Economy / 16 September 2019, 11:08am / Siphelele Dludla
JOHANNESBURG – South African investment holding company Labat Africa is on a high after buying a 70 percent stake in Lesotho dagga grower and manufacturer Zarenka Group as part of its business expansion into the cannabis market.
A recent report by India-based Zion Market Research found that cannabis is one of the fastest-growing markets.
The global medical marijuana market was valued at $11.8 billion (R171.7bn) in 2017. It is expected to generate revenue of about $40.9bn by the end of 2024, growing at a compound annual growth rate of about 19 percent between 2018 and 2024.
Consultancy firm Prohibition Partners said that “Africa’s legal cannabis industry could generate more than $7.1bn annually by 2023 if a number of the continent’s major markets open up and mirror the trend of legalisation” in the US, Canada and Europe.
Medical marijuana is in its initial phase in the healthcare industry and the cannabis plant is a revolutionary product that is garnering mass acceptance globally.
JSE-listed Labat ventured into the cannabis industry this month with the acquisition of a 70percent stake in high-grade genetic cannabis breeding, cultivating and stabilising business Knuckle Genetics.
This propelled the group to establish a fully integrated cannabis business, Labat Cannabis, within the Labat Africa group of companies.
On finalisation of the Zarenka subscription, Labat entered into a subscription agreement with Zarenka for more than 2.3 million shares for a consideration of R57.5million to be settled in two tranches. The transaction is subject to the fulfilment of suspensive conditions, including board approval and any regulatory approvals.
The shareholders of Zarenka, Luxolo Vava and Mohammed Osman, will retain a 30 percent interest.
Zarenka has an interest in six cannabis licences in the Kingdom of Lesotho, which allow it to cultivate, harvest, manufacture, distribute, import and export into and out of Lesotho for medical and recreational use, and for any other use which is legal in the country acquiring the products.
Lesotho has been ahead of the curve on medicinal use of cannabis, and was the first African country to decriminalise cannabis two years ago.
Labat said acquiring a majority stake in Zarenka was in line with its strategy to give effect to the establishment of a fully integrated cannabis business. The group said this would enable it to supply the international market with a lower to mid-tier product for pharmaceutical purposes, while the higher tetrahydrocannabinol (TCH) and cannabidiol (CBD) content is for the upper medicinal and medical research market. Zarenka will not require funding from Labat, and as part of the warranty is expected to realise its first production and revenue before the end of November.
The construction of the Zarenka facility in Lesotho is under way, with production to start on November.
This will include the setting up of containers, nurseries, offices, greenhouses, recruitment of staff, appointment of master growers, appointment of airfreight agents and exporting of the first consignment of product.
The parties have stated that it is the intention to have a dual listing on the JSE and the Dubai Financial Market, at which time additional capital will be raised to further grow Labat Cannabis.
Labat’s share gained 9.09 percent to R0.60 on Friday before closing at R0.62.