What Are The Economic Implications Of Legal Marijuana In South Africa?

By Dana Sanchez Published: December 27, 2016, 1:19 pm
legal marijuana in South AfricaSome rural villages in the Eastern Cape rely on dagga farming to earn cash. Photo: Masixole Feni/groundup.org.za

South Africa is a major player in the global cannabis industry, producing a top strain — Durban Poison — and a significant portion of the continent’s supply, Cannabis Now reported.

Until now, the tax benefits of legal marijuana have eluded South Africa, whose informal economy drives employment, like the rest of Africa.

Durban Poison is famous and elusive, a sativa known as an original landrace strain, named after its region of origin. It is historic and rare, and the market in South Africa is full of imitators. Even in its home country, it’s not easy to find the authentic bud, which has long orange hairs, a signature sweet and citrusy smell, and an energetic high.

Plans to regulate legal medical marijuana use in South Africa as early as 2017 could produce an economic bubble for South Africa, as has happened in other parts of the world.

In the U.S., voters in 20 states have opted for legalized medical marijuana, Mail & Guardian reported. But its use remains illegal under U.S. federal law, meaning it can be difficult for those in the industry to do business with banks, which must comply with federal law, or to rent commercial property from landlords paying off bank loan.

Even so, legal marijuana sales are expected to grow from $5.7-billion in 2015 to $7.1-billion in 2016, according to a study by the Arcview research group. By 2020, legal market sales are expected to exceed $22-billion.

In Canada, anticipation of legalized cannabis as early as 2017 has sparked concerns about a stock market bubble, similar to that of the dotcom craze, when the highly anticipated tech boom failed to live up to investor expectations and company share prices crashed, Mail & Guardian reported.

South Africa’s Department of Health said on Nov. 23  it plans to introduce regulations as early as April 2016 that will make cannabis available to patients with some medical conditions and to also issue some licences for the weed to be grown.

“We hope that through this the South African public will not be solely beholden to Western medicine and its associated astronomic costs, but have a viable alternative medicine that is just as, or more, efficacious than its Western treatment counterpart,” said Narend Singh, chief whip of the Inkatha Freedom Party.

The U.N. Office on Drugs and Crime estimates up to 9.1 percent of the South Africans use cannabis. Tax revenue would be a key benefit of legalizing it, said Vladislav Lakcevic, an analytical strategy development professional specializing in economic studies in Africa.

In the U.S., the diversity and the complexity of state and local cannabis regulations helped drive up prices for marijuana business real estate, according to according to Above The Law:

State laws that limit how close cannabis businesses can be to a school, a park, a church, or another cannabis business also limit the number of properties available to cannabis businesses. When you add in local zoning codes that often push cannabis businesses to heavy industrial areas and building codes that often require cannabis production facilities to have full fire suppression and air quality systems in place, the list of available properties for the marijuana industry plummets even further. With so many marijuana businesses fighting for so few spaces, it is no wonder cannabis real estate prices just keep rising upward.

Cannabis businesses around the U.S. pay higher rents than other businesses, the Denver Post reported, according to Above The Law. In Portland, for example, commercial real estate that usually rents for $5 a square foot goes for three times more for cannabis businesses. Rents for cannabis businesses in Washington and Colorado are stable but  considerably higher than for any other business. Real estate investors wanting to lease to cannabis businesses expect this trend to continue.

“The (South African) economic implications are absolutely astronomical if you look at what is going on in the rest of the world,” said Julian Stobbs, director of social activism for the nonprofit  Fields of Green for All, according to Mail & Guardian.

Legalizing marijuana will reduce the risk involved in producing marijuana, which will lower the price, raise the supply, raise the quality and encourage new  entrepreneurs to enter the market.

In Colorado, marijuana prices  dropped 25 percent across the board, Stobbs said.

Some medical marijuana products are already on the market, including Rick Simpson’s Oil and Charlotte’s Web‚ two organic solutions that contain THC‚ the psychoactive ingredient in dagga — the South African name for medical marijuana — Dispatch Live reported.

The Medical Cannabis Dispensary‚ an online Cape Town resource, said the products can be used to treat a host of ailment including cancer‚ arthritis‚ diabetes‚ leukemia‚ osteoporosis‚ Crohn’s disease‚ insomnia‚ migraines and depression.

South Africans are among the investors around the world keen to profit from the U.S.’s growing marijuana business, said Hilary Bricken, a Seattle attorney and marijuana blogger who represents marijuana businesses.

“There is also still a ton of money being invested into cannabis real estate from out-of-state and foreign investors,” Bricken said in a guest column in Above The Law. “Many marijuana licensees who lack sufficient capital to build out their growing facilities look for turn-key real estate opportunities.

“Hardly a day goes by where my law firm does not get a call from someone … from overseas (Spain, Israel, Germany, South Africa, and Eastern Europe, mostly) asking one of our cannabis business lawyers about cannabis real estate opportunities in Washington, Oregon, or California.”

If more U.S. growers see growing outdoors as a real alternative for them, cannabis real estate prices (especially warehouse prices) can be expected to fall, Bricken said.

“Though the (U.S.) marijuana real estate bubble seems to be growing ever larger, it’s anyone’s best guess as to when it will actually burst. In the meantime, real estate investors should be careful not to overpay for cannabis properties based on the assumption that their lease market has “nowhere to go but up.”

 

 

 

 

 

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