Take it or leave it: The law prohibits banks from lending to the cannabis industry, but change is on the horizon.Photo: Getty Images
The banking sector is hesitant to invest in cannabis because current laws prohibit financial institutions from putting money into the industry. Cannabis remains illegal under the Narcotic Drugs and Drug Trafficking Act, but the new law would decriminalize stimulants and allow money to flow into the industry.
Major banks such as Nedbank, FirstRand and Absa follow the sector with interest, but say they are reluctant to lend to the sector due to the restrictive legal framework.
Sam Moss, FirstRand's head of investor relations, said: “The company is looking at the industry and assessing where it is appropriate to support, but is not meaningfully involved at this stage. ” he said.
He said that for pharmaceutical applications, there is a need to clarify how the industry will be regulated to ensure products are used appropriately and how risks of potential abuse are mitigated. He said there is.
“If regulation proves to be strong, we will support projects within the value chain, perhaps initially on a relatively limited basis as the industry matures,” Moss added.
Absa said it is mindful of the latest legislative developments regarding the cannabis industry and will monitor and adapt the bank's policy stance as the external environment and customer needs change.
“Absa recognizes the growing focus on the cannabis industry to create economic opportunities, including job creation, in South Africa. , is committed to participating in the provision of financial products and services,” the bank said.
John Hudson, head of agriculture at Nedbank, highlighted the strict regulatory and approval processes that are a barrier for banks to invest in the cannabis industry.
“Cannabis as a sector has potential, but requires proper planning, sufficient funding, access to relevant expertise and new entrants,” he said.
Since the Constitutional Court overturned the anti-cannabis law in 2018, the process of passing effective legislation and developing policy has dragged on.
Currently, cannabis can only be grown commercially for the medical export market under a license issued by the South African Health Products Regulatory Authority.
The cannabis bill, drafted in response to a court order, was expected to be passed by 2020, but has been pushed back several times.
In its current form, the law continues to provide for prison sentences for cannabis trafficking, leaving the creation of a legal cannabis industry framework to the passage of further legislation.
“The Government has done a disastrous job in terms of introducing legislation. It has been five years since the Cannabis for Private Purposes Bill was introduced and the bill has still not been debated. [President Cyril] Ramaphosa's desk. If not approved before the election, it could add another six months before being considered,” said Trenton Birch, chief executive of Chiba Africa Cannabis Academy.
“This is not a perfect law, but it decriminalizes cannabis and allows cannabis to be removed from drug laws. That means cannabis will be legalized to some extent and there is potential for investors to put money into this industry. will increase,” he said.
Birch said the banking sector still views cannabis as a drug and is therefore not interested in reforming its own internal policies to encourage investment in the banking sector.
“They have protocols and laws that they have to follow as financial institutions, so they are very risk-averse. As an entrepreneur looking to get into the cannabis space, the last place I would go for funding is a bank.” he said.
Mr Birch said the government had also committed to minimal financial support, particularly for training.
Ramaphosa has mentioned the cannabis economy in several State of the Union addresses. In 2023, the President reiterated the commitment made by the government in 2022 to open up investment in the hemp and cannabis sector.
“We are working to create the conditions for this sector to grow,” Prime Minister Ramaphosa said in his speech.
In 2022, the President recognized the investment potential of the cannabis and hemp industry and announced plans to grow the cannabis industry.
“The legal hemp and cannabis sector has the potential to create more than 130,000 new jobs in South Africa,” Ramaphosa said.
In 2021, the South African cannabis industry was worth an estimated R87.7 million. This figure is projected to reach R406.3 million by 2026, with a growth rate of 28.4%.
That hasn't happened yet, and Burch said the only way to start a cannabis business right now is to ask friends and family to provide funding.
Looking at global case studies, Darryl Wise, CEO of investment fund Silverleaf Investments, said that if governments were to be integrally involved in cannabis legalization, it would be difficult to finance the cannabis industry. He said best practices can be found here.
“The lack of legal reform is hindering investment in the cannabis industry,” he said.
Wise noted that marijuana, which is not registered as medical marijuana and cannot be made available to the public without a doctor's order, is still included in drug laws.
“Nedbank, Absa and FNB will have difficulty raising funding for the sector. Medical cannabis facilities are struggling to get funding from banks. Unlocking the industry will require overcoming legal hurdles “We need to do that,” he said.
“Banks are very hesitant. Their hands are tied.” — Additional reporting by Sarah Smit