M Ayanda Bam refers to it as that “dirty little word”. Medigrow CEO Edgar Adams says it’s the phrase he “hates the most". Canadian consultant Rob Smallman associates with it with “For the EU, Get More Papers”.

They’re all referring to the acronym, EU GMP (European Union Good Manufacturing Practice) a validation (or ‘necessary evil’, as some may describe it) that South African cannabis exporters require if they are to get a foothold into Europe. The problem is that EU compliance comes at a fiendishly high price that puts it beyond the reach of anyone but corporations with deep pockets.

These comments emerged during the Cheeba Africa webinar on 27 August 2024 on ‘Charting a Way Forward for the South African Medical Cannabis Market’.  Cheeba Africa’s co-founder Trenton Birch hosted the online discussion with guests  Rob Smallman (Avitas Consulting / Global Cannabis Exchange Canada / Portugal), Zaid Mohidin (Vitacann Pharm - South Africa), Ruben Moreno (-Valenveras / Cannabis Hub – Spain), Daniel Kunisch (Trade Green Consulting / Cheeba Cannabis Consulting - Spain / Germany ), Edgar Adams (Medigrow - South Africa), M Ayanda Bam – (Texttan / Zageta Solutions - South Africa).

Cheap cannabis, expensive solutions

The nub of the contradiction is that South Africans can produce a gram of cannabis for 15 US cents. In the northern hemisphere, a gram costs US1.00 to produce. Surely there’s a cost advantage in this? At first glance, yes, as Medigrow's Edgar Adams points out: “we should be able to sell to market at what it costs them to produce”. But there additional costs for non-EU-GMP certified growers to get product into Europe - either more upfront investment for additional compliance measures, alternatvely higher export costs that take a chunk out of margin.

To get an EU GMP creditation can cost up to R300 mllion, says Adams, as opposed to the R40 million or so it of capital that it requires to be SAHPRA-compliant! And it will take the investor three to five years to recoup the outlay! 

"But theoretically there is money to be made" says Adams: "To run six tunnels will cost you R800 000 a month, but it you do it properly you can make an income of R6 million. So there's a big gap there, but then there's the cost of getting it to market, which unless you have a European partner, you lose the price advantage".

Currently, some SA exporters are sending product to Europe where it gets ‘greenwashed’ by the importer who cures, trims, cures, packages and labels SA cannabis to European specs. This costs an additional one Euro per gram, which drives the price up. In addition, existing players don’t like this practice as they’ve already had to subscribe to the rules.

“There should be an EU-GMP-lite” suggested Bam, where the product is clean and consistent and acceptable to Europe. 

 “I like that idea” said Adams. 

“Bring it on” said Birch. 

This was wishful thinking said Smallman, who oversaw Trulieve's EU accreditation.  “EU-GMP is here to stay, because it’s ultimately for the good of the patient”. 

In short, EU GMP requires that cannabis be grown indoor in order to meet the stringent quality requirements. These are based on northern hemisphere conditions and fly in the face of South Africa's natural advantage of being able to grow outdoor or greendoor without the excessive costs.  

Currently, no SAHPRA-licensed greendoor/greenhouse (cannabis grown in tunnels which allow limited control but make the best of the climate) grow ops are eligible for EU accreditation - and outdoor is just out of the question because consistency is unattainable because nature is ultimately in control. 

The panelists agreed their ought to be new 'developing world' standards that were internationally recognized, that could provide stepping stones into the first world.

“GMP should be replaced with GHP (Good Handling Practice), because we are not really processors, we are handlers” said Adams, pointing to the fact that there should be an African standard of good cannabis production that other jurisdictions subscribe to. Bam reminded the panel that EU restrictions were not only for the safety of consumers but were also “levers that were used to create barriers of entry for folks from the developing world”.

