Following the latest SONA (check out the infographic highlighting the main outcomes), a hot topic in South Africa is the industrialisation of the hemp and cannabis industry and what this means for the economy, and for small businesses looking to get involved
We don’t claim to be experts on the topic but thought it will be valuable to walk you through some insights from thought leaders and businesses who know a thing or two.
We are in the business of SMEs however, and with the potential to attract international investment, positioning your business as a service provider in this growing industry is a massive opportunity.
Let’s jump in and get a better understanding of the hemp and cannabis industry in South Africa!
Is it legal to grow hemp in South Africa?
Up until 29 October 2021, it was illegal to grow hemp in South Africa. After careful consideration, The Minister of Agriculture, Land Reform and Rural Development, announced the opening of the application process for Hemp permits.
This means that farmers are now able to apply for a permit to farm hemp as an agricultural crop.
With it now being classified as an agricultural crop, it falls under the Plant Improvement Act, no.53 of 1976. This act provides support for import and export, as well as maintaining the quality of such plants and propagating material. It further ensures that the hemp is deemed useful, and used for agricultural and industrial purposes.
Are hemp and marijuana the same thing?
This is a common misconception and it's important to note that hemp and marijuana are not the same things. Although they fall under the same genus, Cannabis, hemp (Cannabis sativa L ) is very much for industrial or agricultural use, whereas marijuana (dagga as it’s commonly known) can be used for medicinal or recreational purposes.
The important differentiating factor between marijuana and hemp is that Hemp has far less THC (tetrahydrocannabinol).
In South Africa specifically, CBD products are required to contain no more than 0,001% THC content and need to be sourced from hemp plants rather than marijuana plants. Rethink Cannabis for Life, a South African-based pharmaceuticals company, give the full breakdown on CBD legislation.
How to start a cannabis business in South Africa?
First, you’ll need to decide on the avenue you want to take for your cannabis business.
It’s important to remember that in South Africa specifically, you can only start a cannabis business with hemp as your product (marijuana farming is still illegal).
Here are a couple of options (if you’re ambitious, you can go for all of them):
- Cannabis farmer – growing and cultivating hemp (>0,001% THC)
- CBD or Hemp manufacturer – this could include producing CBD oils or Hemp textiles.
- CBD or Hemp product developer – creating products using the CBD oils or hemp textiles.
- Hemp or CBD product distributor – selling the CBD or hemp products to consumers.
Each cannabis business type has its own set of rules and regulations when it comes to licensing and distribution, it’s best to seek advice from an attorney who specialises in this field beforehand.
According to Cliffe Dekker Hofmeyer, if you are wanting to take the CBD business route, then a section 22C(1)(b) license (part of the medicines act), gives license holders the ability to:
- Cultivate/grow and produce Cannabis and Cannabis resin;
- Extract and test Cannabis, Cannabis resin and/or CBD;
- Manufacture a Cannabis-containing or CBD-containing substances;
- Import Cannabis-containing substances;
- Export Cannabis-containing substances; and/or
- Distribute Cannabis-containing substances.
Choosing the Right Type of Hemp Business
There are numerous things to consider when choosing what part of the hemp and cannabis industry you want to be involved in.
Here are some considerations you might find useful:
- Your previous work and business experience. If you’ve never farmed before, it may be a steep learning curve to get into farming.
- The cost of compliance. Hemp is a much simpler product to grow, handle and process. That’s because the end-product is not one that is heavily regulated. CBD is a product with very fine technical margins, and so to grow and process it costs significantly more.
- Setup costs. If you don’t already have land, equipment and staff to get you going, there may be exorbitant setup costs involved with becoming a hemp or cannabis farmer. Consider how much capital you have to get started.
Once you’ve decided on the type of hemp/cannabis business you’d like to start, it’s time to really get it off the ground.
First, you need to identify where there is demand in the market. Whether your business is in hemp, CBD, or another part of the industry – there needs to be a customer that’s willing to buy your product. Only once you know someone is going to pay you money for the product, should you consider taking this business venture.
A must is to develop a marketing strategy and brand guide for your business, along with a strong business vision. Much like your selected attorney, make sure to partner with a marketing agency that knows a thing or two about the legalities involved in advertising CBD and hemp products in South Africa.
Licensing and Legals
For more on Cannabis licensing, GrowIQ get into the nitty-gritty. If you are wanting to apply for a cannabis license to cultivate, manufacture or import cannabis for medical purposes in South Africa, then you’ll need to apply via SAHPHRA.
How much does a cannabis license cost in South Africa?
To grow, cultivate, manufacture or import Cannabis in South Africa, you are looking at anywhere upwards of R25 000 a year for licensing. SAHPRA will give you the final costs once you go through the application process.
The future of the cannabis industry in South Africa
Following SONA 2022, President Cyril Ramaphosa placed emphasis on the plans for the cannabis industry in South Africa. The main theme was around the industrialisation of the industry and easing policies that prohibit the growth of the hemp and cannabis sector nationally.
With forecasts of providing jobs in upwards of 120 000, and a particular focus on the Eastern Cape and Kwa-Zulu Natal which have high unemployment rates but arable land for hemp production.
The Cannabis for Private Purposes Bill, which was introduced in September 2020 – is now seeing a resurgence and focus, with parliament revisiting the bill. The draft bill outlines the rules for cannabis users at home, or people who want to cultivate the plant.
Labat Africa, a JSE-listed company is expanding its healthcare offering, by acquiring US run CBD lifestyle brand Echo Life. According to Business Tech, in December 2021, the group saw a R300 million Rand cash injection from GR Global Venture. Labat entered the retail market by opening Cannafrica stores in Cape Town, Joburg and Hartebeesport and an online store.
South Africa is the third-largest illegal cannabis producer in the world, according to the World Health Organisation. 2,500 tons of cannabis are grown a year, and although cannabis was decriminalised for recreational use in 2018, there are still a myriad of regulations in place surrounding cannabis farming, distribution and use.
South African cannabis master plan forecast:
The department of Agriculture, Land Reform and Rural Development has a master plan in place for further growing the cannabis industry, a few of these pillars include:
- Creating an effective regulatory system – as mentioned earlier, this will involve re-looking at the legislation by removing constraints that are hindering commercialisation.
- Ensuring there is a sustainable seed supply system – this will focus on the production, packaging, quality control and trade of cannabis seeds.
- Cannabis education focus – as a fairly new formalised industry, there needs to be more focus on training and education around the cannabis industry in South Africa, starting from schools all the way through to educational training for staff.
- Developing new markets – the focus here will be on facilitating both domestic and international cannabis trade.
- A shift in messaging – this pillar will focus on clear communication, ensuring negative perceptions are demystified.
Keep your finger on the pulse…
The hemp and cannabis sector is definitely one to watch out for in South Africa, and although we haven’t ventured into the field of business funding for the cannabis industry, we are all about listening to our customer’s needs.
Pop us an email if you’d like to send us any insights, or if you are a lender open to business funding in this sector. We’d be interested to hear your thoughts.
PS, here's a quick infographic that outlines the main SME themes from SONA 2022: