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Doors Open for Cannabis Funding as the State Quietly Removes Cannabis from the Drug Trafficking Act

Doors Open for Cannabis Funding as the State Quietly Removes Cannabis from the Drug Trafficking Act

The first domino has fallen. The State has finally put in place the first step to opening up the cannabis economy by removing cannabis as a scheduled substance from the Drugs and Drug Trafficking Act. This basically allows mainstream financial institutions to start investing in the sector.

Brett Hilton-Barber

13 April 2023 at 15:00:00

The State’s intention to remove cannabis from the Drugs and Drug Trafficking Act, first signalled by the Parliamentary Monitoring Group on 6 April 2023, is the first step to unlocking finance and funding for the sector, which is estimated to be worth around R28 billion. 

The Act has to date been a major impediment to developing a cannabis and hemp economy, and although commercial trade in cannabis remains largely illegal, this too will change as Government starts aligning cannabis legislation. 

What remains concerning is the State’s propensity to try and operate under the radar and the lack of publicity around inviting public comment for the latest version of the Cannabis for Private Purposes Bill, the deadline for which is 28 April 2023.

The Drugs and Drug Trafficking Act of 2022 was rushed through Parliament in order to meet a Constitutional Court deadline. It was a flawed piece of legislation that will still be returned to Parliament even though cannabis is to be removed as an “undesirable, dependence-producing substance” from its schedule of illicit drugs. 

Despite receiving over 300 submissions when the Drugs Act was opened up for comment in September last year – all of which called for cannabis to be removed – the Justice and Correctional Services Parliamentary Portfolio Committee rubber stamped the new Drugs Act in somewhat panicked circumstances as it was in danger of creating a legal nightmare that if a new Act was not in force by 17 December 2022. All prosecutions under the Drugs Act would be open to contestation had that not been the case. 

So, the Act was passed into law, including cannabis being a scheduled substance, even though this was not Government’s intention. Now it’s been quietly descheduled in terms of the wording in the latest version of the Cannabis for Private Purposes Bill, which accounts for other legislation that will be changed. This is a really good positive message to the fledgling cannabis industry, which has been stuck in a regulatory grey-zone because of cannabis being defined as an illicit substance in the Drugs Act.

The about turn by legislators signals that President Cyril Ramaphosa is serious about implementing his cannabis pledges, and although there is a long legislative road ahead, South Africa is poised to realistically enjoy the benefits of a legal cannabis economy within the next few years.

The Cannabis for Private Purposes Bill will be the governing legislation for cannabis transgressions going forward. State lawyers say cannabis will be removed entirely from the Drugs Act, which clears the way for the Land Bank and other government and private institutions to invest in the cannabis and hemp sector.

However, the Bill outlaws any commercial trade in cannabis, with the most severe penalties carrying a 15 year jail sentence. The Department of Trade, Industry and Competition is ideologically at odds with the Justice Department over cannabis legalization and this is the major fault-line running through Government at the moment.

Currently, a Government-backed blended finance scheme consisting of loans and grants is under design with a view of supporting legacy growers and small businesses seeking to climb up the cannabis value chain. President Ramaphosa said recently that the CSIR was playing a leading role in developing the cannabis economy and that the Department of Small Business had been roped into help.

Meanwhile, provinces are forging ahead with their own cannabis master plans with the Western Cape, KwaZulu Natal, the Eastern Cape and Gauteng at the forefront of the regional movement. The removal of cannabis as a scheduled substance makes it easier for the implementation of an industrial cannabis strategy in the Special Economic Zones (SEZ’s) that have been identified. In Gauteng these are ORT Airport, the Vaal Triangle and the West Rand.

In KZN, Bergville has emerged as the pioneering cannabis cultivation area with an innovative model driven by the Okhahlamba (Bergville) Municipality involving public and private sector partnerships. The Western Cape is developing its own “CanPlan”, while North West is also seeking to actively develop its cannabis sector.

The next thorny branch Government has to grasp, now that cannabis is no longer an illegal substance in terms of South African law, is the legalization of the domestic adult use market. There are an estimated 2,5 to 3,5 million regular cannabis consumers in South Africa, who besides the 1 000 or so registered medical cannabis patients, are still largely considered as criminals by the Department of Justice.

There are around 40 or so private cannabis clubs (PCC’s) with constitutionally-sound governing rules in South Africa, most operating with the provisional blessing of local authorities, including SAPS. However, at a policy level the State remains opposed to the legalization of such clubs, most notably the THC case which is up before the Supreme Court of Appeal.  A positive step going forward would be for the State to drop its opposition to such clubs and incorporate a private consumption model into the CPPB and remove cannabis entirely from the criminal justice system.

The CPPB makes provision for the future commercial trade in cannabis and related products but is currently framed in a prohibitionist mindset. A new over-arching cannabis Act has already been drawn up by the Private Sector Working Group which has already been circulated in Government and has the backing of Garth Strachan, the President’s cannabis advisor. PSGW convener M Ayanda Bam, mandated by Nedlac and Business Unity South Africa to assist Government in framing policy, has been instrumental in paving the way for sensible cannabis legislation, and believes that new legislation regulating domestic adult use consumption is inevitable - but at least three years away.

In the meantime, the CPPB makes a somewhat fuzzy attempt to include the interests of legacy growers by defining portions of communal land as “private property” in terms of the Bill, based on definitions contained in apartheid legislation. This is certain to come under legal scrutiny and the odds are that the Bill will be challenged in court the moment it becomes an Act passed by Parliament.

All of this points to the CPPB being a “pot boiler” piece of legislation that will be transcended by a new Cannabis law that will establish a cannabis regulatory authority that will ultimately be the single port of call for the industry. Given legislative dysfunctionality this is not going to come any time soon.

Yet the importance from a financial and funding perspective of cannabis being removed as a scheduled susbstance from the Drugs Act cannot be underscored and is the first major step to realizing a sustainable, inclusive cannabis economy. Finally, this is the beginning of the beginning!

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