We spoke with Danie Nel, Managing Director of Afriplex, one of Africa’s top pharmaceutical companies delivering complete cannabis production value chains, about investment and market opportunities in South Africa’s growing cannabis industry.  

About Afriplex

Afriplex is a source-to-shelf pharmaceutical company that develops the complete cannabis supply chain from botanical sources to final pharmaceutical, cosmetic, food, and beverage products in South Africa.

The business was founded 20 years ago, focusing on adding value to indigenous botanical plants through extracts, including Active Pharmaceutical Ingredients (APIs). We convert plant material into functional ingredients and, over time, formulate those ingredients into product formulations and, eventually, into consumer products.

Over 20 years, we’ve evolved from a raw ingredient supplier to a final product manufacturer with diversifications in different market segments, product categories and supplying the international markets encapsulating the associated value chains.

Cannabis

Speaking specifically about cannabis, it is just another plant for us because it follows the same supply chain and product development processes. However, the regulatory environment is much more demanding and requires a pharmaceutical approach to all commercialization phases.

We made significant progress on the cultivation side of the business. We have our own licensed cultivation facility where we conduct research in collaboration with the Cannabis Research Institute of South Africa to grow specific cannabis genetic material and then process it into different derivatives or ingredients, for example, crude and refined oils, isolated cannabinoids, distillates, and terpenes. These ingredients are then formulated into final products, mainly tablets, capsules, and liquid products. With time, these ingredients will also enter the food, beverage, and cosmetic markets.

Currently, Afriplex is the only licensed processor of cannabis in South Africa, which is quite a unique position, even though others may soon follow. We are truly fortunate to have developed the cannabis processing capability based on what we’ve done in the last 20 years with other botanical ingredients.

Currently, we deliver a complete value chain for cannabis here in South Africa. This is something which, in countries like Canada, is more likely to happen within different commercial entities. So it’s quite a unique position.

Trends

The cannabis industry is fast developing. Trends that take five to ten years to develop in other industries occur within three to four years. This is true in South Africa and played out in Canada, the USA, and Europe.

The first trend we saw in South Africa was a shift in focus from agriculture activities like growing to value addition and sophistication of products coming to market.

The second trend being witnessed is the role of technology. For example, we did a project on using artificial intelligence in the growing facility, something you may not associate with this industry. Also, there is ongoing research on drug delivery systems, a trend from primary and conventional dosage forms like vaping and smoking to more sophisticated ones.

We are also seeing rapid education of the consumer, which leads to the acceptance of more sophisticated products, especially concerning efficacy and safety.

Significant progress is made on the cultivation component of the value chain. For example, cultivators are moving away from using seed as the primary source for planting cannabis to clones or tissue culture, which offers more stable genetic material. One company that is bringing world-class technology to the local industry in this regard is Clonelabs.

The Local Market

The local market is currently limited to the use of only one cannabinoid, namely CBD. This is one of the more than 100 actives available in the cannabis plant.

The regulatory framework doesn’t allow full use as you have in Canada. Currently, in South Africa, you can access cannabis as a patient by following a doctor’s script, but not as a medicine freely available over the counter.

Canadian Investment Appetite

Lesotho was the first African country to legalize cannabis about four years ago. At the time, it received significant interest from mostly Canadian investors and US investors operating from Canadian platforms. Unfortunately, many of these projects did not succeed, as the inherent risks need to be adequately understood and navigated.

With South Africa now following Lesotho in the legalization of medicinal cannabis, the appetite for investment into Africa has been renewed.

There’s currently a more balanced approach to the cannabis industry, with Canadian investors looking more for substance rather than just greenfield and blue-sky projects. This new approach suits us.

Afriplex’s Positioning

We are very well positioned in this market. We have business substance from 20 years of experience and a proven track record. We are also producing CBD products in South Africa for different brand owners.

Opportunities

The investment opportunities have shifted from cultivation to a complete value chain and infrastructure to technology.

We are co-founders of The Cannabis Research Institute of South Africa, executing ground-breaking research and establishing intellectual property.

The real opportunity lies in research. Research is expensive and requires sophisticated equipment and highly skilled professionals. Fortunately, South Africa is very cost competitive.

Regulations

More and more countries are opening up to cannabis as the efficacy and safety of cannabis are demonstrated and improved drug delivery systems are developed. These regulations will further ease up and become more accessible.

The regulatory framework, irrespective of whether it is in Canada, Europe, or South Africa, is a significant hindrance to investment, and the investments will only flow when the regulatory environment allows commercialization.

Challenges

Our main challenges are within the research and regulatory environments. The opportunities are in overcoming these challenges. This will come with time. Investors need to understand the value chain and how to mitigate risks and maximize returns.

The Future of the Industry

More research findings will become available, and more products will be developed to meet consumer demand. We expect exponential growth in the next 5 to 10 years.