Labat Holdings’ is back on the acquisition trail after it raised R50 million from a mid-year investment roadshow. It was hoping to raise twice the amount and is still in the market looking for more funding. But it’s taken the money that’s in to buy licensed farmland and to roll out a retail concept.
Verityhurst, a South African venture capital company, agreed in principle to buy up to 70 million Labat shares to finance the group’s aggressive business plan to grow value in the local cannabis supply chain, but to date it has only paid for 6 000 shares at 50 cents a share at a slight premium to the market.
The deal is the first major investment in the local cannabis industry this year but it may be too soon to tell whether it is a vote of confidence in Labat’s cannabis strategy. Verityhurst still has to follow through on its subscription options which expire on 31 October 2020.
In August 2019 Labat announced its intention to focus primarily on cannabis and healthcare and appointed Mike Stringer as CEO with the brief to turn the company into a market leader in the value chain from cultivation to the production of cannabianoid products.
Labat has been issuing shares to buy various companies. The shares have been thinly traded over the years but caused some excitement on the JSE when the Verityhurst deal was announced: they rose over 200% to spike at around 75c a share, but by October the shine had faded somewhat and retreated back to under 50c.
In January 2020 it bought 70% of CannAfrica for R15 million from CEO Hershell Maarsdorp who was then appointed CEO of the company’s Healthcare division. CannAfrica is Labat’s retail brand. It also invested heavily in research by buying Dr Shiksha Gallow’s BioData at the same time, also for about R15m worth of shares .
Then came the Covid-19 pandemic which disrupted everything for everyone. Labat, however did not lie low during the lockdown.
On 5 May 2020, Labat issued a SENS announcement of its intention to raise up to R112 million by way of a bookbuild from institutional investors to finance its plans to aggressively move into the cannabis space. It issued a further announcement on 26 June 2020 saying that Verityhurst was committed to buying up stock in tranches.
The group then issued a statement saying 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.
Van Rooyen 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,”
Labat said in a presentation in July 2020 that it aimed to make Labat Healthcare a vertically integrated operation, from cannabis seed to the production of active pharmaceutical ingredients and products for the complementary medicines market.
Meanwhile, Labat Botanicals aimed to set up a “fully Good Agricultural Practice and Good Manufacturing Processes” facility in Lesotho, where land had been secured for this purpose.
Labat Botanicals aimed to produce three cannabis products: medical grade cannabis flower, tetrahydrocannabinol, cannabinoid oils, concentrates and active pharmaceutical ingredients.
“Using our genetics bank, we will select high-quality strains to grow in our facility. These strains will be carefully selected and grown in a strictly controlled environment to ensure product of the highest quality is produced for the export market,” the group said.
An off-take agreement had been reached with UK-based New Frontier Holdings, the holding company of Frontier Botanicals, for 4000kg of cannabis flower in the first 12 months, 6000kg for the following 12 months and 8000kg for 36 months thereafter.