A good idea, or could your investment go up in smoke?

It’s staggering to think that forecasters have predicted that by 2025 the global cannabis industry is expected to reach $146 billion, with the total market value of the South African cannabis industry raking in about $1.8 billion. These are the numbers being lobbied around and South Africa’s forward-thinking stance towards the 5-pointed leaf sets it up nicely to become a major player in the international market.

Since its legalisation at the end of 2018, the cannabis industry has proven to be an emerging market, giving South Africa the opportunity to run with the big dogs in this exciting new growth sector. Tito Mboweni even went so far as to say that policy changes in the industry can very well result in a potential source of revenue for SA in his Budget Speech.

With Statistics SA recently revealing that unemployment is not on the decline, it certainly is an opportune time to unlock the economic benefits, as well as the resulting job creation opportunities, that this industry presents. According to the New Frontier Data report the annual cannabis consumption rate in Africa is 11.4% while the global average is only 6% which bodes well for one of their Sustainable Development Goals which is to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”. The cannabis industry has the potential to create work opportunities for both low-skilled and high-skilled workers, it said, due to the fact that cannabis businesses will require management staff, administrative staff, manufacturing staff, agricultural operations and retail operations. In the United States, 321 744 jobs were created in the cannabis industry; and 35% were in retail operations.

So, with all the above in mind, the question at the forefront of every investors mind is whether or not to invest in the South African cannabis industry?

The collective word on the street is yes. If you’re looking to invest on the ground floor of one of the potentially largest markets globally, now’s the perfect time. Many companies are jumping on the cannabis bandwagon, one of which is CanbiGold, a South African holding company that has invested into several companies across the cannabis value chain and is offering early stage investors preferential share blocks at R500 000 per block. These are convertible at a 3 to 1 ratio once CanbiGold is listed. In Canada the listed cannabis sector has a market capitalisation of more than R500 billion. CanbiGold hopes to list on the Canadian Stock Exchange in the next 18 months to two years and possible a secondary listing on the ZAR X, a South African stock exchange. This is only one example of the investment opportunities that are budding across the sector.

Be wary of getting caught high and dry

As exciting as this whole new world of cannabis investment is, it’s important to not get caught up in the hype and invest without thinking. Right now, the buyers of cannabis shares are mesmerised by the potentially bright future that the landscape presents. Up until now, there hasn’t been any public cannabis related listing on the Johannesburg Stock Exchange (JSE), yet. But that is set to change any day now. One of the biggest companies on the JSE by market capitalisation, Anheuser Busch is invested in the marijuana industry, and just like alcohol, the odds are that cannabis will sell, sending shares skyrocketing. But we do believe in the old adage of what goes up must come down, so maybe it might be pertinent to keep an eye on the market and see what happens as the legislation around the product changes. After all, you wouldn’t want to see your investment going up in smoke, would you? 

OPINION PIECE FROM CM TRADINGCONTRIBUTOR: DANIEL KIBEL, FOUNDER AND DIRECTOR CM TRADING

Sources

• http://www.capetalk.co.za/articles/338910/how-dagga-could-become-a-cash-cow-for-south-africa-s-economy
• https://www.dailymaverick.co.za/article/2019-05-24-cannabis-can-create-jobs-and-grow-the-economy-new-report-argues/
• https://www.bizcommunity.com/Article/196/547/192479.html
• https://www.thesouthafrican.com/news/cannabis-industry-welcomed-with-open-arms-by-city-of-cape-town/
• https://businesstech.co.za/news/business/323689/south-africa-is-on-the-cusp-of-its-own-booming-and-legal-cannabis-industry/
• https://www.businessinsider.co.za/prohibition-partners-report-on-cannabis-in-africa-raises-irrigation-and-hydroponics-concerns-2019-3
• https://www.iol.co.za/business-report/economy/a-considered-approach-to-cannabis-investment-26708473