Labat Africa reports investor interest as South Africa publishes medical cannabis notice

29th June 2020 By: Schalk Burger - Creamer Media Senior Contributing Editor

JSE-listed medical cannabis investment holding company Labat Africa on June 29 said South Africa’s changing cannabis regulation was helping it to attract investor interest.

"In another clear indication that the South African government views the emerging cannabis sector as a priority, Notice R586 was recently published in the Government Gazette. R586 means that cannabis has now been given Schedule 6 status and, effectively, that medicinal cannabis is safe to use."

It also cements the Schedule 4 status of cannabidoil (CBD) and de-schedules CBD products. This is another indication of government’s intention to liberate the country’s hemp industry, states Labat. It adds that it is expected that Parliament will soon consider removing cannabis from the Drugs Act, and, therefore, as an illicit substance.

"These important legislative changes for this new industry in South Africa all point to government’s understanding and acknowledgement that the cannabis sector can become an important future contributor to the fiscus, and a job creator, as well as attracting foreign direct investment."

Labat Africa has strategically realigned its business and in 2019 announced its intention to enter the cannabis and hemp industry. This resulted in various strategic acquisitions being made, relationships being formed and people being brought together throughout the sector’s value, ranging from farming to retail.

On May 5, Labat issued a Stock Exchange News Service (SENS) announcement of its intention to raise up to R112-million by way of a bookbuild from institutional and other investors during a roadshow to fund the rapid expansion of its healthcare business.

On June 26, Labat issued a further SENS notice informing shareholders that it has received widespread support for the capital raise. Additionally, it announced that Labat had entered into a share subscription agreement with Verityhurst Limited, a private equity and venture capital investor, in terms of which Verityhurst has agreed to subscribe for up to 70-million ordinary shares in Labat for $50-million in cash.

The proceeds from the capital raise will be directed at Labat’s expansion of its botanicals business in order to meet the requirements for its international offtake agreement, to fund the expansion of the pharmaceutical unit and to roll out a network of retail outlets through its current retail arm Cannafrica, it said.

“We are pleased that government is seeing the cannabis sector as an important part of South Africa’s economic recovery strategy. It has the potential of being a multibillion-rand sector. This is also evident in the strong interest shown from both retail and institutional investors to participate in our capital raising process. The virtual roadshow has also been well received by the general public. We have also received many requests ranging from partnerships to proposals to acquire related businesses in the sector, which we are considering and assessing as part of our focused growth intention," said Labat Group CEO Brian van Rooyen.

Labat’s strategy on medical cannabis sales to Europe and its strong focus on European Union Current Good Manufacturing Practices certification and entering the pharmaceutical market through the registration of cannabis active pharmaceutical ingredients is also paying off.

During the week of June 22 to 28, Stellenbosch-based farming group Fellbridge announced that it had shipped its first harvest of cannabis to a Swiss-based Pharmaceutical company, while Paarl-based pharmaceutical company Afriplex announced that it had exported its first cannabis extract.

The South African Health Products Regulatory Authority is also busy speeding up this part of the regulatory process, Labat Africa said in the June 29 statement.

"Labat’s share price has now reached a three-year high, with the stock surging by some 236% and over 11-million shares traded on the JSE in the last ten days. The trading on the company’s stock on June 26, saw it increasing by 23% on the day and reaching a three-year high of R0.75 after more than one-and-a-half-million shares were traded."

Van Rooyen said he was excited about the industrial hemp market as it emerges as a new industry for South Africa and it offers opportunity to support emerging farmers, create jobs, uplift communities, help utilise land productively, develop skills and contribute to health and wellness.

"I am encouraged by the call made by the Finance Minister Tito Mboweni and the Western Cape Premier Alan Winde for the accelerated deregulation of the process for hemp farming. It is important that our farmers in the country get access to these permits, and that they should be affordable," he added.

The Labat healthcare team are currently engaged with preparations for the launch of its own range products, and Labat will soon make further announcements on expansion plans for parts of the business.