/ 20 April 2024

Banks can’t finance the cannabis industry

Gettyimages 1317840915 (1)
Take it or leaf it: Laws prevent banks from financing the cannabis industry, however changes are on the cards. Photo: Getty Images

The banking sector is hesitant to invest in cannabis because the current legislation inhibits financial institutions from putting money into the industry. Under the Drugs and Drug Trafficking Act cannabis is still outlawed but new legislation would decriminalise the stimulant, allowing for money to flow into the industry. 

Major banks, including Nedbank, FirstRand and Absa, have said they have followed the sector with interest, but have not been proactive in financing it because of the restrictive legislative framework. 

“The company is looking at this industry and assessing where it would be appropriate for us to support it, but at this stage we haven’t had any meaningful involvement,” said Sam Moss, head of investor relations at FirstRand.

He said clarity was needed on how the industry would be regulated to ensure the product was used appropriately, in the case of medicinal use, and how the risks of potential abuse would be mitigated.

“If the regulation proves to be robust, we expect to support projects in the value chain, perhaps initially on a relatively restricted basis as the industry matures,” Moss added.

Absa said it had noted the latest legislative developments regarding the cannabis industry and would monitor and adapt the bank’s policy positions in response to the changes in the external environment and ­client needs.

“Absa recognises the growing focus on the cannabis industry in South Africa to unlock economic opportunities, including job creation. We are committed to participating in the provision of financial products and services within the enabling legislative framework and internal policy positions,” the bank said.

Nedbank’s agriculture head John Hudson highlighted the rigorous regulatory and approval processes that acts as a barrier for the bank to invest in the cannabis industry. 

“While cannabis as a sector has potential, it requires proper planning, adequate funding, access to relevant expertise and having an offtake,” he said. 

The process of passing enabling legislation and developing policy has dragged on since the constitutional court overturned the laws banning cannabis in 2018.

At present, cannabis can only be grown commercially for the medical export market in terms of a licence issued by the South African Health Products Regulatory Authority.

The cannabis bill, drafted in response to the court’s order, was meant to have been passed by 2020, but has been sent back several times. 

In its present form, the law continues to prescribe jail sentences for trading in cannabis, leaving the ­creation of a framework for a legal cannabis industry to the passing of further legislation. 

“The government has been disastrous in terms of its delivery of legislation. It’s been five years since the cannabis for private purposes bill was tabled and it is still sitting on [President Cyril] Ramaphosa’s desk. If it does not get signed off before the elections, another six months could be added before it is even looked at,” said Trenton Birch, the chief executive at Cheeba Africa Cannabis Academy. 

“While it’s not a perfect piece of legislation, what it will do is decriminalise cannabis and allow cannabis to be removed from the Drugs Act. Which means cannabis becomes legalised to some degree and investors will more likely be willing to put money into the industry,” he said. 

Birch said the banking sector still views cannabis as a narcotic and so it is not interested in reforming its own internal policies to facilitate investment into the sector.

“They have protocols and legislation that they need to adhere to as financial institutions, so they are very risk averse. The last place I would go to for funding as an entrepreneur trying to enter the cannabis space is a bank,” he said. 

Birch said the government has also committed minimal financial support, especially for training.

Ramaphosa has made reference to the cannabis economy in several of his State of the Nation addresses. In 2023, the president reiterated the government’s commitment made in 2022 to unlock investment in the hemp and cannabis sector. 

“We are moving to create the conditions for the sector to grow,” Ramaphosa said in his speech.

In 2022, the president announced plans for the growth of the cannabis and hemp industry, recognising the industry’s potential for investment. 

According to Ramaphosa: “The legal hemp and cannabis sector has the potential to create more than 130 000 new jobs in South Africa.”

In 2021, the South African cannabis industry had an estimated worth of R87.7 million. This figure is projected to reach R406.3 million by 2026, with a projected growth rate of 28.4%.

None of this has happened yet and according to Birch the only way to start a cannabis business right now is to fund it by asking friends and family. 

Darryl Weisz, chief executive of investment fund Silverleaf Investments, said looking at global case studies, he’s seen best practice in terms of financing the cannabis industry when the government is integrally involved in the legalisation of cannabis. 

“The lack of legislative reform is inhibiting investments into the cannabis industry,” he said. 

Weisz noted that marijuana that is not registered as medical cannabis, which can only be offered to the public with a doctor’s script, is still contained in the Drugs Act. 

“Nedbank, Absa and FNB would have difficulty financing the sector. Medical cannabis facilities have struggled to get funding from the banks. The legislative hurdles need to be overcome for the industry to be unlocked,” he said. 

“The banks are very hesitant. Their hands are tied.” — Additional reporting by Sarah Smit