South African Special Economic Zones (SEZs) hope to cash in on the growing trend of global cannabis legalization.

In September 2018, South Africa legalized the use of recreational cannabis. Cannabis is now taxed and regulated like alcohol, and can be purchased by South African consumers. In the months following legalization, neighboring Lesotho announced that it would be producing cannabis in its SEZs for South African markets.

Special Economic Zones (SEZs) are business parks or cities that have been granted unique incentives to stimulate economic growth. There are 7,500 SEZs in the world, 11 of which are in South Africa.

South African SEZs are now making moves to accommodate the burgenining cannabis industry - they hope that by being first movers, they will be able to cash in on the growing industry.

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Interview between Thibault Serlet and Jarrod Lyons

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I spoke to Jarrod Lyons, an executive of the Atlantis SEZ in Cape Town about how his SEZ plans to become South Africa’s premier cannabis destination.

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Thibault: Now that recreational cannabis is legal in South Africa, would you be open to looking for more tenants from the cannabis industry? 

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Jarrod: Yes, provided that their investments are inline with our green economy principles and they subscribe to our ethos of reducing carbon emissions while promoting social inclusion through employment creation. They would also need to demonstrate a level of resource efficient cleaner production (green manufacturing) and ideally be processors and not cultivating, as the job density per square meter of land is greater in the processing space.

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Thibault: What companies have expressed interest in Atlantis SEZ so far?

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Jarrod: Cannsun Medhel [a cannabis medical research firm which is] funded by private investors out of Canada. The local directors include a specialist in the agriculture space as well as a director in charge of business development. They were one of the first companies to obtain their [medical] license after fully building their infrastructure and grow facilities before being ultimately approved as a cannabis cultivator. Other firms that have expressed interest include Canopy Growth, the world’s largest cannabis company, and Aurora Cannabis which already has a facility in Lesotho.

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Thibault: What unique challenges does cannabis pose?

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Jarrod: In South Africa, the industry is still fledgling, which comes with a level of “pensiveness” from regulators. The taboo associated with the consumption of cannabis seems to be eroding however, which does indeed bode well for the regulators ability to research the health-related impacts of cannabis in humans. The South African Health Products Regulatory Authority (SAHPRA) were also faced with challenges in that they were not capacitated to deal with a large number of cultivation license applications. In fact, there was no formal cannabis license application, but rather an iterative set of engagements between an applicant and the regulator, which resulted in a drawn out and expensive process. To the best of my knowledge, the process for applying to cultivate cannabis is more efficient and “investor friendly” now that a few licenses have been awarded. The processing side of things, however, seems to be moving ahead quite nicely, and initial indications are that cultivators are exploring value-add processing more bullishly than ever, and not just exporting cultivated products.

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Thibault: Are there any public relations challenges?

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Jarrod: Significantly less than expected and what was originally experienced when cannabis became legal in our country. I think in Africa, cannabis consumption is almost more acceptable in that it is believed to have been used for medicinal purposes for hundreds of years. There are still small factions of the community who are against the use of cannabis, but this is evident around the world I’m sure.

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Thibault: As Germany, the United States, Switzerland, Portugal, and the UK legalize cannabis, what kind of opportunities does this bring for South Africa? 

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Jarrod: Right now, the largest consumer of cannabis out of South Africa is Germany. 100% of Cannsun MedHel’s cultivar is exported to Germany. I think with the legalization happening as rapidly as it is, South Africa is well-placed to capitalize on this growth in demand. I imagine we are also primely located from a climatological point of view, as our weather is almost perfect for even the best quality to be achieved from outdoor, less controlled, growth. This means that we, as a country, potentially have the opportunity to grow cannabis cheaper than anywhere else in the world, making an investment in South African cannabis growing quite lucrative.

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Thibault: Is Atlantis only targeting medical cannabis, or is recreational cannabis also being targeted?

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Jarrod: At this stage we are agnostic and will consider any legal, green (sustainable) productive cannabis investment  into our SEZ. Again, by productive, we mean, more value adding and job density; i.e., manufacturing.

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Thibault: How would Atlantis treat recreational cannabis differently than it might treat an alcohol distillery (if at all)? 

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Jarrod: As a company, we apply the same adjudication processes across all types of investment. The challenge is in the messaging around the ability for investors to access incentives. Landing the investment in the ASEZ is the first qualifying step in being able to apply to the South African Revenue Services for application of incentives. Should the activity being undertaken in the ASEZ not be construed as ‘qualifying’, the incentive is then not applied. So, in short, the ASEZCo treats all investment queries the same and in accordance with our Board-approved adjudication policy. The regulators regulating incentive applicability and other project specific parameters have their own criteria in place too.

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Thibault: What qualifications should investors have? What should investors interested in locating Atlantis know?

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Jarrod: We need investors to demonstrate a.) that their manufactured product is a green technology (e.g., solar panel/wind turbine component, etc.) or b.) that the way in which they manufacture their product is sustainable, resource efficient and socially inclusive. These criteria are termed “go/no-go” criteria and have to be met in one or another by the applicant. Additional criteria are more generic and very much related to the businesses ability to ‘service’ the lease we sign with them. Using tax-payers money to build a facility, which an applicant occupies to undertake their manufacturing activity in, requires that the ASEZCo makes sure that the capital injection into the top-structure is paid back and does not end up being wasted. We thus apply a level of due diligence similar to what financial institutions would apply when companies take loans. We strive to succeed and want to build a reputation of a successful state owned company who knows how to use tax-payers money in the most responsible manner.

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