Cannabis: an African green gold rush
The medical uses of the molecules extracted from this plant are also fuelling the craze. THC (tetrahydrocannabinol), with its psychotropic effects, and CBD (cannabidiol), with its relaxing properties, are widely recognized for their action in the treatment of pain, loss of appetite, migraines, insomnia… you name it.
Manufacturers immediately exploited this radical reimaging of cannabis by integrating CBD into cosmetic and food products.
At the forefront of this movement, Constellation Brands, manufacturer of Corona beer, invested more than $4 billion to take a 38% stake in Canopy Growth last year. Although the Alcohol giant said it expects to report a $54.3 million loss in the current quarter due to its stake in the cannabis producer. The CEO of Canopy Growth was also dismissed during this period due to under performance and over capitalization on acquisitions such as its Lesotho operation.
Heineken has launched a cannabis-based soft drink in California and now intends to do the same in Canada, where brewer Molson Coors has also planned to market cannabis waters by December.
While the speculative bubble has partly deflated, the markets all these companies are exploring remains promising.
It is estimated at $150bn worldwide and could reach, according to Barclays, $272bn by 2028. Colombia, Uruguay, Thailand, and Israel, to name but a few countries, have changed their legislation to allow cannabis use, particularly medical, thus opening up new markets.
Africa, a potential market of $7.1bn by 2023
The main actors in this sector are well aware of Africa’s potential. Lesotho, Zimbabwe, and South Africa are part of this new movement. According to Prohibition Partners, this sector — if legalised — could represent a market worth $7.1 billion in 2023 for the continent, including nearly $1 billion for the Moroccan kingdom alone, the world’s largest producer of cannabis resin.
“The assessment of the Moroccan situation is very optimistic, as it is unlikely that the law will evolve so quickly,” says Khalid Tinasti, Executive Secretary of the Global Commission on Drug Policy.
Anthropologist Khalid Mouna says the debate on the legalization of cannabis, a new global green gold, while “not taboo”, insists, remains blocked in Morocco. No government wants to be the one to move this culture, practised in the Rif since the 6th century, to the right side of the law.
“Political parties like the WFP or Istiqal use this issue in an opportunistic way, but nothing really moves, and the government is afraid to give a platform to the Islamists of the PJD, because it would have to find a religious justification for this advance,” he says.
However, about 50,000 ha of cannabis are reportedly cultivated, mainly around the town of Chefchaouen, providing a more or less direct livelihood for 800,000 Moroccans. The Tangier-Tetouan-Al Hoceima Council voted in June to fund a study on cannabis cultivation, but this will not be enough to move the country forward, according to the experts interviewed.
“In 2010, the Royal Gendarmerie had already conducted a study on hemp cultivation, but this time using fibre [i.e. very low in psychotropic substances], insisting on its potential. For what progress?” noted disillusioned activist Chakib el-Khayari, organizer of a parliamentary study day on cannabis at the end of 2013.
Under these conditions, no industrial company dares to openly express its interest in this sector.
“It will be like Islamic finance. When the market opens, we will have dozens of projects,” predicts Khalid Mouna. “We are also paying for the legacy of colonization. Just look at the delay in France. Anglo-Saxon countries are more progressive on these issues.”
Indeed, it is in southern Africa that the most important advances in the development of the cannabis industry are to be found. A pioneer in this field, Lesotho, led by King Letsie III, adopted legislation in 2008 making it possible to grow, process, and export matekoane (“cannabis” in Sotho) for medical use. Like Morocco, the cannabis trade, although illegal, has been part of the habits of this small country of 2 million inhabitants since the 16th century, and trafficking to neighbouring South Africa constitutes an essential additional income for many farmers.
Lesotho, the promised land for international investors
In May 2017, the Lesotho government granted the first licence to Medi Kingdom, having already authorised for research work in February, ushering in a new era for this culture. Since then, Lesotho has become, in just over two years, a key destination for international investors.
Today, the country boasts several heavyweights listed on the Toronto Stock Exchange.
- In June 2018, the giant Canopy Growth, with €6.4 billion in capitalization, announced the acquisition for approximately $28.8 million for the license and activities of the Highlands company, founded by South African Jody Aufrichtig.
- A few weeks earlier, Aphria, with a capitalization of €1 billion, created a joint venture with Verve Dynamics, also a licensee in exchange for a cheque of €2.7 million.
- In 2018, Canadian Supreme Cannabis, with a capitalization of nearly $200 million, acquired 10% of the local company Medigrow for $10 million.
“This is a huge opportunity for a small country like ours. We currently have about ten operational companies in the territory, which employ 3,000 people,” explained Manthabiseng Phohleli, Deputy Minister of Health at AFP in September.
The creation of 30,000 jobs expected by 2022
“Low labour costs and the climate [300 days of sunshine per year, low humidity and a low-polluted environment] are all arguments for the companies that invest,” says journalist Aurélien Bernard. To this must be added benevolent tax legislation for foreign investors. By 2022, the government, which has already granted 70 licences (sold for $30,000 and renewable annually), hopes to create 30,000 jobs.
As proof of the importance attached to this new sector, the King personally attend the inauguration of the Verve facilities at the beginning of August. The planting takes place in greenhouses where all employees wear gowns, masks, and gloves to avoid external contamination.
“These are almost clean rooms, where the environment is almost 100% controlled. This is essential to obtain export authorizations to Canada, the United States, Europe or Australia,” explained consultant Benjamin-Alexandre Jeanroy.
Lesotho has taken up the challenge to see this sector, which is currently only export-oriented, prosper. Local marketing, including for medical use, however, is not yet provided for by law.
