Dilemmas of the cannabis cash cow

NEO SENOKO

MASERU – The medical marijuana industry in Lesotho has great potential to contribute to the country’s economy mainly due to the growing international market for the product.

More and more countries in the world are considering legalising the product in a bid to also boost their economies.

The global legal marijuana market size was valued at US$9.3 billion (about M150 billion) in 2016, according to the Legal Marijuana Market Size, Share and Trends Analysis Report of 2018.

The market is expected to witness significant growth owing to legalisation in several countries and high demand for both medical and recreational cannabis.

South Africa has since legalised the use cannabis for personal use under the notion that the criminal prohibition of possession, use or cultivation of cannabis by an adult person for personal consumption in private is an infringement on the right to privacy of an adult person and is constitutionally invalid.

Lesotho, however, became the first country on the continent to legalise the use of cannabis for medical purposes in 2016. Since then, the cultivation and use of marijuana has been rapidly increasing across the continent as farmers, hit by low commodity prices, increasingly see the drug as a cash crop.

Pressure for legalising cannabis is increasing in many African countries and Lesotho is not an exception.

Some local analysts say the country should start thinking of legalising the drug across the board and not only for medical purposes.

Such thinking has been corroborated by local farmers who have been illegally operating in the industry for many years and insist that the drug brings more good and little harm.

Currently, cannabis is sold through illicit channels. To curb this illegal trade, government should start thinking about legalising recreational marijuana use in order to monitor the products that enter the supply chain and reap benefits through taxes levied on these products.

Lesotho police spokesperson Mpiti Mopeli, however, dismissed the idea labelling it as something that may never see the light of day.

“The only people that will continue operating legally are those that are licensed, apart from that police will continue doing their job of arresting people who are found in illegal possession of marijuana because it is still illegal in Lesotho,” Mopeli said in an interview with Public Eye on Monday this week.

Analysts are further calling for cheaper licensing procedures as that could allow smaller Basotho players to enjoy the benefits of legal cannabis and not just foreign companies with considerable capital.

Minister of Health Nkaku Kabi has since expressed concerns over companies that have been granted licences but are not doing anything on the ground.

He reiterated that such companies will not get their licenses renewed since sitting on the licenses without any operation means they have failed.

Initially licences were offered at M500, 000 per company, however the minister revealed that the price has been elevated to a staggering M5 million per copy.

“This is because we have noticed that it is very expensive to set up and run this type of project though we have also learned that it makes good sums of profits. So the increase in licenses is to say people should be well equipped financially before thinking of jumping into the project.

“Making it expensive means only people who are determined and with proper understanding of the industry will come forward,” Kabi said during his tour of the Medigrow plant in Marakabei earlier this year.

International corporations have expressed a lot of interest in securing permits which the government has been issuing since 2017. Several companies have been given the go-ahead through licensing by government to start operating in the booming industry.

Of these companies, only two so far have made significant progress and could be ready to dominate the market both locally and globally.

Medigrow holds a license for cultivation, extraction, manufacturing and exporting intermediate and final products. Exports are restricted to countries with enabling medical cannabis legislation.

The company has declared Lesotho as their ideal location for the product in that it has an attractive fiscal regime and a great climate and abundance of clean water.

Another company which has already started operating is Verve Dynamics, a South African company that manufactures herbal medicines and skincare products to grow, process and sells marijuana for medical purposes.

Other companies that have been licensed are however yet to make progress.

Lesotho became the first African country also to issue licenses for medical cannabis operations. The country’s favourable jurisdiction for cannabis cultivation due to its rich soils, ideal climate, skilled agricultural workforce, low labour costs, access to key infrastructure and several international trade agreements that permit the unencumbered export of Lesotho’s cannabis products to various jurisdictions worldwide.

While the future is looking bright in the industry for Lesotho, local analyst Arthur Majara believes government will eventually be forced to legalise the drug across the board as the market grows bigger.

“Marijuana has a long history of use in religion and neurology science and it is now evident that this has been acknowledged hence its legalisation in the United States. The legalisation came after a long activism journey involving lobbyists and other activists across the world. In many countries it was and still is considered an illegal drug or prohibited substance. But currently, North America, especially US and Canada are in the forefront of promoting medical marijuana.

“If you look at it, South Africa has legalised it also for personal use. So even for us, we are going to have to go the same route one way or another, particularly because studies have found out that the drug is not as harmful as it has been made to be,” Majara said in an interview with Public Eye on Monday this week.

