Labat to focus on finding the right ‘business combinations’
Labat Africa is finally hoping to pull off its first-mover advantage in the cannabis value chain with a more aggressive strategy after the pounding of the pandemic and a lack of a clear regulatory framework. The JSE-listed company has been burning through cash but is a going concern because of drawdown funding it has secured from Californian investors and its recent listing on the Frankfurt Stock Exchange.
The company gave an insight into its strategy when it revealed its latest financial statements to the public on 30 May 2022. Although the damage was bad, it’s not out of line with similar first-mover-advantage groups in all newly-regulated jurisdictions.
Labat’s strategy to seize the cannabis value chain in the course of the next 12 months is still being hampered by the restricted regulatory framework, but that looks set to change in the course of the year. Labat’s cannabis subisidaries fall into its healthcare division. They are: Labat Pharmaceuticals, Sweetwater Aquaponics, Ace Genetics, Labat Hemp Processing, Cannafrica and Biodata. Labat’s strategy going forward is to find the right “business combinations” to maximize efficiencies and get the Group purposefully heading towards profitability.
It says “the company’s vision remains to be the number one cannabis/hemp company in Africa and to maintain that position. The agreements over the last two years ensure that the company is on a profitable and value-creating path. Labat has made massive strides in laying the ground-work to becoming a Cannabis Powerhouse in Africa” It added that “Labat measures its success beyond yield and capacity; the pursuit of quality for a long-term competitive advantage drive to its business strategy”.
Sweetwaters Aquaponics: a ‘quantum shift’ for the group
Labat says the acquisition of SAHPRA-licensed Eastern Cape facility, Sweetwaters Aquaponics on 1 March 202,2 led to a “quantum shift in the busines, enabling the export of product to overseas customers, with the initial initial customer in Australia ordering a second batch of flowers, following the successful testing of the THC content (26.7%) by SAHPRA.
Ace Genetics: commercial seedbank to be set up this year
Ace Genetics is to be set up under license at Sweetwaters, a breeding room is under construction and a commercialization strategy is being put in place once the right genetics have been identified. The company says the planned date of transfer of all seeds and mother plants to Sweetwaters “is June 2022 with seed production expected to commence on the 1 August 2022 and the Company will be going to market with its own online Commercial Seedbank immediately thereafter. “
Echo Life deal gives Labat Exclusive Rights to Axle and Axle Pre-Rolls
Labat said last November’s acquisition of Miami-based Echo Life “greatly complements the Healthcare retail business through its unique range of product offering that will be marketed and sold through the CannAfrica retail stores as well as the Labat online retail platform”. In terms of the deal Labat will have the exclusive rights to distribute Echo Life’s pre-rolled hemp smokeable Ace and Axle as well as other products.
CannAfrica introducing CannAfrica ‘Kiosk Model’ in 5 Shopping Malls
Labat has switched tack on the roll-out of its retail brand CannAfrica; it says the “main objective that underpins the new strategy is the aggressive rollout of corporate owned stores, some of which, will remain corporate-owned, and others, once profitable, to be migrated to franchisees, who are fully paid up in respect of franchise rights.
The corporate-owned stores will take a different approach to the Melrose Arch, Hartbeespoort Dam and Cape Town stores which are larger stores with significantly higher operating costs.
The ‘kiosk model’ is being implemented in malls and larger shopping centres and Labat is set to conclude a deal with the Company is at an advanced stage of concluding a deal with the Mowana Property Group to open up CannAfrica Kiosks in five of their prime properties namely:
Cresta Shopping Centre (Gauteng), Westgate Mall (Gauteng), Menlyn Shopping Centre (Pretoria East), Castle Walk Mall (Pretoria) and the Pavilion (Westville).
The five kiosks should be opened by the end of June 2022.
Labat says it has identified that, “as an industry issue, there are no fully dedicated CBD stores operating in South Africa; therefore a considerable amount of time and effort has been put into further extending its product offering. The product lines which the company will be expanding into are minor/rare cannabinoids, vapes, grow kit accessories and other paraphernalia”.
The Company also plans to turn the CannAfrica kiosks and retail stores into “’dispensaries’ for the Biodata Research Project, for the legal dispensing of cannabis flower, other medicines and THC products.
