The cannabis industry in South Africa

Since the legalization of cannabis in 2018, the South African Government has sought ways to gradually introduce cannabis into the formal economy. A master plan introduced by the Department of Agriculture reveals plans to invest in the commercialization of cannabis and find more viable options to introduce ethical consumption. The industry, which is estimated to be worth around R28 billion (US$1.8 million), is expected to produce around 28,000 jobs which will alleviate South Africa’s employment crisis.

In a strategy released by the Department of Agriculture, Land Reform and Rural Development, with the use of studies from countries such as the United States, Canada and China, who are established cannabis producers, commercialization of the cannabis industry in South Africa may lead to a steady increase in foreign investments and become one of the economy’s biggest contributors.

The recent cannabis market is estimated to have generated around US$1 billion with approximately 90 percent of the revenue generated by the recreational market. Different strains like the Malawi gold, Swazi gold and Durban poison are some of the premium, best-selling cultivators based on their potency and have since been expected to continue to account for the majority of the industry’s revenue during the forecast.

Data released by African Cannabis, in one of their strategic market conclusions, the Southern African cannabis market is expected to grow at a CGR rate ranging between 6 and 7 percent between 2019 and 2024 driven by key opportunities for investors to invest in medicinal cannabis for export and for domestic consumption and the legalization and commercialization after the recreational segment.

A study conducted by GCB on the economic effects estimates that per 5 hectares, 75 jobs would be created compared to one job in the paper pulp industry. With an economic value per 10,000 hectares equalling US$1 billion, the impact is significantly more than the US$38.6 million paper pulp industry and its economic impact.

Setting up nurseries and dispensaries would be contributory to creating employment and alleviating poverty on a more practical level. The impact is expected to be quantifiable and bring about increased economic activity that South Africa is desperately in need of at this point in time.

The youth of South Africa has been plagued by unemployment and the expansion of the cannabis industry could provide more jobs on a scale that is economically impactful and could possibly end the woes of the unemployed.

In a review of the newly changed legal stance on the commercialisation of cannabis and how beneficial it could be for the economy, Mrinalina Krishna reports, “These jobs would likely come from the quickly growing industry which would spring up across the nation. Workers would be needed to farm, process, distribute, and sell marijuana-based products. Further, there would be ample opportunities for secondary industries that are related to legal cannabis although not directly involved in its production and distribution. These might include software developers, financing services, construction companies, and many others.”

Aside from its medical and therapeutic potential, the demand for cannabis in South Africa has proven great enough to benefit recreational, research and other commercial-related purposes that would advance the economy.

In a study conducted by Shaun Riley and Nicole Vellios analyzing the extent of quality, quantity bought, income, and demographic variables influence the price paid for cannabis on behalf of Taylor Francis Online, results concluded that price is a significant determinant of cannabis consumption. Increases in prices result in a decrease in the quantity demanded.

Even with questionable viability, the cannabis market has presented the potential to combat the price elasticity, which would depend on consumer demand and the government’s regulatory systems surrounding its sale and distribution.

“If cannabis is fully legalized in South Africa, there are two possible price effects. First, if the government imposes excise taxes on cannabis, prices will increase (and the government will generate revenue). Second, the price of cannabis is likely to decrease since legalization would result in eliminating the risk associated with buying and selling cannabis,” cites Riley and Vellios.

Sabelo K. Mnuwka is a Youth Activist, Digital expert and Social Engineer.