Marijuana remains the most commonly used illicit drug in many countries over the years. In Lesotho, hundreds of people are in jail after being directly or indirectly found in possession of the illegal drug.

Many small-scale farmers in Lesotho find themselves in the illicit trading of the drug in order to earn a living, particularly in a country where unemployment is as high as 28 percent, according to World Bank statistics.

Majara, however, believes that Basotho would move towards operating legally if licenses were a cheaper.

“The license was initially bearable and now is feared to be around M5 million. A ridiculous pricing structure of this license cannot be justified as all costs. For one thing, Lesotho has had no experience in medical marijuana except the good old days of illicit selling of the drug to neighbouring South Africa.

“The country has no medical centres with research facilities. It relies on what is happening around the world as marijuana sets the world alight. The economic advantage of pricing its license this high will be short-lived. The market leader, a Canadian company, is not doing well on global stock exchanges suggesting that very few investors will be willing to buy into Lesotho products in a long time to come.”

Despite the claimed quality product of Lesotho, Majara elaborated in an interview with Public Eye that its licensing will in the long run discourage investors who are usually a lot sensitive to persuade successfully.

“As for our farmers, they will be entering a new market in which nobody has any commercial experience and indeed it would be a good idea to support local producers with an affordable licensing regime,” he added.

Similar sentiments were echoed by chartered accountant and business advisor, Sam Mphaka, who advised the government to make the drug available for Basotho. Mphaka is also advocating for Basotho to be trained about how they could enter the mainstream trade in the product through partnering with interested international investors knowledgeable about the medical cannabis industry.

“Legalizing the product for personal and private use could be done, but it has to be under very strict laws and guidelines. Otherwise, it might be misused and become hazardous to the lives of the citizens.

“A lot of behavioral education, coaching, training and campaigns would have to be done as well to ensure appealing behavioral patterns towards the product, especially among the youth,” Mphaka noted in an interview with Public Eye on Wednesday.

Mphaka also weighed in on the economic potential of the industry, labelling it immeasurable. He said by the very nature that it is the industry that produces a product which addresses the illnesses, especially terminal illnesses such as cancer, it makes the product’s demand quite high across the globe.

That global demand, according to Mphaka, might even be beyond the production capacity of Lesotho.

“It is expected that once medical cannabis has matured and exportation to international market has begun, there will be a boom in Lesotho’s economic growth. We might expect an unusual higher rate of growth in the Lesotho’s economy.”

“The foreign currency reserves at Central Bank of Lesotho, which we need so much will be improved. Employment creation will also increase. What is critical for Lesotho now is to ensure that the Lesotho bureau of standards (i.e Lesotho Standards Institution) is up and running as a matter of urgency,” he added.

“In that way Mphaka believes that Lesotho’s exports, be they the medical cannabis, wool and mohair or other products will be exported as products whose origin is only Lesotho,” Mphaka added.

Furthermore, one of the analysts from the Central Bank of Lesotho (CBL) who asked to remain anonymous had said earlier this year that the industry will benefit the country in many ways in terms of employment creation and bringing more Foreign Direct Investment (FDI) into the country.

An increase in FDI means a direct growth of the country’s economy.

FDI inflows to Lesotho accounted for US$135 million in 2017, a slight increase from US$132 million in 2016. FDI stock reached US$535 million in 2017, according to the 2018 World Investment Report.

“The industry can also result into an increase in exports and increase in foreign exchange earnings. There will also be positive spill over into other sectors of the economy such as the services industry.

“Also the global demand is very high as reflected by a very high price of cannabidol oil per litre,” the analyst said in an interview with Public Eye earlier this year.

When unpacking the potential in the industry, he posited for instance that 10 producers assuming an operation in each of the 10 districts can create up to 30, 000 jobs from an investment of approximately M12 billion. With this scenario he said the country is looking at the new industry potentially contributing between 8 and 10 percent to GDP in 2020.

Legalisation of the drug, however, may have its own glitches as more people could end up freely abusing the drug for recreational purposes. Studies have also shown that while the drug has many positive benefits, it also has its own negatives towards human existence.

A study from New Zeland conducted in part by researchers at Duke University showed that people who started smoking marijuana heavily in their teens and had an ongoing marijuana use disorder lost an average of 8 IQ points between ages 13 and 38.

According to the study, the lost mental abilities did not fully return in those who quit marijuana as adults.

The study further revealed that marijuana use can lead to the development of substance use disorder. The research suggests that between 9 and 30 percent of those who use marijuana may develop some degree of marijuana use disorder.