Cannabis in Africa
Inside look at South Africa’s Cannabis industry
We discuss investment and market opportunities in South Africa’s growing Cannabis industry with Danie Nel, Managing Director of Afriplex, one of Africa’s leading pharmaceutical companies that delivers full cannabis production value chain
- Afriplex uniquely delivers a full cannabis production value chain in SA
- The industry is seeing a shift toward product sophistication and tech
- The opportunity lies in research and Intellectual Property
Afriplex is a source-to-shelf pharmaceutical company that develops the complete supply chain from botanical sources to final pharmaceutical, cosmetic, food and beverage products in South Africa
We started about 20 years ago with botanical extracts, taking indigenous plants and converting them into functional ingredients, and over time, started formulating those ingredients into product formulations, and eventually, into manufactured products.
Over a 20-year period, we’ve evolved from a raw ingredient supplier to a final product manufacturer with diversifications in different market segments, product categories and territories outside South Africa, encapsulating the associated value chains in the process.
Speaking specifically about cannabis, it is just another plant for us because it follows the same supply chain and product development processes.
We’ve evolved on the cultivation side and have our own licensed cultivation facility where we grow the cannabis and then process it into different derivatives or ingredients, different cannabinoids, distillates, isolates, oils, and crude oils. And then we take those ingredients and formulate them into final products, which are currently mainly in the form of tablets or capsules, and liquid products. With time these ingredients will find their way into the food, beverage and cosmetic markets as well.
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 on the back of what we’ve done in the last 20 years with other botanical ingredients.
Afriplex is the only licensed processor of cannabis in South Africa
So at the moment, we deliver a complete value chain for cannabis here in South Africa, something which, in a place like Canada, is more likely to happen by way of acquisitions. You’d have the cultivators and pharmaceuticals deciding on a joint venture, or one acquiring the other. Here the complete value chain has been developed, from cultivation and extraction to product development and research – so it’s quite a unique position.
The cannabis industry is a fast-developing and interesting one, and we are seeing trends that take five to ten years to develop in other industries, occur over a three to four-year period. Not only in South Africa, but in many other places when you consider the very short period over which the cannabis economy has started.
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. So, the first shift is up the value chain, which was expected but perhaps not this fast.
I’d say the second trend being witnessed is the role of technology.
For example, we did a project on the use of artificial intelligence in the growing facility, something you may not associate with this industry. Also, there is ongoing research on drug delivery systems, where there is a trend from basic and conventional dosage forms like vaping, smoking, to more sophisticated dosage forms.
So, we are seeing a rapid repositioning of the consumer, with the consumer being ready for more sophisticated products, especially with respect to efficacy and safety.
On the cultivation side of things, we would say there are several licensed cultivators trying to find their way into the supply chain, which is driving a higher level of sophistication to the fore.
For example, we are finding a move away from using seed as the primary source for planting cannabis, to clones or tissue culture, where you have very stable genetic material. One company that is making significant progress in the local industry, in this regard, is Clonelabs.
The local market is limited for full cannabis use at the moment because the current regulations in South Africa only allow the CBD active for legal products. Just one of the more than 100 different actives in the cannabis plant, so it’s very restricted, but it’s a fast-growing market for CBD products.
So, the interest is there, but the regulatory framework doesn’t allow full use as you have in Canada. Currently, in South Africa, you could access cannabis as a patient by following a doctor’s script, but not as a medicine that is freely available over the counter. For example, we haven’t seen cannabis clinics and those types of avenues in South Africa yet.
This also applies to other African countries to a certain extent.
We’ve got a joint project now in Ghana where we do technology transfer to our partners in Ghana, and we are assisting them to establish the same knowledge platform that we have here in South Africa. So, I think generally in Africa, collaborations and markets are opening up.
As far as the interest outside South Africa. There’s a lot of interest from EU countries like Germany and France.
There’s not that much interest from Canada, since Canada has got their own supplies and there are also limitations in Canada with respect to the importation of cannabis from outside Canada.
In the States, the situation is different from state to state. There’s a high level of interest in certain states, whereas, in other states, you will not be able even to grow. However, federally cannabis is still illegal in the states, which effectively makes the US market unattainable to date.
