Investment holding company Labat Africa says it is optimistic about its turnaround after Covid-19 hit its fuel business, and is pressing ahead with its expansion into the fast-growing market for medical cannabis.
The rollout of Cannafrica stores — which sell cannabidiol (CBD) products — is progressing well, Labat said on Monday. Four physical stores have opened since the end of August, with Labat intending to open a further 40 in 2021.
Though Covid-19 has put severe pressure on SA’s retail stores, Labat CEO Brian van Rooyen said the group had seen “massive” demand for CBD products amid the pandemic, to the extent it had experienced stock shortages of some of its products.
The group also expected that much of store sales would be online, said Van Rooyen, with physical shops offering a full range of the group’s e-commerce products and serving as dispatch points for orders.
The global market for CBD products is rapidly growing, with Labat saying earlier in 2020 the legal African cannabis market could be worth $7.1bn (R104bn) by 2023, and SA’s market worth $667m.
Labat, now worth R173m, is just one of a number of JSE-listed counters seeking to grow their presence in SA’s cannabis market.
Nutritional Holdings is also focusing on CBD products, and recently secured off-take agreements for the German and Japanese markets.
Labat returned to an accounting profit in its year to end-August after putting its fuel energy business, Force Fuel, into business rescue in May after muted sales volumes due to SA’s lockdown.
Discontinued operations registered a R72m loss to end-August, from R42.8m previously, but the group notched up a R107m profit on its loss of control. The group reported a profit of R10m to end-August, from a loss of R72.9m in the prior comparative period.
Labat said on Monday it was expecting positive cash flows in its 2021 year from new and existing businesses, noting the opening of Cannafrica stores.
The group said it was also considering further acquisitions that could improve profitability. Post-year end, Labat completed its acquisition of 70% of research & development group BioData, which is conducting clinical trials on products that could replace prescription drugs, such as certain opiate-based pharmaceuticals used for pain relief.
In December, Labat announced it had agreed to pay R1.8m to acquire 100% of Western Cape-based Ace Genetics, which produces raw materials.
Ace Genetics has more than 100 strains and sub-strains under cultivation, the group said at the time. Ace also has a large number of customers in the US, Canada and Europe that are keen on procuring seed and cuttings.
By the JSE's close on Labat’s share was up 2.33% to 44c, having risen 12.82% over the past 12 months.
Update: January 4 2020
This article has been updated with additional information throughout.
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