Labat to focus on finding the right ‘business combinations’

Labat Africa is finally hoping to pull off its first-mover advantage in the cannabis value chain with a more aggressive strategy after the pounding of the pandemic and a lack of a clear regulatory framework.  The JSE-listed company has been burning through cash but is a going concern because of drawdown funding it has secured from Californian investors and its recent listing on the Frankfurt Stock Exchange.

The company gave an insight into its strategy when it revealed its latest financial statements to the public on 30 May 2022. Although the damage was bad, it’s not out of line with similar first-mover-advantage groups in all newly-regulated jurisdictions.

Labat’s strategy to seize the cannabis value chain in the course of the next 12 months is still being hampered by the restricted regulatory framework, but that looks set to change in the course of the year. Labat’s cannabis subisidaries fall into its healthcare division. They are: Labat Pharmaceuticals, Sweetwater Aquaponics, Ace Genetics, Labat Hemp Processing, Cannafrica and Biodata. Labat’s strategy going forward is to find the right “business combinations” to maximize efficiencies and get the Group purposefully heading towards profitability.

It says “the company’s vision remains to be the number one cannabis/hemp company in Africa and to maintain that position. The agreements over the last two years ensure that the company is on a profitable and value-creating path. Labat has made massive strides in laying the ground-work to becoming a Cannabis Powerhouse in Africa” It added that “Labat measures its success beyond yield and capacity; the pursuit of quality for a long-term competitive advantage drive to its business strategy”.

Sweetwaters Aquaponics: a ‘quantum shift’ for the group

Labat says the acquisition of SAHPRA-licensed Eastern Cape facility, Sweetwaters Aquaponics on 1 March 202,2 led to a “quantum shift in the busines, enabling the export of product to overseas customers, with the initial initial customer in Australia ordering a second batch of flowers, following the successful testing of the THC content (26.7%) by SAHPRA.

Ace Genetics: commercial seedbank to be set up this year

Ace Genetics is to be set up under license at Sweetwaters, a breeding room is under construction and a commercialization strategy is being put in place once the right genetics have been identified. The company says the planned date of transfer of all seeds and mother plants to Sweetwaters “is June 2022 with seed production expected to commence on the 1 August 2022 and the Company will be going to market with its own online Commercial Seedbank immediately thereafter. “

Echo Life deal gives Labat Exclusive Rights to Axle and Axle Pre-Rolls

Labat said last November’s acquisition of Miami-based Echo Life “greatly complements the Healthcare retail business through its unique range of product offering that will be marketed and sold through the CannAfrica retail stores as well as the Labat online retail platform”. In terms of the deal Labat will have the exclusive rights to distribute Echo Life’s pre-rolled hemp smokeable Ace and Axle as well as other products.

CannAfrica introducing CannAfrica ‘Kiosk Model’ in 5 Shopping Malls

Labat has switched tack on the roll-out of its retail brand CannAfrica; it says the “main objective that underpins the new strategy is the aggressive rollout of corporate owned stores, some of which, will remain corporate-owned, and others, once profitable, to be migrated to franchisees, who are fully paid up in respect of franchise rights.

The corporate-owned stores will take a different approach to the Melrose Arch, Hartbeespoort Dam and Cape Town stores which are larger stores with significantly higher operating costs.

The ‘kiosk model’ is being implemented in malls and larger shopping centres and Labat is set to conclude a deal with the Company is at an advanced stage of concluding a deal with the Mowana Property Group to open up CannAfrica Kiosks in five of their prime properties namely:

• Cresta Shopping Centre (Gauteng),

• Westgate Mall (Gauteng),

• Menlyn Shopping Centre (Pretoria East),

• Castle Walk Mall (Pretoria) and the

• Pavilion (Westville).

The five kiosks should be opened by the end of June 2022.

Labat says it has identified that, “as an industry issue, there are no fully dedicated CBD stores operating in South Africa; therefore a considerable amount of time and effort has been put into further extending its product offering. The product lines which the company will be expanding into are minor/rare cannabinoids, vapes, grow kit accessories and other paraphernalia”.

The Company also plans to turn the CannAfrica kiosks and retail stores  into “’dispensaries’ for the Biodata Research Project, for the legal dispensing of cannabis flower, other medicines and THC products.

Biodata Medicinal Cannabis to Become ‘Dispensary’ Product

Labat says the “Biodata research project is gaining traction” and plans to use the planned CannAfrica Kiosks as “physical-sign-up-points for the study”.  It says the kiosks will also serve as Biodata dispenseries for medical cannabis for pain management.  It says it is also “engaged with” a number of vape stores to also become Biodata “dispenseries” once regulatory approval is in place.

Rolling Papers into the Value Chain

Labat says it “is currently finalising agreements with a rolling paper specialist company that focuses on cannabis rolling paraphernalia. The business was running informally. However, there has been great traction on the brand and products with sales last year averaging 200 units per day. The business has now been improved structurally and has a focussed strategy of expanding into parts of Africa and the USA.

The main challenge facing the targeted expansion Is the lack of working capital which approximates R500 000 for the first three months mainly for stock purchases to fulfil orders.  Labat has engaged the business partner around a possible share transaction as well as a bridging working capital facility over the first three months. The process is currently in the due diligence phase. For its year end March 2022, the company earned revenues of R1.8 million. These products are complementary products for the CannAfrica Stores.

CBD Infused Drinks to Provide Ammo for Retail

Labat came up with a new cannabis retail strategy in March 2022 to expand its national footprint and visibility and to increase product offerings,. It believes “a retail beverage offering is indispensable”.

It says in an Enterprise Development initiative in 2020, Labat was introduced to a start-up cannabis beverages company which it still in equity negotiations with. However, “the company has developed three recipes in collaboration with the CSIR, and have finalised their packaging and branding architecture, and have delivered a premium product, as sample drinks. 

The product is superior, and of a quality that Labat want to be associated with. The company will now do their first production run, in order to show capability and test the market. A draft Term Sheet in place, to be concluded in the next phase of the Company’s deliberations. It is envisaged to be a share-based deal, for 30% equity, and access to evolving retail distribution channels.”

SAMES to be the Tech Hub

The South African Micro Electronic-Systems Proprietary Limited (“SAMES”) will “remain a technology hub and will also hold the healthcare divisions intellectual property, formulations, ‘know-how’, seed banks, extraction technology, strain development and other technologies needed in complying with Good Manufacturing Practice (“GMP”) standards, including European Union GMP, where applicable”. It says that although SAMES had a healthy start to the year, revenues have decreased “mainly as a result of a worldwide shortage of semi-conductor chips”

Logistics business to take care of transportation and warehousing

Labat’s Logistics, although not directly part of the Healthcare division, “will form an integral part of the Healthcare operations with both transportation and warehousing of raw material as well as final products. These are explicit requirements in respect of the GMP accreditation. Furthermore, the final product of the pharma business is expected to sell for between R800 and R1 000 for a 20ml bottle, which will need to be securely transported. 

The company’s marketing efforts are showing acceptable results and Labat is well positioned for growth based on work completed over the past three years. The Company continues to provide logistic services to large corporates, when and as required.”

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