These requirements make it very difficult for local entrepreneurs to access the market, condemning all small farmers to remain illegal. Thanks to Canadian Supreme, Medigrow has been able to invest €17.4 million in its site, which currently has 18 greenhouses (5,000 sq m).
The company hopes to produce 1,000 litres of CBD oil, sold between €5,400 and €19,000 per litre. Eventually, its leaders plan a park of 200 greenhouses in the well named “kingdom of heaven”.
While Canopy, faced with investor pressure, has announced that it will stop acquisitions, others are continuing the trend. This year, the US-based Halo Labs formalized its intention to integrate the activities of Bophelo Bioscience & Wellness, which, on 5 ha, plans to produce five tons of cannabis, representing an estimated turnover of about $46 million.
The first harvest is expected in the second quarter of 2020.
An alternative to tobacco growing
However, Lesotho may not retain the exclusivity of this new sector for long. At the beginning of September, Zimbabwe inaugurated the country’s first hemp plantation. And since the late Mugabe’s homeland is not a contradiction in terms, it is within the prison that the country’s first legal plants are grown.
The project is led by a young dentist, Zorodzai Maroveke, known to have campaigned for legislative change in recent years. The cultivated plants will be used for their fibres. Hemp, low in THC, can be used to make building materials, clothing, paper, and even batteries, according to researchers at Clarkson University in New York.
For Zimbabwe, cannabis production could eventually represent “an alternative to tobacco”, one of the country’s main sources of foreign exchange, but whose consumption is declining, says Information Minister Monica Mutsvangwa. In addition to hemp, Harare also reportedly approved in March the award of 37 licences worth $50,000 to develop the production of cannabis for medical use.
According to the Prohibition Partners report, all projects must in turn include a local shareholder. In September 2018, the British company Nircam revealed that it had obtained the first licence authorising industrial cultivation for therapeutic purposes.
She did not confirm the continuation of the project, but for which she said Nircam had set aside $10 million.
As with all fast-growing innovative sectors, cannabis, with its promise of quick money, is a breeding ground for speculators and adventurers. The consultant Nathan Emery also notes the predatory nature of elites close to power.
In Lesotho, the Centre for Investigative Journalism revealed in August that two officials of the Ministry of Health, including one director, had, in addition to their official positions, accepted executive positions with the British company, AfriAg Global. The company, which holds a licence in Lesotho, also brought in controversial businessman Paul de Robillard, who was accused of being involved in tobacco trafficking in South Africa some ten years ago.
Beyond governance issues, Nathan Emery believes that African producers will have difficulty differentiating themselves in the cannabis oil segment despite promises of low-cost production.
“Greenhouse cultivation will remain expensive, and no one yet knows the size of the global market. Aurora Cannabis ($3.6 billion in capitalization) is currently selling at a loss because it is overproducing. In Lesotho, several companies including Medigrow announced that they have won contracts in Canada and Australia. This is unverifiable but serves mainly to reassure the financial markets,” says the consultant.
Emery argues for the development of an African market supplied from open-air plantations, “but structuring these markets will take time, except perhaps in South Africa”. The Rainbow Nation and its 57 million inhabitants therefore appears as the market not to be missed. By 2023, the liberalization of uses (recreational and medical) could generate local revenues of $1.8 billion, according to Prohibition Partners.
In 2018, the country’s Supreme Court made a significant impact by authorizing the production and recreational consumption of cannabis. Manufacturers in turn are waiting for legislation to evolve.
To advance their interests, heavyweights in the sector such as Canopy do not hesitate to lobby ANC members intensely; the ecosystem is developing, with several law firms, such as Schindlers and Bowmans, offering their services to investors. Within 18 or 24 months, the law could evolve in their favour, Emery said in March.
Since then, four companies, including the American Leafs Botanicals and South Africans Felbridge and House of Hemp (in partnership with Afriplex), have received licences to grow cannabis for medical use, but they still do not have the authorization to manufacture products (oil, tablets) from their plantations. They can do so from imported raw materials. Today, only sellers of seeds, growing materials, and brewers — by offering beers brewed with CBD — are benefiting from this new enthusiasm.
Johannesburg Stock Exchange hit by cannabis fever
As in Lesotho, Canadian groups are in the starting blocks. Spectrum Therapeutics, a subsidiary of Canopy Growth, signed an agreement in June with the city of Cape Town to establish a 12-hectare facility in the Atlantis economic zone. The company plans to invest €38.5 million to grow and process cannabis.
The Johannesburg Stock Exchange has been caught up in the cannabis fever. The listed Labat Group announced in September the acquisition of Knuckle Genetic, which produces cannabis oil and flowers in Lesotho, as well as a pharmaceutical plant in South Africa to manufacture CBD-based products.
Other countries, such as Zambia, whose law allows cultivation for medical use, but which has not granted a licence, and Kenya and Uganda, where the debate on legalisation is open, should participate in the development of the sector. Further north, the states are still reluctant.
But progressive ideas sometimes flourish where they are least expected. In early October, the press reported that the African Seeds group, whose promoters remain anonymous, received in 2017 and 2018 permission from the Malian Ministry of Safety to grow hemp in the country under a 2001 law.
In Canada, after creating the cap in October 2018, after recreational cannabis was legalized, and until March, the Horizons Marijuana Life Sciences Index, which combines North American values and serves as a thermometer for the sector, lost half its value in six months.
This was due to disappointing sales from the slow development of distribution channels, and manufacturers citing regulatory barriers. In this context, the expansion into new markets, including Africa, allows Canopy, Supreme, Aphria and others to reassure their investors, even if their added value remains uncertain at this stage.
This article first appeared in Jeune Afrique.