HomeAnalysisAiming high with medicinal cannabis cultivation in Zim

Aiming high with medicinal cannabis cultivation in Zim

By Tafara Mtutu

The medicinal cannabis industry of Zimbabwe has taken new strides with the issuance of dozens of licenses for the cultivation of hemp. In a recent statement by the Zimbabwe Investment and Development Agency (Zida), Zimbabwe licensed 57 local and foreign entities to grow medicinal cannabis in the country and investors from Germany, Canada and Switzerland are among the foreign entities whose applications were approved.

The first footsteps of the local cannabis industry’s journey towards legalisation began in 2017 when a few international investors expressed their interest in growing medicinal cannabis in one of Zimbabwe’s Special Economic Zones (SEZs).

In 2019, Zimbabwe issued its first license to cultivate medicinal cannabis to Precision Cannabis Therapeutics Zimbabwe, marking the country as the second in Africa to legalise the drug after Lesotho.

In 2020, the government granted approval for all local and foreign cannabis investors to fully own farms and licenses in a bid to competitively tap into the global cannabis industry and proceeded to issue SI 218 of 2020 with rules for growing industrial hemp.

The developments in the sector can be attributed to the Zimbabwe Industrial Hemp Trust’s efforts over the years which were further necessitated by the country’s economic challenges which began in 2018. Zimbabwe experienced a surge in inflation in 2018 after a loss in confidence in the country’s bond note’s parity with the US dollar. This was followed by a re-introduction of the local currency in 2019 which, in turn, led to a foreign currency crisis in Zimbabwe.

The global cannabis market, on the other hand, has been booming in recent years because of an increasing number of licensed growers globally and this has presented unique opportunities for Zimbabwe to leverage on the psychoactive drug.

The Zimbabwean cannabis market is particularly lucrative to international investors because of (i) high barriers to entry, (ii) trade links with major global regions, (iii) stringent directives in other markets, and (iv) a conducive climate for cannabis.

In the United States, license fees for cultivating cannabis can cost as much as US$80 000 which is affordable given relatively easy access to capital. In Zimbabwe, the cost of this license will squeeze as much as US$55 000 out of one’s pocket.

Given the very limited access to US dollar capital in Zimbabwe, this presents high barriers to entry into the sector.

Zimbabwe currently has less than 60 licenses in issue, while the US and Canada have issued over 500 and 270 licenses, respectively. These high barriers to entry are typically associated with easy market penetration, strong growth, and healthy profit margins.

Further, the gazetted rules for cultivating industrial hemp in Zimbabwe do not compare to the regulations in markets such as the US.

Cannabis producers in the US are required to tag each plant when cultivating, and it must be weighed and logged upon cultivation. The plant needs to be weighed when it is wet and when it is dry, and the waste from each plant needs to be weighed. For companies that make edibles from cannabis, they are required to stay below approved THC concentration levels and must adhere to strict disclosures on their products and packaging, such as THC stamps and packaging that does not entice children.

For entities that transport and deliver cannabis, they are required to transport not more than US$3 000 worth of cannabis at any point in time and they have to adhere to manifests which list out exact turn-by-turn directions that they have to follow on each delivery, all in a bid to prevent theft and back-door purchases of cannabis. Zimbabwe also boasts of a conducive climate for hemp production compared to other regions of the world.

According to the International Living magazine’s Quality of Life Index, Zimbabwe competes with the Mediterranean island of Malta for the title of the world’s best climate. Zimbabwe’s climate is also less prone to natural disasters compared to the Americas, Asia and EU regions.

In addition, Zimbabwe already has established trade ties with Asia, the biggest market for cannabis, which it can take advantage of in penetrating the global export market. Asia is estimated to account for 40% of the estimated US$344 billion industry.

Zimbabwe could therefore serve as a base of operations for hemp producers and the country can use cannabis to improve its trade balance, foreign currency reserves and the government’s coffers through tax revenue.

According to the 2019 Africa Cannabis Report, Zimbabwe’s medicinal cannabis market could potentially top US$250 million in earnings by 2024.  This, together with a cannabis levy which could be as high as 20% as stated by Finance minister Mthuli Ncube, could improve the country’s trade balance, whose average deficit has oscillated around US$100 million in the last 10 years.

We note that the industry is still in its infancy and there may not be any listed companies in the cannabis space in near future because of the listing requirements of the Zimbabwe Stock Exchange and Victoria Falls Stock Exchange. This subsequently means that an investor’s exposure to the lucrative market through listed stocks is currently non-existent.

We also opine that the high barriers to entry and the average Zimbabwean’s constrained access to capital will result in cannabis business that will largely benefit the few wealthy and international entities unless an outgrower model, much like in the tobacco industry, is put in place.

  • Mtutu is a research analyst at Morgan & Co Research. — tafara@morganzim.com or +263 774 795 854.

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