Can South Africa Successfully Commercialize Cannabis?

With a population of 58.5 million people, South Africa wants to cash in on cannabis...

In Today’s Issue 💬

Cannabis in South Africa. 🌿

Who’s Not Consuming Cannabis. ❌

Fire & Flower’s Ambitious Plans. 💸

Can South Africa Commercialize Cannabis?

Having decimalized cannabis in 2018, South Africa is going all-in on cannabis…

South Africa is estimated to be the 4th largest producer of cannabis in the world.

Over 2.2 million people are estimated to consume cannabis in the region, with this number likely rising in response to the decision made by the South Africa Constitutional Court which legalized the private use of cannabis in 2018.

Going back in time…

South Africa has an extremely rich history with cannabis or “dagga” as it is more commonly known in the region with indigenous people using cannabis to help ease childbirth for centuries.

The first written record of cannabis in South Africa is by Jan van Riebeeck who was responsible for the colonization of South Africa on behalf of the Dutch East India Company in the early 1600s.

During this period, the Dutch East India Company made an attempt to monopolize the sale of cannabis, however, after failing to curb the cultivation of cannabis in the region they recognized that this was never going to happen.

Cannabis becomes illegal…

In 1922, regulations were created under the “Customs and Excises Duty Act” which outlawed the cultivation, consumption, and sale of cannabis. 

Despite the introduction of these laws, cannabis continued to grow all across South Africa.

The politicians in power sought to tighten their grip under the “Weeds Act” which made the occupant or owner of a property accountable for preventing the growth of cannabis plants on their land.

Progress at long last….

As is commonly the case, the criminalization of cannabis had very little impact on the consumption of cannabis across South Africa.

In recognition of this, in September 2018, the South African Constitutional Court decriminalized the use and cultivation of cannabis in private spaces.

Now, the South African government wants to take this progress one step further by going all in “commercializing cannabis”.

The billion-dollar strategy…

The South African government has unveiled a plan with the goal to create a $1.9 billion USD cannabis industry with 25,000 new jobs.

The Department of Agriculture, Land Reform, and Rural Development led a two-year process to craft a national strategy for the industrialization and commercialization of the plant.

“The cannabis industry will lead to diversification of the economy and thus increase economic growth, create jobs and for poverty alleviation,” the department said in a presentation to lawmakers.

The plan encourages the cultivation of hemp, with applications for these plants ranging from medicine and food to recreational use, and a strong focus on exporting South African grown cannabis.

Our Take

Although the current estimates suggest that this market would be worth $1.9 billion USD per year, with a population of 58.5 million, something tells me these estimates are selling this market short by a pretty significant margin. 

By comparison, 39.5 million people live in California where cannabis sales are $4.5 billion each year.

Are Teens Consuming Cannabis?

The federal official’s strong admission on who’s NOT consuming cannabis…

One of the primary arguments used to oppose the legalization of cannabis is that legalization results in more kids wanting to consume cannabis.

Yesterday, however, the Director of the National Institute on Drug Abuse in the U.S made a strong admission that the data does NOT support this.

Increased access…

A common argument used by those who oppose legalization is rather simple — normalizing cannabis results in more people wanting to consume it, including people under the age of 18.

Additionally, many will argue that legalizing cannabis results in greater access to cannabis products, however, a key point of consideration that is often overlooked is that legalizing cannabis can have the exact opposite impact.

Breaking expectations…

Nora Volko is the current director of the National Institute on Drug Abuse — an organization funded by the United States Congress.

Earlier this week, she made an appearance on the “Psychoactive podcast” where she said;

I was “expecting the use of marijuana among adolescents would go up” when states legalized cannabis, but admitted that “overall, it has not”.

More research….

She went on to say that when it comes to cannabis more research is needed to understand the real impacts of legalization.

Highlighting the hurdles that currently stand in the way of this goal, she emphasized that studying cannabis is currently “extraordinarily cumbersome”.

As a result of this, “researchers don’t want to get into the field.”

Our Take

The Director of the National Institute on Drugs going on record debunking this claim is very positive news for the cannabis industry.

As Nora Volkow emphasizes, more research is certainly needed before we can make any conclusions, however, progress is very clearly being made.

Fire Flowers Latest Acquisition

The Canadian cannabis retailer is continuing its accusation spree…

Founded in 2017, Fire & Flower has gone on a spending spree in recent weeks.

Having only announced its acquisition of Wikileaf, the Canadian cannabis retailer has announced its plans to acquire for $8.5 million USD.

  • → $4 million USD in cash.

  • → $4.5 million USD in stock.

The strategy…

With Facebook & Google refusing to work with cannabis companies, retailers like Fire & Flower have very limited channels to reach new consumers.

In light of these restrictions, Fire & Flower is instead consolidating some of the most popular B2C cannabis websites.

Currently, receives 170K visitors to its website each month, however, should they successfully complete this acquisition — the digital assets they own would receive a combined 2.5 million views per month.

  • Wikileaf receives 1 million page visitors each month.

  • Potguide receives 1.5 million page visitors each month.

Additionally, Fire Flower will gain 250,000 emails from these acquisitions.

Monetizing these assets…

The majority of the people using are based in the U.S, however, Fire & Flower currently has 86 stores located in Canada.

Evidently from these two acquisitions, we can infer that Fire Flower has big plans to enter the U.S market in the coming years.

Our Take

Spending over $15.5 million USD to acquire two popular cannabis websites is a big bet to make for a company currently valued at less than $250 million.

In the short term, I have no doubt that owning these assets will solve a very necessary problem for Fire & Flower, however, in the long term, I have doubts that owning these assets is the right move for any cannabis retailer to make.

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