Senior Analyst, Forbes Tate PartnersPublished October 22, 2021
Over the past decade, the global conversation surrounding cannabis production and distribution has shifted significantly. The increasing legalization of medical and recreational cannabis in Western countries has created an immensely profitable industry that promises exponential growth for all those who are wise enough to tap in.
Despite the immense potential of the African continent to become a hub for the cannabis industry, many African leaders remain resistant to embracing progressive ideas about the plant. Ugandan First Lady Janet Museveni exemplified this resistance in 2019 when she characterized a proposal from an Israeli company to grow and export cannabis from Uganda as “satanic” and “harmful to the future of [Ugandan] children.”SPONSOR CONTENT BY AT&T BUSINESS
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As first mover African countries reap the benefits of producing the crop with a competitive advantage—owing to cheap labor and conducive climate—their counterparts may shed their moral inhibitions about the alleged ruinous nature of the product and alter colonial-era laws to participate in the emerging market. In taking advantage of the conditions, Africans may be a large player in the market as recent research estimates the global market to be worth $70 billion by 2028.
While a lot of attention has been paid to the evolving conversation about the possible moral impact and economic potential of the cannabis industry on the African continent, there has been little attention paid to the experiences of other western governments in the market which African leaders could find instructive as they begin establishing their own stakes in the industry.
The west’s experience in cannabis business
Several western countries have either legalized or are slowly embracing the legalization of cannabis. Canada was one of the first countries to do so nationwide in North America. Mexico is close to fully legalizing cannabis pending approval of legislation in the senate, and with every passing election cycle in the US, a state legalizes cannabis either through the legislature or the ballot box.
While cannabis’ existence is intertwined with substantial historical weight related to mass incarceration in the West, or its enduring characterization of the product as ‘satanic’ in Africa, it is a crop, no different from tobacco, corn, or plantain. Meaning that it lives and dies by the laws of demand and supply.
Take Canada for example. The North American nation legalized cannabis production and consumption nationwide. In the years following legalization, the wholesale prices of the product have fallen precipitously for a number of reasons, chief among them is a mismatch of supply and demand for the product.
Major producers are reporting staggering losses because they are unable to sell their inventory. Consequently, the remnants of a period, once described as a ‘green rush,’ are a litany of publicly listed companies worth a third of their original listing price on the Toronto and New York stock exchanges.
Canada is only one of three North American countries with major production capabilities, along with the US and Mexico. The latter of which would have cheaper production costs and a friendlier climate to the crop in the inevitable event of nationwide legalization. Taken together, this would result in more affordable prices for consumers, but presents the same risks for cultivators experienced in Canada as the global expansion of the market ensues.
So as markets begin to open up and eventually mature, as Canada has done, what is the value proposition for an African cannabis company beyond producing cheaper cannabis?
The issue with cannabis cultivation
In order to understand Africa’s potential participation in the global cannabis market, we need to break down the structure of an end-to-end market similar to the ones that exist in mature markets.https://things.qz.com/2021/cannabis-graphic/cannabis-graphic.html
On the primary level, there is cultivation of the plant, and manufacturing of the products and derivatives. On the secondary level, there is the logistics and distribution, which connects all parts of the supply chain, from seed to shelf. On the tertiary level, there are service providers that support the overall function of the market, including, but not limited to, inventory management systems, regulation, oversight software technology, branding, and intellectual protection.
Based on the trends witnessed in the Canadian market, companies that occupy the primary level of the supply chain are the most vulnerable during the expansion of the new cannabis market because of the potential for falling crop prices. Lesotho-based MG Health is one such company. Despite being an African cannabis company with international markets and already-established quality assurance capabilities, MG Health remains vulnerable to potential losses if the mistakes made in Canada are repeated on the African continent.
Africa’s place in the global cannabis market
The continent’s potential to create a space for itself within the emerging industry is undeniable. However, the longevity and the scale of participation remains in question if African states do not begin to expand their value proposition to the market.
To that end, the continent as a whole should take a long view of the market, rather than only fulfilling short term gaps in demand for the product.
In the short-term, cannabis companies operating should begin expanding their product and service offering beyond the cultivation of the crop. These can include investment in specialized extraction and propagation techniques that result in pure and consistent cannabinoids, such as biosynthesis. Alternatively, these companies can also pursue partnerships with highly capitalized and established western-based cannabis companies to work on a variety of cannabis derivative products.
In the meantime, first mover governments should continue to improve their respective governance frameworks to incentivize investment in the space. These improvements can come in the form of accessible licensure rules, public-private partnerships, and tax agreements for companies employing locally and investing in technology and manufacturing.
In the medium to long term, there needs to be significant investment now to improve human capital. This includes expansion of educational opportunities for botanists and other courses of study that can help deepen the understanding of the industry and improve African ingenuity. Skilled, home-grown botanists can then create patentable strains of the cannabis crop, that can allow crops originating from the continent to stand out in a crowded market.
African countries such as Morocco and Rwanda have proven their capability to implement long-term initiatives. In the meantime, these companies should also be applying for patents in target markets for not only uniquely grown strains, but also cultivation and extraction methods. Ultimately, such investments would not only protect and incentivize African ingenuity, but also become a revenue source through licensing agreements with international companies.
In recognition of structural governance changes taking place across the globe and multilateral agencies, trade ministers, and Africa Continental Free Trade Act (AfCFTA) negotiators should go further than first-mover governments by advocating for structures that will one day support a continent-wide cannabis market. In the long term, this can be achieved through robust intellectual property protection rules and enforcement within the continent.
African countries are undeniably blessed with friendlier climates and conducive economic conditions to be a breadbasket for the cannabis industry, much like Zimbabwe was for Tobacco, Kenya for flowers, and Ethiopia for coffee. Strategic and forward-looking policy and consistent implementation of diversification will help African nations avoid the curse that often follows the blessing of abundant resources.