South Africa has a long history of producing some of the world’s best weed and with the first cultivation license for medicinal cannabis being awarded to House of Hemp in March 2019, this means SA is gearing up to play in the growing legal global market for cannabis.
But what is the cannabis market all about and how does one get a piece of the action?
Firstly, there are 2 cannabis market segments – medicinal and recreational.
Medicinal cannabis has been in the market for a number of years, almost everyone has an aunt, uncle, parent, cousin or friend who has used cannabis to ease pain and reduce nausea suffered from cancer treatment. As medicinal cannabis use becomes more widely legalised internationally, this market is growing and supply can’t keep up with demand.
Then come in Canada, the first industrialised country to legalise recreational [to get high] use of Mary-J, where the shortages in supply are expected to last up to 5 years leading to massive acquisitions of licenses and operators.
33 US States have legalised medicinal cannabis 11 States recreational cannabis, but cannabis is still federally (nationally) illegal. This means cannabis can’t cross state lines – each state must grow, extract, manufacture and dispense within its own borders – until federal laws change. This also means the largest consumer market in the world is up for grabs when cannabis does become federally legal.
This all seems too good to be true and aspirant investors and “cannapreneurs” are cropping up all over the place.
So, we decided to investigate this with a trip to the Las Vegas Cannabis Conference in April 2019.
Here are 5 realities of the global cannabis market as it stands:
- You have to have deep pockets – getting a license in the cannabis sector requires you to first invest significantly to be eligible, meaning that in reality you are looking at a minimum of R10-15mil in setting up your facility, legal and compliance advisors, business advisors etc. etc. etc. before you’ve got the piece of paper that allows you to grow, manufacture or distribute legally. You’re then going to need a few more tens-of-millions to start operating and sending product out.
- You have to have time – even in the US, it takes up to 3 years just to get a license and be operational, with constant shifts in the market and legislation. History shows that these businesses will also take another few years to hit profitability.
- You have to be well structured – and your entire team will go through the ringer with security checks, background checks, criminal and financial checks right down to the cleaner. This market is super sensitive to regulation, compliance and security. Don’t underestimate this.
- The regulatory environment keeps changing – with no set global standard on the product you must produce as well as differing regulations and legislation in each country, staying abreast of the regulatory landscape can keep you very busy.
- The financial sector is holding out to see what happens. Most financiers are holding back until international banking laws catch up with the market – remember that cannabis is still considered a narcotic in banking terms.
With these high risks come high rewards, but the barriers to entry are real – for now – and so only those who are able to sink the cash, have the grit to stick this out and equip themselves with the right teams (internally and through advisors) will make the returns.
My advice is to tread with your eyes wide open, and if you have the risk appetite to take this on – don’t hold back.
Uzenzele is specialising in cannabis commercialisation, business and transaction advisory for projects on the African continent