We’re making good progress in the far East, like in the Philippines. We are in a very good position, in South America in Uruguay and Brasilia. We’re doing a lot of work with the Australians. So this is specific to countries that have opened up and that’s where the opportunities have presented themselves.
Canadian Investment Appetite
Lesotho was the first African country to legalize cannabis about four years ago and at the time it received major interest from mostly Canadian investors and some US investors, operating from Canadian platforms, who rushed to engage the sector in the face of very high risk, but then came under pressure to deliver results that were non-existent, exacerbated by the worldwide economic downturn over the last two years and which forced many of them into mergers or shutdowns. It was obvious at the time that these investments would run into all sorts of problems.
With South Africa now following Lesotho in the legalization of medicinal cannabis, the appetite for investment into Africa is now less enthusiastic, again exacerbated by recent economic downturns and the disappointing results of the very hasty decisions to invest into different parts of the world, which was to be expected.
So, I think there’s currently a more balanced approach to the cannabis industry, Canadian investors and companies are looking more for substance rather than just, greenfield and blue-sky projects.
That’s where Afriplex comes in. We are very well positioned in this market. It’s not just a bubble, its substance achieved from 20 years of experience and financial results. We are here already processing cannabis. We are producing a very large number of the highest percentage of CBD products in South Africa for different brands and pharmaceutical companies. So yes, I think the position is better for us, but the appetite generally for cannabis investments is a more low-risk one now than, two to three years ago.
I think the opportunities have shifted from cultivation to a full value chain. And I think that’s where the investors are shifting their attention. The full value chain reduces the overall risk because you have control of the flow of material.
I think the opportunities have shifted from cultivation to a full value chain
The knowledge and intellectual property developed are not bound by regulatory restrictions and, I believe, provides very good opportunities for investors going forward, say in three to five years, because technology will drive the industry and obviously, regulatory limitations will loosen up as we go along. The world will open up with time, no going back.
Opportunities exist for investors to invest in pockets of excellence, intellectual property, clinical data, and drug delivery systems. There’s a wealth of knowledge sitting in the Cannabis Research Institute of South Africa which can be accessed and leveraged by international investors in any part of the world where they’ve got influencing interest.
Opportunities exist for investors to invest in pockets of excellence, intellectual property, clinical data, and drug delivery systems
So, the real opportunity lies in research. Research is expensive and requires sophisticated equipment. But the opportunity in South Africa, relative to places like Canada and Europe, is that we have scientists and a technical pool of resources at a fraction of the cost of getting this research done. That in itself presents an opportunity.
Curiously, we’ve not seen a higher level of interest from Canadian investors in South Africa’s cannabis research space, especially because we have a high level of freedom to conduct research that is supported by the government, we’ve got good universities, good tertiary institutions and a pool of scientists and professionals. So instead of rushing to invest in a cultivation facility in the city, I’d rather suggest investments in intellectual property.
Instead of rushing to invest in a cultivation facility in the city…, invest in intellectual property.
It can sometimes be tight, complicated and complex to navigate, but more and more countries are opening up to cannabis, and as the efficacy and safety of cannabis are demonstrated, and better products developed, these regulations will further ease up and become easier.
The regulatory framework, irrespective of whether it is in Canada, Europe or South Africa, is a major hindrance to investment, and the investments will only flow, where the regulatory environment allows it to go. Again, a good example of where the regulatory framework is less of a hindrance is in research and development.
The barriers to investments are not the regulations, but the execution of the investment, and there are ample opportunities out there.
I would say our main challenges are sitting in the research and regulatory environments. The opportunity is in overcoming these challenges, and in both cases, it will come with time.
The challenge is for the investor to do selective investments. And I believe that in selectively investing, risks can be significantly reduced by investing in a supply chain with the intellectual property because that will be relevant now and 10 years from now. It’ll only get more sophisticated along the value chain as we go along. So, the challenges actually present themselves as opportunities.
The Future of the industry
In terms of future developments. We will see more research findings become available and products will target indications that are substantiated by the research. I think that’s where we’re going to see the biggest changes going forward. You can only cultivate to a certain level of sophistication, but it’s on the product side, on how the product is formulated and presented in use with respect to specific diseases, that we’re going to see an explosion.
This piece is based on our conversations with Daniel Nel, CEO of Afriplex South Africa, and it was summarized for brevity and clarity by Anthony Atigari, Executive Director of Canada Africa Business Forum