In another clear indication that the South African government views the emerging cannabis sector as a priority, Notice R586 (R586) was recently published in the Government Gazette notice, 43347.

R586 means that cannabis has now been given Schedule 6 status and effectively that medicinal cannabis is safe to use. It also cements the Schedule 4 status of CBD and de schedules CBD products. This is another indication of government’s intention to liberate the country’s hemp industry.  It is also expected that Parliament will soon consider removing cannabis from the Drugs Act, and therefore as an illicit substance.

These important legislative changes for this new industry in South Africa all point to government’s understanding and acknowledgement that the cannabis sector can become an important future contributor to the fiscus, and a job creator, as well as attracting foreign direct investment.

JSE-listed, Labat Africa (Labat) has strategically realigned its business and last year announced its intention to enter the cannabis and hemp industry. This resulted in various strategic acquisitions being made, relationships formed, and people being brought together throughout the sector’s value, ranging from farming to retail.

On 5 May 2020, Labat issued a Stock Exchange News Service (SENS) announcement of its intention to raise up to R112 million by way of a bookbuild from institutional and other investors during a roadshow to fund the rapid expansion of its healthcare business. On 26 June 2020, Labat issued a further SENS notice informing shareholders that is has received widespread support for the capital raising process. Additionally, it was announced that Labat has entered into a share subscription agreement with Verityhurst (Pty) Limited, which is a private equity and venture capital investor, in terms of which Verityhurst has agreed to subscribe for up to 70 000 000 ordinary shares in Labat for cash, in two separate transactions.  This transaction is expected to raise some R50 million.

The proceeds from the capital raising will be directed at Labat’s expansion of its botanicals business in order to meet the requirements for its international off take agreement, to fund the expansion of the pharmaceutical unit and to roll-out a network of retail outlets through its current retail arm Cannafrica.

Brian van Rooyen, CEO of the Labat Group commented: “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 multi-billion-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’s strategy on medical cannabis sales to Europe and its strong focus on EU cGMP’s (Current Good Manufacturing Practices) certification and entering the Pharmaceutical market through the registration of Cannabis API’s is also paying off.

Last week Stellenbosch based farming group, Fellbridge, announced that it has shipped its first harvest of cannabis to Swiss based Pharmaceutical company, whilst Afriplex, a Paarl based pharmaceutical company has announced that it had exported its first cannabis extract. The South African Health Products Regulatory Authority (SAHPRA) is also busy speeding up this part of the regulatory process.

Labat’s share price has now reached a three year high with the stock surging by some 236% and over 11 million shares traded on the JSE in the last 10 days. The trading on the company’s stock on Friday, 26 June 2020, saw it increasing by 23% on the day and reaching a three year high of 75 cents after more than one and a half million shares were traded.

Van Rooyen said he was excited about the industrial hemp market as it emerges as a new industry for South Africa and it offers opportunity to support emerging farmers, create jobs, uplift communities, help utilise land productively, develop skills and contribute to health and wellness. He added, “I am encouraged by the call made by the Finance Minister and the Provincial Premier for the accelerated deregulation of the process for hemp farming. It is important that our farmers in the country get access to these permits, and that they should be affordable”.

The Labat healthcare team are currently engaged with preparations on the launch of its own range products, and Labat will soon make further announcements on expansion plans for parts of the business.

Labat’s capital raising process is being co-ordinated by Arbor Capital and further details can be obtained from the Company’s website: www.labat.co.za

NB: ([1] MarketsandMarkets™ (25 June 2019) – Global Forecast to 2025: the Industrial Hemp Market is projected to grow from US$4.6 billion in 2019 to US$26.6 billion by 2025, recording a compound annual growth rate (CAGR) of 34.0% during the forecast period)