South African Labat Africa is getting into cannabis

par Jacques Leroueil

So far active in the logistics and distribution sectors, South African company Labat Africa has announced its first investment in the legalized cannabis sector. It is thus becoming one of the first listed firms on the continent to enter this booming segment.

A small, trouble-free company listed on the Johannesburg Stock Exchange since 1999, Labat Africa ($4.9 million in revenue and $0.78 million in profits in 2018) took the business community by surprise when it announced on Thursday, September 5 that it was launching a new subsidiary called Labat Cannabis, with a view to positioning itself in the growing legalized cannabis market. A news that made the investment community « glide », visibly euphorized by the idea of the potential offered by this new activity: suspended shortly before the announcement made by the company’s management, the listing of the Labat Africa share resumed on the South African stock exchange with an increase of… 100% ! The firm thus joins Mauritian Go Life and the American and Canadian pioneers (Aurora, Tilray, Canopy Growth…) in the very limited circle of companies affiliated with the (legal) cannabis industry and listed on the stock exchange. The prospects are, it is true, attractive. According to a recent report by Prohibition Partners, a think tank that advocates for the widespread decriminalization of cannabis in Africa, medical use of this plant could represent a market of $800 million by 2023, when recreational cannabis would generate a $6.3 billion manna.
In concrete terms, the South African company carried out three separate operations to set up its new division. First, Labat Africa acquired a 70% stake in Knuckle Genetics, a company that produces « high quality cannabis flowers, oils and concentrates with a very high content of tetrahydrocannabinol (THC, the main psychoactive component of cannabis) » for an amount of 4 million rand ($250,000). Labat Africa has also acquired a licence to « cultivate, manufacture, supply, possess, hold, import, export and transit cannabis in the Kingdom of Lesotho », the small country neighbouring South Africa having been the first on the African continent to regulate cannabis for medical use in 2008. Finally, to complete its offer, Labat has also acquired a pharmaceutical company, Paccon Pharmaceuticals, approved by the South African Health Products Regulatory Authority, which « manufactures and packages liquids, tablets, capsules, creams and gels ». An industrial unit acquired for 10 million rand ($625,000), which according to Labat Africa’s press release will make it possible to « produce high-quality CBD-based oils (canabidiol, another component of cannabis, ed.) and cannabis-derived products for the retail and wholesale markets ». In the end, all these agreements should help « Labat to become a major player in the cannabis industry[…] », particularly in Africa, where the recent economic situation seems most favourable: Zimbabwe has since followed in Lesotho’s footsteps by legalizing cannabis use, while South Africa has allowed private consumption between adults since September 2018.