15 September 2022 at 09:30:00
Akanda’s CEO is committed to clawing back to its Lesotho subsidiary, but warns that governance issues may frighten off foreign direct investment as the ‘Battle for Bophelo’ raises broader issues of African business integrity and product quality.
Africa has to face the challenge that growing cannabis outdoors or in greenhouses may not produce the consistency of quality that Europe is demanding. And the continent is in danger of developing a reputation that will frighten off foreign investors.
That’s the sobering assessment of London-based Akanda CEO Tej Virk, who believes there are two main priorities South Africa’s cannabis policy-makers should be looking at:
● Transforming SAHPRA into being a pro-active regulator that regularly interacts with stakeholders and is responsive to their needs;
● Harmonizing the regulatory framework between southern African countries to facilitate export logistics and benefit from different parts of the value chain.
In an exclusive interview with Cannabiz Africa, Virk said South Africa should not rely solely on medical cannabis exports to create a meaningful cannabis economy. His comments are pertinent as the Country Investment Strategy has placed a high premium on medical cannabis exports as a new “investment frontier”, while describing “recreational” cannabis as a “highly uncertain value proposition”.
Virk begs to differ. “In South Africa there is already a booming illicit market with global brand recognition. Why not build on that? That will give the country a chance to compete on the world stage. To produce outdoor cannabis to the consistency and quality that meets European specifications is difficult and South Africa should look at where it wants to position itself.”
“Experience in the US and Canada shows the beginning of broad market segmentation” he said. “There’s a ‘premium market’ emerging around medical cannabis that’s driven by patient demand – they’re looking for certain strains and THC levels, terpene profiles and so on, and are prepared to pay for that consistency”.
“On the other hand, there’s a ‘value market’, which suits South African conditions. Entrepreneurs should ‘think Stellenbosch’. Look how the wine industry has put South Africa on the map, and if you’re looking at developing a domestic cannabis market, there’s huge potential in the concept of ‘terroir’, or craft cannabis, or for cannabis tourism. I’m not aware of any major cannabis tourism initiatives in Portugal, which is in the process of legalizing adult-use cannabis, and I’m sure it will evolve, but there is definitely something you should be looking at as South Africa has a lot to offer.”
Virk, who’s spent time in South Africa while setting up cannabis multinational Akanda, believes South Africa can pip the ‘California experience’ in terms of its rich history in cannabis cultivation and the existing skills sets, infrastructure and cultural creativity.
“You should not lose out on the opportunity of having a fantastic domestic market” said Virk, who says that a local market should be the foundation for exports built on African brands.
Virk has a bitter-sweet feeling towards Africa. On the one hand, he admits he’s blown away by the potential that exists here, yet on the other hand he feels wary of the overall investor climate. It’s for good reason. He is fighting to regain control of Akanda subsidiary, Bophelo Bioscience and Wellness, which was put into liquidation in July 2022 by Akanda’s then chairperson Louisa Mojela in what Virk describes as the actions of a disgruntled former director gone rogue.
“I have to express my disappointment with the way things have developed at Bophelo. We had great expectations but suffered a massive own goal with an executive who behaved badly” he says, adding that Africa as a whole may have taken a collateral hit in the process, strengthening the perception that it is not a safe place to do business.
“Louisa’s actions certainly don’t encourage foreign direct investment in the continent. I can see investors saying ‘that’s Africa for you’, when they hear Louisa got the liquidation order through in days and that it will take months before our objection to that is raised”.
He says if Akanda is successful in reversing the liquidation, it is committed to rebuilding Bophelo and developing the ethical sourcing model. But in the meantime, he says, the European market will be serviced by its European operations.
Akanda has already mitigated against the “African risk factor” by purchasing Holigen, an EU GMP certified facility in Sintra, Portugal in May 2022. Virk describes the EU GMP facility as “one of a kind in Portugal, and there are only a handful of these in Europe, and it’s a very good match for us in terms of customer and demand”.
“Despite the disappointing situation in Africa, Akanda has really progressed on its plans to be revenue-generative and target profitability with our distribution of high-quality cannabis products into Europe” he says. “And, we have delivered on this in our milestone transaction with Cansativa, one of the leading distributors in Germany. This is a one metric tonne per annum deal to start, with an option to increase those values. They also have a first right of refusal on all volumes coming out of our Sintra facility, which could be up to two tons.”
The Cansativa deal is big for Akanda, and welcome news for the shareholders who shook up the board in May after seeing the value of their equity drop by up to 90% in less than three months after Akanda’s Nasdaq listing in March 2022. Virk was the only survivor of the shake-out with an action plan to tie up Cansativa, which has the sole tender to distribute medicinal cannabis in Germany. And, he delivered!
“It’s a meaningful transaction because it takes us from being a start-up to having material revenues, and it puts us on a path to profitability. So, we’re very happy with that - and the commercial pipeline that will follow.”
The company has just appointed former Tilray country manager Steve George as a director in Portugal to grow the Sintra operation. “We’re going to take on this and build on this and our pure-play to focus on Europe is going to pay off” says Virk confidently. “We’re hearing the continued noise around legalization in Germany, with evolution underway from from medical to a full-adult use model, and we’re seeing customers starting to plan for this, so we are well-positioned to be part of this”.
Does that mean that Africa is out of the equation?
“Not necessarily, but we have to be very selective. We get shown assets from Africa all the time. We have a platform to bring third party products into Europe and I’m speaking to African cultivators on an ongoing basis, but the problem comes down to one of quality. European regulators and patients have rising demands, they’re looking for consistency and quality, and outdoor/greenhouse cultivation in Africa is just not good enough for European standards yet. Partly that’s because European regulations are geared to indoor cultivation, which is a good reason in itself why African countries should be looking at opening up domestic markets first.
“At the end of the day it all comes down to high-quality products” says Virk. “If there are African assets that match what we’re looking for, then we’d be interested. But, our first priority for Africa remains to resolve the Bophelo situation.”