The JSE-Listed cannabis company lost more money during the last financial year than it turned over, but says it’s on track to reward patient shareholders next year as its cultivation subsidiary Sweetwaters Aquaponics gains traction and it develops a relationship with Australian customer PharmaCann .
JSE-listed Labat Africa posted a R34,7 million loss from a turnover of R23 million for its the last nine months ending May 2022. The loss is 52,5% worse compared to the previous period, while turnover was down by 21,3%. The company is valued at R64 million.
The company released its results on 17 October 2022 ahead of the month-end deadline given to by the JSE for late reporting. Despite the loss, Labat says it is on track to become Africa’s Number One cannabis company and expects to swing into profitability by May 2023.
It says the most important development during the past financial year was its acquisition of a majority stake in Sweetwaters Aquaponics at Kenton-on-Sea in the Eastern Cape. It said the March 2022 purchase, which came soon after it parted ways with its Northern Cape cultivator, Leaf Botanicals, led to a “quantum shift” in its business because it “completed its seed-to-customer value chain”. It also enabled Labat to export its product overseas, with Sweetwaters set to sign a new long-term supply agreement with PharmaCann in Queensland, Australia.
Sweetwaters is preparing to harvest its third crop at the end of November 2022 since being taken over by Labat which has invested heavily in the facility. The earlier harvests were in April (80 kgs) and July (120 kgs).
Labat says the industry is now starting to “break the constraints of the cannabis regulations” as it lays what it considers to be the foundation of its healthcare business with a focus on cannabis.
“The investment in the cannabis industry, with the large associated intangible assets, attracts a correspondingly large amortisation charge on intangible assets. This remains a challenge from a business point of view as it impacts directly on the profitability of the group, but the accounting treatment is in line with the IFRS [International Financial Reporting Standards] requirements and therefore is an unavoidable shackle,” it said.
It says that start-up businesses often have to invest heavily to acquire intangible assets such as a brand, trademarks, copyright and research & development to get the business off the ground because it “cannot create such value overnight”.
“A classic example is Tesla, which was a start-up in a completely new industry. It took them 18 years to reach profitability,” Labat said. It is “following the same path” but did not expect to take that long to break even and “is projecting to generate profit during the course of the next year”.
Labat Africa posted an operating loss of R24,9 million for the six months ending in February 2022. That was 37% worse than the comparable period ending February 2021. But it insists that “having regard to the current status and the future strategy and prospects of the group, the group has sufficient resources to continue as a going concern. The group is projecting positive cash flows for the period ahead from its existing and new businesses.”