Making it with medical cannabis
Farmer's Weekly|January 28, 2022
Thinking of producing medical cannabis? Glenneis Kriel spoke to industry pioneers about the opportunities and pitfalls for growers of this crop.
Glenneis Kriel

Cannabis has been touted as the next big money-spinner in agriculture, with many farmers looking for a way to cash in on this market. Producing medical cannabis, however, presents a number of hurdles, of which infrastructural cost and operating expenditure are probably the most daunting.

Michael Holmes, CEO of medical cannabis producer Neopharm, which is currently producing its first crop, says the first phase of his company’s investment in a 400m² production and processing facility the Cape Winelands cost close to R70 million. This was a staggering 200% more than they had envisaged.

He identifies security costs as one of the biggest drivers of unforeseen expenses. “We had to fence in the facility and establish secure access control points. We invested in more than 80 security cameras and other technologies to enable the monitoring of activities in every single corner of the facility. The recorded activities are logged and stored for future reference.” Operating costs are also exorbitant. Holmes explains that cannabis not only requires the right volumes of the right nutrients at the right time, but production is also greatly influenced by climatic conditions and light.

“Production needs to be climate-controlled to ensure a repeatable, standardised, high-quality end product. This significantly increases electricity costs and forces farmers to invest in backup energy sources to alleviate the impact of load-shedding.”

Aside from this, staff need to be employed to secure the facility and oversee production long before any income is generated from the crop.

While the return on investment can be huge, Holmes estimates that it takes approximately 24 months after the start of production to break even. The final time frame depends on the quality of the product, the skill of the production team, the production environment and the target market.

These sentiments are echoed by Leslie Zetler, CEO of Felbridge, a medical cannabis producer also based in the Cape Winelands. The company made history when it exported South Africa’s first commercial batch of the product in June last year, but Zetler points out that the business built a 14 000m² production facility that opened back in 2019.

Felbridge’s equipment supplier and production adviser, James McGregor, CEO of Hydrobiz, says a cannabis farmer would be hard-pressed to get away with an investment of less than R10 million to cover infrastructure and operational costs until the investment starts to pay off.

“I see many people getting licences, but if they don’t invest in the right production equipment and plant material, they won’t hit the economies of scale required for financial viability,” he says.

On top of this, these investments are made blindly. Zetler explains that no clients will sign an offtake agreement until they have seen and tested the product.

Both Zetler and Holmes feel that cannabis market prices are highly inflated at the moment.

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