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Entrepreneurs to capitalise on SA’s budding cannabis industry

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Published Date: March 12, 2020

With deregulation glinting globally, the cannabis market is expected to explode.  New Frontier Data’s Global Cannabis Report: 2019 Industry Outlook estimates that there are around 263 million legal users of cannabis and cannabis-related products worldwide.  Africa is home to 83 million of these. The report estimates that the total legal cannabis market hit a value of $344 billion in 2018, and ranks Africa as one of the top five regional markets, accounting for $37.3 billion.

Both locally and abroad, stigma and extensive regulation continue to kneecap the potential for growth in the cannabis industry.  South Africa’s Constitutional Court ruled in 2018 that private use and cultivation of cannabis are no longer criminal offences, with regulations due within the next few months. The South African government has eased regulations on the marketing of certain cannabinoid-containing products, but these expire soon and we are yet to see what the government proposes to do going forward.

The potential for South Africa to contribute to and draw benefit from the development of the cannabis industry appears to have been recognised by the government. In a country plagued by unemployment and hungry for new opportunities for entrepreneurs, it is believed that this should be seen as a welcome move.

Protecting Investment

In seeking to capitalise on opportunities arising from prospective cannabis deregulation, entrepreneurs would be wise to protect investments of time and money by proper deployment of contracts, business practices and intellectual property registrations (e.g. patents, trade marks, and plant breeders’ rights).

Prospective entrepreneurs face a risk that, through some otherwise harmless actions that they may take in the development or exploitation of cannabis-related inventions, they may fall within the scope of the exclusivity that is afforded by an existing patent of another party.  Entrepreneurs also have an opportunity, however, to place themselves in such a position over the market, by moving industriously to establish exclusivity where there are technology gaps to be filled.

All too often, entrepreneurs leave the creation of a solid legal basis for their businesses by the wayside, only to be disadvantaged later-on. Particularly in a developing industry, getting your affairs in order early on may prove to be invaluable when others are later trying to enter the market, riding on the coattails of those before them. Entrepreneurs should also be mindful of legal constraints that they may face in generating a return on investment. Such constraints would exist, most prominently in government regulation and the intellectual property rights of others.

In respect of intellectual property, branding considerations relating to cannabis have been discussed extensively by Kareema Shaik, Partner at Adams & Adams, in two earlier articles. Looking further afield, at the protection of cannabis-related inventions e.g. by way of patent protection, a prominent consideration from the perspective of third-party rights, but also an opportunity for inventors, is that there is a lack of technical publications on cannabis due to its longstanding regulation. Since the scope of patent protection that may be obtained for an invention is limited by prior disclosures, a lack thereof has the result that patents of a broad scope may be obtainable.

Prospective entrepreneurs therefore face a risk that, through some otherwise innocuous actions that they may take in the development or exploitation of cannabis-related inventions, they may fall within the scope of the exclusivity that is afforded by an existing patent of another party.  Entrepreneurs also have an opportunity, however, to place themselves in such a position over the market, by moving industriously to establish exclusivity where there are technology gaps to be filled.

Agricultural innovation: From land or lab

The strongest point of origin from which South Africa’s cannabis market may take flight is the agricultural sector. It is well-known that South Africa has optimal environmental conditions for the cultivation of cannabis – think of the infamous so-called “dagga belt” in the Eastern Cape. This potential for the agricultural exploitation of cannabis offers far-reaching economic opportunities for our country, even on the most basic levels.

While it has long been possible to obtain a permit for cultivating cannabis, the justification for doing so has been lacking as a result of regulation.  Now, with deregulation on the horizon, this may change radically.

From the perspective of legal protection for innovative efforts in the agricultural exploitation of cannabis, there are some technology areas on which innovative entrepreneurs may wish to consider focusing their attention in seeking to establish exclusivity, taking into account some aspects of intellectual property law.

One aspect is that effective exclusivity may be established in respect of new plant varieties that are created by breeding, through the registration of plant breeders’. Multiple varieties of cannabis are already known, and this emphasises the possibility to breed other varieties with improved characteristics to serve respective market segments.

The often-controversial possibility of genetic engineering is another aspect, since patent protection may also be obtained for genetically engineered plants and, more broadly, the specific engineered DNA sequences of such plants.

A further aspect is the innovative culture of South African farming communities, specifically in respect of cultivation techniques and devices. These techniques and devices are also usually ideally suited for protection by patents.

Medicinal innovation: From complementary to therapeutic

As indicated earlier, while non-private cultivation of cannabis without a permit, and the development, manufacture and commercial exploitation of cannabis and cannabis-derived products (subject to certain exceptions), remain illegal in South Africa, a recent exemption has eased the regulation of cannabis, specifically by excluding products containing certain prescribed concentrations of cannabidiol (CBD) and tetrahydrocannabinol (THC) from regulation.

This exemption does not extend to potential therapeutic uses of cannabis. Since cannabis has long been, and to a large extent remains, a highly regulated substance, there has been a lack of scientific research to provide acceptable evidence to support claims of its therapeutic value. The legal position in South Africa, that cannabis may not generally be said to have any therapeutic benefit, has therefore not been changed.

One would hope, however, that future deregulation of cannabis would be sufficiently extensive for research into the therapeutic usefulness of cannabis to be justified. Reaching that point however, may be some years off, considering the normal course of the approval of therapeutic substances.

Unlocking the opportunities for South Africa: Incremental deregulation

With positive sentiment towards the cannabis market on the up, it is exciting to see that South Africa appears to be following the deregulation lead of countries like Canada. By unlocking the potential for the development of a new industry, government is bound to stimulate a flurry of exciting local activity on many fronts, including in research and development, agriculture, and production.

As a spin-off, one would hope to see an increase in intellectual property registrations as entrepreneurs take up the available opportunities.

The excitement notwithstanding, it must be appreciated that cannabis deregulation remains a contentious topic and that, in a country with complicated and far reaching socio-economic challenges, a sophisticated and pragmatic approach to its deregulation must be adopted. It is believed that deregulation on an incremental basis, that serves the needs of the market as it develops but also recognises the legitimate social concerns of citizens, would probably be a more sustainable approach to implement than blanket deregulation. In this regard, research and development work would be invaluable, to inform practical regulations that protect the public where needed and develops the market where possible.

One would imagine that, having tested the waters with the recent exemption, government would be willing to make the exemption more permanent, and even expand upon it.  Furthermore, it is hoped that there would be a move to create more opportunities for commercial cultivation of cannabis in light of such, and possibly other exemptions, bearing in mind the need to create commercially viable opportunities for small-scale farmers, to achieve productive utilisation of agricultural land.

All-in-all South Africa is hopefully has exciting times ahead in the prospective industry of cannabis, to the advantage of the local industry and economy.

Pieter Visagie
Partner | Patent Attorney
Kareema Shaik
Partner | Trade Mark Attorney

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