Labat Africa’s loss widened by more than half in the nine months to the end of May, but the investment company with an eye on the rising demand for cannabis-derived products believes it will make a profit in its 2023 year.
The company, which is aiming to become the number one cannabis and hemp company in Africa, said its loss widened by 52.5% to R34.7m while revenue fell by just over a fifth (21.3%) to R23m compared with its 2021 financial year to end-August.
Labat said on Monday 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”.
The company, which listed on the JSE in 1999 and is now valued at R64m, acquired a majority stake in Lima Romeo Air, trading as Sweetwaters Aquaponics, during the reporting period.
It has a fully operational medicinal cannabis cultivation facility in Kenton-on-Sea in the Eastern Cape which has been approved by the SA Health Products Regulatory Authority (Sahpra).
According to Labat, the acquisition has 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.
Since taking over Sweetwater’s facility in March, Labat has had two harvests. The first one was in April, which yielded 80kg; the second was in July, which yielded 120kg. And a third one is expected at the end of November.
Labat Africa said 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.
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