Biodata Medicinal Cannabis to Become ‘Dispensary’ Product
Labat says the “Biodata research project is gaining traction” and plans to use the planned CannAfrica Kiosks as “physical-sign-up-points for the study”. It says the kiosks will also serve as Biodata dispenseries for medical cannabis for pain management. It says it is also “engaged with” a number of vape stores to also become Biodata “dispenseries” once regulatory approval is in place.
Rolling Papers into the Value Chain
Labat says it “is currently finalising agreements with a rolling paper specialist company that focuses on cannabis rolling paraphernalia. The business was running informally. However, there has been great traction on the brand and products with sales last year averaging 200 units per day. The business has now been improved structurally and has a focussed strategy of expanding into parts of Africa and the USA. The main challenge facing the targeted expansion Is the lack of working capital which approximates R500 000 for the first three months mainly for stock purchases to fulfil orders. Labat has engaged the business partner around a possible share transaction as well as a bridging working capital facility over the first three months. The process is currently in the due diligence phase. For its year end March 2022, the company earned revenues of R1.8 million. These products are complementary products for the CannAfrica Stores.
CBD Infused Drinks to Provide Ammo for Retail
Labat came up with a new cannabis retail strategy in March 2022 to expand its national footprint and visibility and to increase product offerings,. It believes “a retail beverage offering is indispensable”.
It says in an Enterprise Development initiative in 2020, Labat was introduced to a start-up cannabis beverages company which it still in equity negotiations with. However, “the company has developed three recipes in collaboration with the CSIR, and have finalised their packaging and branding architecture, and have delivered a premium product, as sample drinks. The product is superior, and of a quality that Labat want to be associated with. The company will now do their first production run, in order to show capability and test the market. A draft Term Sheet in place, to be concluded in the next phase of the Company’s deliberations. It is envisaged to be a share-based deal, for 30% equity, and access to evolving retail distribution channels.”
SAMES to be the Tech Hub
The South African Micro Electronic-Systems Proprietary Limited (“SAMES”) will “remain a technology hub and will also hold the healthcare divisions intellectual property, formulations, ‘know-how’, seed banks, extraction technology, strain development and other technologies needed in complying with Good Manufacturing Practice (“GMP”) standards, including European Union GMP, where applicable”. It says that although SAMES had a healthy start to the year, revenues have decreased “mainly as a result of a worldwide shortage of semi-conductor chips”
Logistics business to take care of transportation and warehousing
Labat’s Logistics, although not directly part of the Healthcare division, “will form an integral part of the Healthcare operations with both transportation and warehousing of raw material as well as final products. These are explicit requirements in respect of the GMP accreditation. Furthermore, the final product of the pharma business is expected to sell for between R800 and R1 000 for a 20ml bottle, which will need to be securely transported. The company’s marketing efforts are showing acceptable results and Labat is well positioned for growth based on work completed over the past three years. The Company continues to provide logistic services to large corporates, when and as required.”
Read all Cannabiz Africa coverage of Labat here
Hemp in Europe, France, Germany
Hemp cultivation in Europe dates back hundreds of years, and it is estimated that 25% of the world’s hemp is grown in this region. France alone accounts for 40% production in Europe, and there are twenty additional countries that are known for hemp production in bulk. Over the past few years, the hemp cultivation has boosted, and both the consumers and producers are interested in utilizing these resources.
Over time, Europe has seen a sudden growth in the processing infrastructure, and they have finished a good industry where hemp fibers are produced for industrial applications. Hemp can be utilized in paper and pulp industry and is also used in biocomposites, which are used in the automotive industry and for making insulation material. The fiber extraction processes also make use have several commercial uses such as for animal bedding and in the construction industry as well, especially for insulation.
It is has been observed that the last few years have seen an increase in the overall cultivation, and there has been a growth in the seeds and flowers that are grown in the various regions around Europe. Also, the applications of the hemp components are such that it is highly useful. In a study conducted by the European Industrial Hemp Association (EIHA), it was found that Europe produced 11,500 tonnes of seeds in 2015 and imported around 10000 metric tones from China.
In the earlier decades, the hemp seeds were primarily used as animal feed for fishes and birds. EIHA has estimated that around 60% of this crop is used as human food, and the rest 40% for feeding animals. This particular shift is going to continue in Europe as people become more aware of the application of hemp and the amount of omega fatty acid that it holds. Over the last four years, there has been a sudden increase in the harvest of hemp flowers and leaves for food and medical application, which are basically meant for CBD applications.
