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Goodleaf Calls The Shots in Highlands Merger; Secures Supply to Go Global

Goodleaf’s come out of the merger with Lesotho cultivator and processor Highlands Investments with the whip hand – its shareholders have 65% of the new merged business and the company has secured enough high quality cannabis to take its South African CBD wellness product range internationally.

 

This report by Adelle Shevel of Business Day online on 10 June 2021 (See original article here).

 

Behind Goodleaf’s R650m cannabis bet

Cannabis wellness brand Goodleaf has done well for itself in its two years of operations, and a R650m merger with Lesotho cannabis grower Highlands Investments could unlock global success

 

Seed-to-sale: The merger between Goodleaf and Highlands will create Africa’s largest vertically integrated cannabis company Cannabis farm, and Good Leaf product. Picture: Supplied

 

“It’s a very hard thing to grow a vertically integrated business,” says Warren Schewitz, founder and CEO of cannabis wellness brand Goodleaf. “It’s damned hard to be good at one thing — let alone two or three.”

 

It’s for this reason that Schewitz is “super-excited” to be joining forces with Lesotho cannabis grower Highlands Investments. The R650m deal, announced last week, will give Highlands shareholders 35% of the new entity while Goodleaf shareholders will hold the remaining 65%. Importantly, it will create the largest vertically integrated cannabis company in Africa — a seed-to-sale operation that will leverage its low-cost production and its local distribution base as it expands globally.

Up to now, Goodleaf has focused on cannabidiol (CBD) products — distinct from those containing tetrahydrocannabinol (THC), which has psychoactive properties. Goodleaf’s products include CBD oils, carbonated beverages, natural vapes, powder sachets and a range of cosmetics, from glow serums to moisturisers and exfoliators.

Goodleaf was SA’s first commercial cannabis operation, launched within a year of the Constitutional Court ruling that decriminalised the personal use of marijuana.

For a company that was founded just two years ago it has done well for itself. It has three physical stores (two in Cape Town and one in Joburg) and offers online distribution for its 30-strong product line. Its CBD products are also available in major retailers across SA, including Pick n Pay, Spar, Checkers, Woolworths and Poetry. It sells powder sachets through the Vida coffee-shop franchise. It also markets products in Hong Kong, and it’s in negotiations to export to retailers elsewhere in Asia, in the UK and in Europe.

“We got going fast,” says Schewitz, who lived in Canada “for 12 winters” before returning to SA in 2011, and whose Canadian business partner was instrumental in raising the capital for some of the early cannabis listings in Canada — the first country to legalise cannabis for medical use.

 

 

 

Working together: Warren Schewitz and Jody Aufrichtig. Picture: Supplied

 

 

Though all Goodleaf’s products have been produced in SA, the company has until now been importing cannabis from the US and Colombia because, Schewitz says, “not all CBD oil is created equal”.

In a world where consumers increasingly demand quality products as well as transparency about their provenance, the Highlands merger looks to be a boon.

“We’re super excited about the transaction, as it gives us a reliable, fairly low-cost, quality source of supply, which we can trace from seed to sale,” Schewitz explains.

And the volumes aren’t to be sneezed at either. Highlands, one of the largest growers of cannabis in Lesotho, “comes with an established team; it’s on its fourth growth cycle, and it’s exporting significant volumes to Europe”, says Schewitz.

In April, Highlands concluded its most successful harvest yet at its Kolojane facility, yielding almost 6t of premium cannabis flower and trim. A significant portion of that harvest is destined for the European medical cannabis market.

It helps, of course, that Highlands was the first cannabis producer in Africa to achieve ISO 22000 certification — the international standard for food-grade products. Post-merger it will continue to supply bulk CBD and THC flowers, distillate and isolate to global medical and wellness markets.

 

By growing and exporting medical-grade CBD and THC products, Schewitz expects the combined business “to make significant inroads globally, because we can compete both on quality and on price”.

For Schewitz, 12 years in Canada provided experience in running various businesses. Notably, he was part of the team that founded Openlane, a marketplace for used vehicles that grew to be the largest of its kind in North America.

“We grew that business to over $100m in revenue and we exited to a public company, Adesa.”

 

 

Schewitz’s strong ties to Canada mean Goodleaf has substantial Canadian investment, as well as strategic partners on the formulation and technical support side. “Having the capital allowed us to put together an exceptionally strong team; we’ve hired strong and fast,” he says.

