How things have changed. A few years ago anyone who expressed an interest in cannabis would have been dismissed as a lazy layabout, a lawbreaker, a pothead. Now cannabis is being legalised worldwide, and many people who use it do so for its medicinal benefits.
SA has astonishing potential for cannabis cultivation, and far from making a hash of it investors in cannabis projects can succeed by deriving tax benefits under the government’s 12J venture capital incentive.
The Income Tax Act’s section 12J lets a taxpayer deduct the full capital amount of their investment from their income, for income tax assessment purposes, in the tax year the investment is made. It’s money for old dope.
One project I have been involved in funding is a cannabis-growing facility south of Richards Bay that is being set up on, and partnering with, a sugar-cane farm in KwaZulu-Natal. The project is the brainchild of four SA entrepreneurs at Elixir Africa, which entered the cannabis business as an importer of cannabis oils.
Farzana Varachia, a director of the project, said the focus is not on mind-expanding drugs but on the cannabis oils that are extracted from the plant. (Potheads beware: they do not give you a high.) Elixir is already licensed to launch a cultivation project in Lesotho, and this experience will carry through to its new KwaZulu-Natal venture.
As a structure has to be set up before the authorities will grant a licence in SA, Elixir has been raising funds for setting up cultivation to secure a licence. The cannabis will be grown in four greenhouse tunnels, using hi-tech agricultural methods. In parallel, Farzana and her team are planning a facility to extract cannabis oils for medicinal use.
Cannabis oils are used to alleviate the symptoms of conditions such as mental illness, chronic pain, epilepsy, multiple sclerosis and migraines. There is even research under way to see whether cannabis oils might help in the treatment of Covid-19. This is science, not psychedelia.
Replicated elsewhere
Though some in the medical profession remain sceptical and it can be hard to erase the prejudices of the past, there is no shortage of people who say they derive benefits. Cannabis oil is not snake oil. It may not work for everyone, but it does work.
The KwaZulu-Natal project will initially employ 10-12 people, with further job opportunities in the extraction business. It is also scalable — the current site has the capacity for 16 tunnels or more, and the project can also be replicated elsewhere in SA and across Africa.
On the drawing board at Elixir Africa are cannabis farms in the Eastern Cape and Gauteng, on a similar scale. The cost of the four greenhouse tunnels being installed in KwaZulu-Natal is R20m-R30m, and it was not hard to raise the finance for this first stage. Security at the site has to be strict and is a requirement for licensing in SA.
What of the finished products? Once the oil has been extracted and packaged, it can be sent to a pharmacy, and each product in Elixir Africa’s current range can, like conventional medicines, be claimed from medical aid.
By growing the cannabis in SA there can be less reliance on imports, and in time there are export opportunities as well.
Apart from uses for humans, there are also medicinal benefits for pets from cannabis oils. And this is no shaggy dog story. The processed and packaged cannabis oil is available in droplets or capsules, can be used in face products, and you can get a roll-on for arthritis.
Investors who might be sceptical can just look at the worldwide market. The US, Europe and Canada are opening up to medicinal cannabis, while SA is two years behind the international trend. This has a lot of potential. Canadian company Aurora has grown in just four years to be a multibillion-dollar enterprise. Wouldn’t it be great if we could have a success story like that in SA?
Cannabis has undergone a reputational transition from very recent times when it was illegal, with a stigma attached to it. It is high time we put the past behind us, embrace the opportunities and grow this industry in SA. We are already on a roll.
• Hart is executive chair of Impact Investment Management.
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