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Cannabis Funding: Positive Signals Behind Closed Government Doors

Cannabis Funding: Positive Signals Behind Closed Government Doors

Government is slowly starting to make good on its intention to make finance available for small-scale cannabis farmers and township entrepreneurs. Behind the scenes, budget allocations are being drawn up but it’s too soon to tell how much money will actually flow to the cannabis sector yet.

Cannabiz Africa

2 November 2022 at 06:00:00

Two significant developments have quietly happened recently. Cannabis has crept into the budgetry framework and the Department of Agriculture and the Land Bank have announced the creation of a finance mechanism for emerging cannabis farmers.  And Agriculture Minister Thoko Didiza says there will soon be an announcement on the participation of other financial institutions in supporting black farmers. More importantly, cannabis and hemp have been prioritized as target areas for Government funding,

IOL reports that Finance Minister Enoch Gondongwana said Government would provide assistance to “small enterprises in the cannabis industry” during a post budget briefing on 27 October 2022. He did not go into any detail other than to say this was part of the R20 billion “Bounce Back” allocation in the February 2022 budget, designed to help small businesses recover from the Covid-induced lockdown restrictions.

Gondongwana said the initiative was being run by the Department of Small Business Development which opened applications for relief in May 2022. Businesses would have 18 months to apply for assistance. He said Treasury would give an update by the end of the year on applications received.

“The Department of Small Business Development will work with municipalities to reduce administrative and regulatory burdens for small, medium and micro enterprises and co-operatives. Government will deepen collaboration with Proudly South African to support over 1 000 informal businesses in 2023/24 and just under 4 000 informal businesses over the MTEF period. It will also provide support to small enterprises in the cannabis industry over the same period.”

And in another quiet development the Department of Agriculture, Land Reform and Rural Development (DALRRD) appears to be making good its intention to source funding for emerging cannabis farmers. Business Day’s Grant Theunissen reports that a new scheme will see DALRRD receive R325 million R325m for three financial years starting in the current fiscal year with the Land Bank matching the grants with loans on a rand-for-rand basis. The Land Bank is also engaging with other strategic partners to complement the funding from DALRRD to further boost funding to emerging farmers under the blended finance scheme.

“We will soon be making an announcement on the participation of other financial institutions,”  Didiza, said after the launch of the scheme on Monday, 24 October 2022.

Land Bank chair Thabo Nkosi said the blended finance scheme would serve as a “credit enhancement tool” that would help the Land Bank reduce the risk of repayment failure by borrowers as it would result in agricultural transactions being structured with comparatively lower gearing than would be possible without the grant component. The grant contribution by the DALRRD will not require financial returns and shall be treated as an equity contribution on behalf of black agriculture producers though it will be bound by certain terms and conditions.

One such condition is that the grant component cannot be used to fund any project on a stand-alone basis and will have to be blended with a loan component from the Land Bank or other stakeholders with the express goal of the scheme being to support the sustainable commercialisation of black farmers to transform the agriculture sector. Targeted commodities under the scheme will include red meat, poultry, grains, sugar cane, cotton, dairy production, vegetables, citrus, deciduous fruit, viticulture, nuts, forestry and cannabis or hemp production.

Only South African citizens with a valid identity document will be considered though black-owned and managed farming enterprises that are seen to be commercially viable will be prioritised. In the case of joint ventures the non-black partner should not have more than 40% ownership of the enterprise and no less than 26%.

The scheme will also not be open to politicians or employees of government or SOEs as well as politically exposed people that pose a reputational risk. Joint ventures involving farm workers who are not involved in the management of the operation will also not be eligible.

While these two developments are highly significant for the cannabis industry, it will take time for funding mechanisms to actually be set up and money to reach the hands of emerging and existing cannabis farmers. Then there’s also the problem of the Drugs and Drug Trafficking Act which will continue to criminalize cannabis, and until such time as that is amended, funding institutions will have their hands tied.

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