their standards of living, cannabis cultivation can provide many jobs to low-skilled workers, including in roles related to cultivation and biomass processing,” the report states. “A legalized cannabis industry can likewise attract foreign direct investment, catalyze infrastructural development, facilitate skills transfer, or introduce technology to enable manufacture of higher-value goods.”
International investors, then, will be important partners in local efforts to construct industry infrastructure. Without a benefit to the local community, regulators will remain uneasy with foreign investment; cannabis is at least partially an avenue toward real economic development in regions that could thrive with access to outside capital.
“Public/private partnerships can be formed to share costs,” New Frontier’s authors point out.
Consider the value chain.
New Frontier Data goes to great lengths to underscore Africa’s role in other commoditized and internationally traded crops. Where the continent provides the vast majority of the world’s cocoa beans, coffee and tea, for instance, its economies receive only a sliver of the respective global market values of those crops. Africa produces 70 percent of the world’s cocoa beans, and yet its export value is but 6.5 percent of the total global market.
Now is the time to consider how cannabis (and hemp) will fit into that math.
“An alternative to accepting foreign investment toward establishing large, wholly internationally owned, vertically integrated operations is to establish local partnership requirements for international owners or investors,” New Frontier’s report states. “Another alternative would be the creation of cultivation cooperatives where small subsistence farmers can feed their harvests into a central hub that conducts testing, processing, and other steps which farmers may not be equipped to do themselves.”
It is through worker-driven responsibility and local control that the value of African cannabis crops can be retained by the communities that are growing the plant. There’s a long history of colonial labor extraction, and modern industrial trends still have an opportunity to move away from that relationship with Africa. “Center on producer empowerment and community benefit-sharing through more equitable terms of trade,” the report suggests. “In this model, producers are not just seen as providers of raw materials but as value creators.”