By the time the DTIC releases it proposals next April on how South Africa should commercialize cannabis, the unregulated cannabis ‘Grey Zone’ may be turning over more than the entire Gauteng tourism market. The illegal domestic cannabis market has an estimated value of R36 billion, compared to the R41 billion Gauteng Tourism sector.
Govt-regulated ‘Grey Zone’ Could Provide a R11 Billion Tax Base
Euromonitor has estimated the current value of the illegal South African cannabis market at R36 billion, of which are considerable portion would be in the ‘Grey Zone’, those illegal cannabis businesses that would be legal if there was the mechanism for them to do so. Euromonitor says that with a change in legislation, Government could ‘legalize’ R11 billion of the illegal market, much of which is in service of clandestine exports.
By contrast, the Gauteng tourist market was valued at R41 billion in 2024 and is growing, but no so fast. To put this further in perspective, Euromonitor estimates the value of the legal medical cannabis and CBD market in SA to be around R470 million. Roughly speaking, that means the illegal South African cannabis market is 77 times the size of the legal one, and the gap between them is growing.
If one looks simply at the VAT that the Treasury could be earning on the R11 billion off the ‘want-to-be-compliant’ part of the ‘Grey Zone, R, over R1,6 billion of tax revenue is being needlessly lost to the State because of widespread institutional failure, most crucially in the Justice Department.
Justice Dept is to Blame for Regulatory Bottleneck
The Justice Department continues to be the biggest single impediment to cannabis reform. Inexplicably, the Department has yet to issue draft regulations for the Cannabis for Private Purposes Act which was signed off by President Ramaphosa 16 months ago. Instead, the Justice Minister hopes to finalize these regulations by April 2024, by which time a further R5 billion will have been lost to the fiscus.
There have been repeated allegations within the cannabis industry that senior Justice Department officials have deliberately undermined the legalization of cannabis in order to benefit from the illegal trade. Although the conventional wisdom is that incompetence usually trumps conspiracy as an explanation as to why bad things happen, in South Africa’s case, we might just have a conspiracy using incompetence as a tool of financial extraction, as has been argued by guest writer Lee Hymers.
Putting aside the reasons for the dysfunctionality in Justice, the Department of Trade, Industry and Competition is hardly matching up to its task as being the lead ministry in cannabis reform. It has been caught flat-footed by the explosion of the Grey Zone and is focusing its attention on South Africa’s potential as a producer of cannabis rather than a consumer.
DTIC Building Policy on Economic Contradictions
This is sheer lop-sided economics: how can a policy be focused on developing the supply side of the value chain without factoring in matching that supply to demand? There’s no shortage of supply of high quality cannabis in the country and no shortage of demand. Why the DTIC can’t make that basic link is mind-boggling but understandable given the key economic contradiction that lies at the heart of cannabis reform. The Justice Department, through the Cannabis Act, seeks to restrict supply of cannabis and keep it criminalized, while the National Cannabis Master Plan seeks to increase supply and decriminalize the plant.
The DTIC, which is the lead department driving the NCMP, makes it clear that it sees cannabis reform focusing almost entirely on trying to make South Africa a leading producer of medical and industrial cannabis.
It makes no reference to the unregulated cannabis consumer market even though it dwarfs the current legal market. It also made no mention of the concerns of the Health Department about the widespread availability of THC products on the street, nor did it answer the critical question of how citizens can exercise their constitutional right to consume cannabis privately without having the legal means to purchase cannabis. The DTIC in fact made no reference to the consumer market in its latest communique at all.
Nonetheless, the DTIC intends submitting a cannabis commercialization plan to Cabinet in April 2026 and release it for public comment thereafter. There is no clear statement of intent from the DTIC as to whether it’s framework includes general adult use legalization or the legalization of private clubs.
While the DTIC wastes its time drafting regulations for the commercial trade in cannabis and the Justice department ponders on regulations for the Cannabis Act, a R36 million sector continues to be criminalized with no distinction between the good and the bad and the in between. And, the fiscus continues to lose out on billions of rands that could be put to good use.
Cilo Cybin’s Gabriel Theron sums up the lost opportunities succinctly: “It’s sad that’s it’s been almost 8 years from the constitutional court ruling, and we have not move forward in the local landscape at all. The cannabis industry can bring so much relieve to us as a country, and if we really moved quickly as government back then, we could have been the strongest cannabis player in the world.”
In the absence of a clear framework, all government communication on cannabis serves only to confuse the market and law enforcement further. In the meantime, the ‘Grey Zone’ will continue to expand according to market demand, with unregulated products and no consumer safety guardrails.
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