Investing in Africa’s cannabis industry

Investing in 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

About Afriplex

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

The business was founded 20 years ago with a focus on adding value to indigenous botanical plants in the form of 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 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 supplying the international markets, encapsulating the associated value chains in the process.

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 phases of commercialization.

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, which are currently mainly in the form of tablets, 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

Currently, we deliver a complete value chain for cannabis here in South Africa, 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 a three to four-year period. This is not only true in South Africa but also 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 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, a trend from basic and conventional dosage forms like vaping and smoking, to more sophisticated dosage forms.

We are also seeing rapid education of the consumer, which leads to the acceptance of more sophisticated products, especially with respect to 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.

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 different actives available in the cannabis plant.

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 freely available over the counter.

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. Also, US investors, operating from Canadian platforms. Unfortunately, many of these projects did not succeed as the inherent risks were not properly 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 achieved from 20 years of experience and a proven track record. We are also producing the majority of all CBD products in South Africa for different brand owners.

Opportunities

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

We are co-founders of The Cannabis Research Institute of South Africa, where we are executing ground-breaking research and in the process of 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 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 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. Important for investors 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 in meeting consumer demand. We expect exponential growth in the next 5 to 10 years.

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