But if Canada is the financial capital of cannabis, Schewitz believes Africa is its home.

“We have some of the best strains and the best growing conditions; we can compete comfortably with the developed world. Our manufacturing is excellent, our creative [team] is excellent, our growing is excellent.”

While Schewitz had a vision of putting all these pieces together in a single, integrated business, he soon realised “you can only bite off and chew so much at once. I’m not a farmer, so the growth side of the business didn’t come naturally to me. But I am commercial[ly minded] … and I always thought the brand and retail distribution would be a very attractive part of the market.”

Enter Highlands Investments.

 

In a twist of synchronicity, Schewitz has known Highlands founder Jody Aufrichtig since his school days — they both attended Selborne College in East London. In recent years they began to share their thoughts about the industry and the growth they were seeing. They soon decided it would make a lot of sense to integrate vertically.

Highlands Investments seems to be a good fit. It’s been cultivating cannabis for medical and scientific purposes since 2017, when Lesotho — itself an early cannabis adopter — granted the company one of its largest licences.

From then on more than R470m has been invested in the company’s two cultivation facilities in Lesotho.

“We had a very clear vision of what we wanted to create and we weren’t scared to apply proper capital,” Schewitz says. “We could see what was happening globally and it made sense to do that. We hired some exceptionally talented people, which has allowed us to cover a lot of space in an exceptionally short time.”

But it hasn’t been without frustrations. SA is the fourth-largest cannabis producer in the world, but opportunities to exploit the resource properly have so far been capped by regulation and restrictions.

“Perhaps I underestimated that legalisation and that the pace of change would be fairly slow in SA,” says Schewitz. “When you look globally, it’s been much quicker. We’re certainly missing out in this country.”

 

Picture: 123RF

 

For example, he points to the government’s cap on the cannabis allocation allowed in products. That’s rendered some offerings less effective, leaving customers crying out for more concentrated products.

It seems short-sighted, he suggests, if you look at the US for comparison. “Opioid admissions to hospitals are down 28%, opiate deaths are down where [cannabis has been] legalised — by 15%,” he says. “It’s very much a consumer-led revolution; consumers are saying: ‘This is good for me.’”

So how does a new company differentiate itself in an industry that is springing up fast and furious?

“I’d say [we do it through] the quality of products, in terms of the efficacy and because everything is certified. We’re very particular about traceability from seed to sale (which is why we’re doing this deal) and about knowing what consumers put in their mouth, as it’s a wellness product.”

Given Schewitz’s interest in creating something “uniquely African”, all Goodleaf products other than CBD oil are infused with African botanicals such as rooibos, moringa, baobab and Kalahari melon seed.

The company’s most popular products are the drops. “CBD is a natural anti-inflammatory,” he explains, “it helps people sleep.”

While the company may not make medical claims, he believes anecdotal evidence suggests that CBD is a natural anti-anxiety substance and promotes calm. “We have a lot of [clients who are] runners and cyclists and use it for recovery.”

 

What It Means:

Market research suggests the global CBD skin-care market will reach $1.7bn by 2025, and the IMF expects the medical marijuana industry will be worth $82.9bn by 2027

There’s big money in it, too. According to market research firm Million Insights, a rising awareness of the healing properties of CBD products is expected to push the global CBD skin-care market alone to $1.7bn by 2025. That’s dwarfed by the medical marijuana market, which the International Monetary Fund expects to be worth $82.9bn by 2027.

Locally, pro-marijuana consultancy Prohibition Partners believes the broader cannabis market will be worth R27bn in just two years.

So it’s no surprise, then, that the department of agriculture, land reform & rural development wants to increase capacity for local production and foreign export. In April, the government proposed a draft master plan to loosen regulations in the cannabis industry to promote growth.

But Schewitz offers a word of caution, warning that the industry should be careful to avoid the pitfalls of other agriculture-based sectors. For example, he points out how Africa supplies three-quarters of the $100bn-a-year global cocoa market, but that only $6bn finds its way back to the continent, as the value-add is all done in Europe or the US.

There’s also room for the government to do a bit more, he says. “On the same day you have our finance minister tweeting that you should legalise cannabis, you’ve got people being arrested in the former Transkei, in these villages that have been growing [cannabis] for 400 years. We’d like to see a little more co-ordination and progress.”

That’s not, however, enough to dampen his hope. “I’m exceptionally excited about the industry and the opportunities,” says Schewitz. “It’s just in its infancy.”

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