February 3, 2020

Mboweni eyeing high dividends

Finance Minister Tito Mboweni very publicly announced his support of the full legalisation of cannabis when he tweeted a picture of the plant and asked his followers for their opinion on the proposal. 

Steps towards legislation started in September 2018, when the Constitutional Court ruled that sections 4(b) and 5(b) of the Drugs and Drug Trafficking Act and section 22A(9)(a)(i) of the Medicines and Related Substances Act, are constitutionally invali, finding that these sections infringed on an individual’s basic right to privacy. The Court ruled that an adult may cultivate cannabis in a private place for their own consumption in private. 

Minister Mboweni is likely interested in the financial implications of full legislation of cannabis: In Colorado, America, cannabis was legalised in 2014. Since then, licensed retailers have sold more than $6.56 billion dollars of product, which has generated over $1 billion dollars of taxes and fees for the state. Although this makes up just 2% of the Colorado’s total tax income, the possible financial implications for the South African tax coffers are difficult to ignore. 

And tax income is going to be an important focus of the upcoming budget speech. Moody’s (the only ratings agency to still rate South Africa as investment grade) has made it clear that they’re only giving the country the benefit of the doubt until Minister Mboweni delivers his budget later this month. In particular, they want to know how he’s going to raise money to stabilise government debt and address the risk that failing SOEs place on an already-strained economy. 

Tax revenue from legalised cannabis may be the answer, but it will take longer than the budget to introduce and adopt the necessary legislation. 

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