Why is the cannabis industry exploding?

An unnamed worker waters cannabis plants on Steve Dillon's farm in Humboldt County, California, U.S. August 28, 2016. As billions of investment dollars pour in, the cannabis industry is finding itself entering a brand new chapter, says the writer. Image: REUTERS, Rory Carroll.

An unnamed worker waters cannabis plants on Steve Dillon's farm in Humboldt County, California, U.S. August 28, 2016. As billions of investment dollars pour in, the cannabis industry is finding itself entering a brand new chapter, says the writer. Image: REUTERS, Rory Carroll.

Published Oct 21, 2022


By Nicole Chamberlin

You think the cannabis industry is blowing up? You haven’t seen anything yet.

As billions of investment dollars pour in, the cannabis industry is finding itself entering a brand new chapter.

Businesses are starting to take note of the potential within the cannabis industry with many investing in hemp-based and CBD products.

According to the global cannabis market size and forecast report 2021: the sector will reach a whopping $176 billion by 2030.

In June 2021, the much anticipated Cannabis Master Plan was unveiled detailing how cannabis can be incorporated into South Africa’s business sector as part of the government's ongoing drive towards legalization and commercialisation.

Government has good reason to want to focus on this industry, the Department of Agriculture, Land Reform and Rural Development estimates that the cannabis industry is worth an estimated R28 billion in South Africa, and could create between 10 000 – 25 000 jobs across the sector.

Is green the new gold ?

The global cannabis space is moving rapidly, and by 2024, it is expected to be worth a massive 103 billion dollars.

Europe and North America will make up the largest components of this market, valued at $39.1 billion and $37.9 billion, respectively.

But other regions are also forecasted to demonstrate some impressive numbers.

The US as a whole holds the title for the world’s largest cannabis market - generating more than $16 billion in sales in 2020.

Africa to become the next world leader

Africa needs to unlock the economic value of cannabis cultivation. It has the potential to become a world leader in the cultivation of cannabis and its products.

Unfortunately, burdensome global regulations and tight domestic controls stand in the way of creating a booming multi-billion-dollar industry.

The African Cannabis Report cites the continent seeing the value of its legal cannabis rise to at least $7.1billion by 2023 across nine major African nations if they legalize medical use and recreational use.

South Africa has an incredibly rich heritage of medicinal plants, think rooibos, moringa, marula, baobab and Kalahari melon. The soothing, moisturizing and anti-inflammatory capacities of these plants echo those properties in CBD – making the combination a particularly powerful, organic product for skin vitality, which creates a compelling selling proposition.

Increased consumer spending over the last 5 years

But why did the cannabis industry blossom during the Covid-19 pandemic?

Firstly, due to the growing desire among consumers for products that enhance their health and wellness. Secondly, the continued legalization of medical and non-medical cannabis, especially in the US.

According to researchers, the sales of recreational (adult-use) cannabis, medical cannabis, and CBD (an active cannabis ingredient commonly used as a natural remedy) rose to $37.4billion in 2021. This could top $102 billion by 2026.

For instance, the Californian market saw 7 000 additional new products in 2020. That’s an average of 19 new products in dispensary shops, daily.

Patients suffering from chronic diseases such as Parkinson’s, Alzheimer’s, cancer and many neurological disorders are administered cannabis. The demand for cannabis oil is growing due to its wellness and health purpose. Cannabidiol oil is used for treating depression and anxiety, diabetes protection, cancer symptom relief and inflammation.

Navigating the red tape

The regulatory landscape is also one of the trickiest to navigate.

Finding a liberal host country in which to cultivate is only part of the challenge of running a sophisticated global cannabis supply chain thwarted with tangled regulations, demanding export principles and industrial-scale competition in the developed world.

In the US federal legalization has yet to occur despite over 30 states as having legalized cannabis in some form.

With waves of medical and recreational legalization occurring, there are now over 70 countries with some form of regulation around its manufacture and consumption.

Here on local shores, our government is busy reviewing regulatory and policy frameworks for cannabis and industrial hemp to realize the vast potential for job creation and investment.

Ramaphosa said earlier this year: “We will review the policy and regulatory framework for industrial hemp and cannabis – which will come as sweet news for our people in the Eastern Cape and KwaZulu Natal – to realize the huge potential for investment and job creation. Now this natural product, which our people have been farming with and harvesting for a number of purposes, is going to be industrialized – and no longer just restricted to the smoke process!”

South Africa is among the most recent nations to rule firmly in support of a sector that has experienced an astounding transition from a universal shadow industry to an agro-industrial powerhouse.

From lifestyle supplements to recreational smoking and medical cannabis, legal, medical, and cultural change is wafting the whiff of the once forbidden plant decisively into the global mainstream.

Lesotho in the lead

Lesotho - one of the first African nations to award licenses for cannabis cultivation for scientific and medical purposes - now rests as a model of how Africa’s cultivation ambitions can be realized.

Ramaphosa told the nation that the legal hemp and cannabis sector has the potential to create more than 130,000 new jobs in South Africa.

To further his point, he highlighted Lesotho – the small independent kingdom locked within South Africa’s landmass – as a shining example of a country already grasping the enormous opportunities of cannabis cultivation.

“Our immediate neighbor, Lesotho, has moved ahead in industrialisation of cannabis in leaps and bounds, and products that can be eked out of hemp and cannabis, are in great demand around the world.

“We want to harness this so we can unleash the energy of our ordinary farmers in the various parts of our country,” Ramaphosa revealed.

African companies are pushed to consider how they can unlock value carefully. For Highlands, a production company in Lesotho that last year merged with Goodleaf, a South African wellness brand with a portfolio of 30 products that are distributed online, in coffee and retail shops, the answer lies in focusing on specialized medical and consumer products as opposed to cannabis exclusively customized for the international medical smoking market.

Investment ready?

An estimate in excess of 100 cannabis-related companies in South Africa are investment ready - mostly cultivation businesses.

About R5 billion ($334 million) has already been invested in the South African industry.

Most businesses cultivate raw materials and extract cannabinoids such as CBD. This is manufactured according to pharmaceutical standards and exported for medicinal use.

The key areas of investments are the cultivation of cannabis, followed by the extraction of oil from the plant, testing laboratories, the retail and branding of CBD products.

As the industry grows, there will be a demand for services such as greenhouses, nutrients, plant growers, quality control systems and software.

There are also investment opportunities in the manufacture of pharmaceutical cannabis products (not a well-developed area in South Africa), but this requires a license from the South African Health Products Regulatory Authority (SAHPRA) and is a lengthy and expensive process.

Hemp, a cannabis plant used for fiber to make clothes, also presents a gap for investment.

In a nutshell, investment opportunities are in cultivation, processing and laboratories, then linking into brands and going backwards into manufacturing.