Bam also warned that South Africa was not the only cannabis export nation to compete on pricet in Europe. Countries such as Colombia and Thailand were in the same production price brackets as South Africa and could become major competitors. "The one positive factor about South Africa is that, unlike in many other parts of the world, local medical cannabis cultivators aren't competing with each other. There's a big enough field for everyone to play" said Adams.

If 'there' is so expensive, what about 'here?'

Well, with European compliance so costly, the obvious question is shouldn’t South Africa be developing its own medical cannabis market with a less onerous compliance requirements? Or at least forge long-term relationships with jurisdictions that aren’t so fussy? For instance there are a number of new African markets opening up and Australia does not have the same restrictions as the EU.

There are political barriers as well. “Israel is a good market for export right now but there are some political difficulties” said Adams. “Israel wants to do business with South Africa but South Africa does not want to do business with Israel, but however, you look at it there’s a market right now.” Australia presented a better alternative for medical cannabis exports although that country was fast developing its own supply chains.

Part of the problem with opening up the domestic market lies with SAHPRA. The health regulator does  not currently allow unlicensed growers to supply the local medical cannabis market, unless through a Section 21 scheme. There is also no consideration for ‘complementary medicines’ which are increasingly popular amongst cannabis consumers and available in the scores of “grey zone” shops that have sprung up in the last year, which allow ‘self-medication’.

There are perhaps around 10 000 registered South African medical patients (SAHPRA has not disclosed the figure), and there is a lot of unhappiness among authorities that Section 21 ‘loopholes’ allow for 'recreational' consumption. The 'loopholes', however, are actually provisions that allow doctors to prescribe cannabis for what are not strictly medical ailments, such as improved sleep or a sense of calm.

Adams said regulatory change could make life a lot easier for 100 or so SAHPRA-licensed growers to have more market choice. "What would happen if you had to implement EU GMP for everyone, the industry is going to die". 

Adams said a new medical cannabis market needed to be created that would allow licensees to legitimately supply the local market.  “SAHPRA needs to go back to the drawing board to relook at medical cannabis provisions in South Africa to allow the market to open up”.

SA should be the breeding ground for an international medical cannabis strategy

A completely legal local market would allow South African medical cannabis brands to develop their own identity before attempting to export, said Birch. Bam agreed, saying South Africa should develop its own unique selling propositions . 

“We need to develop our own brand stories, the equity that’s in our provenance; this has not been exploited and is worthy of investment. We should be building long-term loyalty with those customers who seek differentiation, who associate differentiation not on the quantity of THC but on the full-spectrum effect”.

“We should not be going for medicines that are bazookas when one is just trying to heal a small ailment” said Bam, who said this kind of specialization was an area for South Africans to explore to carve out a long-term market share.

Daniel Kunisch also highlighted the need to develop a local market ahead of an export strategy and that cultivators and business needed to work more closely in this regard to make sure they right product was being grown for the right markets.

Zaid Mohidin said one of the challenges was the integration of cannabis into the healthcare system generally. “The low cost per gram that we can produce for needs to feed into downstream products. Government needs to incentivize players to get into downstream product development for medical cannabis

“Let us not forget that we are an African cannabis gateway” said Mohidin. “We should have a collaborative strategy with our African partners and not be sidetracked by Europe all the time.”

Smallman agreed: The number one focus should be on Africa. There are a number of countries coming on line soon in the medical cannabis space. There are big potential markets there. I know there’s a necessity to sell product now, but Africa is going to be massive in the long-term, and if it’s done right it will be beautiful for everybody”

To do this South Africa had to get its genetics right, cultivate growers who could react quickly to problems, and focus on post-harvest skills.

'If you've got the gear, but no idea, dial-in'

Birch said South African cultivators often “had the gear and no idea” and urged them to ‘dial-in’, the new cannabis buzzword for staying up to speed with what’s happening around one.

“Get up and get out” was his message to cultivators:

 “And don’t send any crap out the country; it’s a long game and we’ve got to stick at it".

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