With the hemp cultivation kicking in, the CBD sales have also increased in some of the European countries despite of the confusion that is prevailing in the European Food Safety Authority. Most of the countries such as the UK and Italy have stopped enforcing guidelines on the CBD production, whereas some others, such as Austria, Spain, and France, have brought down the CBD sales over the course of time.
You will notice that the CBD products have been widely distributed across Europe – right from the vape stores, tobacco shops as well the supplement in the UK, especially in Barrett and Holland. You can also find the CBD material in the supermarkets, with online retailers, as well as the medical stores. However, there has been a restriction on the use of CBD across various countries, and there is a possibility that it might hamper the growth of the hemp plant in several countries. In areas such as Germany and Romania, it is easy to harvest the plant. Moreover, in areas such as the UK, France, and the Netherlands, it is easy to grow seeds and fibers. In recent times, the production of the hemp seeds has gone down to a significant extent, and it is important to build up an industry that is quite strong and diverse when it comes to the growth of hemp seeds.
As hemp is one of the best sources for CBD, it can be extracted for use in a wide variety of food supplements such as cosmetics and pharmaceuticals. As you know, CBD is legal cannabis, its market in Europe is targeted towards the medical consumers, and the consumption of the same is meant for those who want to invest in cosmetics, food supplements, and pharmaceuticals. The legal cannabis market is infused with products that are meant for recreation activities. According to recent research, it was found that the European market is going to make around 450 million out of the CBD market, and after that, North America will have a market share of 40%. Europe is surely going to reign in the cannabis market and will have a profound impact on the CBD market. In Switzerland, the sale of CBD is permitted along with the consumption of legal and recreational CBD, which has high THC content. CBD is also available for use in the tobacco shops.
Hemp cultivation in Europe surely has a bright future as more and more people are opting for it due to the multiple benefits that it has to offer and the cure that it provides against a lot of issues.
Challenges Crushing the Dreams of American Hemp Farmers
With the word coming down the pike last year about the production of hemp to become legal again in the United States, the struggling American hemp farmers felt as if they just received a stay of execution.
This means that they will not have to nickel and dime themselves by dedicating their exclusive land to traditional crops like wheat and corn. They might also be able to stay in the agriculture field for longer without having to deal with pasture crops.
Cannabis supporters have been preaching from the past few decades about the potentials of industrial hemp in saving the economy of the country. Moreover, this depends on whether the country is willing to accept hemp as a sustainable alternative to substances like cotton, fossil fuels, and cotton.
Mitch McConnel, a Senate Majority leader, and a federal lawmaker, fought against legalizing cannabis since the 1980s and saw the hemp potential first hand while exploring various facilities involved with the pilot program in Kentucky, his home state. Noticing the benefits that hemp could provide the average American farmers and consumers, McConnel took charge of the pressing issue on Capitol Hill during the last year. McConnel was determined to ensure that industrial hemp would become one of the plows and pick collection for the farming community. And he got successful in his plan.
So, now that the production of hemp is legal under the 2018 Farm bill, more and more jurisdictions in the countries are accepting it. As of now, 34 states of the United States have made the production of hemp legal for the farmers since the legislation is signed into law by President Trump.
So, this means that the country is happily accepting the decision to hold down the prohibition of hemp production.
Although the hemp market is predicted to cross the $26 billion mark within the upcoming six years, farmers are not living the high life. There are many challenges and uncertainties in the agricultural sector that are to be sorted off before the crop could take off just like the supporters have predicted it to. However, one thing that is certain in the hemp industry is that only the strong or at least those with better resources will survive. Here are some of the most prevalent issues that hemp farmers have been facing since the crop was legalized.
Hemp Production Generates Poor First Year Yield
The farmers of industrial hemp have accepted this decision of legalizing hemp and regarded this as a sweet spot. But, the poor first-year yields of hemp production have made it difficult for the farmers to be profitable. Due to the delayed planting schedule and heavy rainfall, there is a situation where the initial harvesting of the hemp is looking to be miserable. And, this will certainly make a huge impact on the profits.
The Indiana hemp farmers stated that the plants didn’t grow much taller. Moreover, they never canopied the fields, and this has also led to weed problems for the crop.
Reports might have shown that the production of hemp may bring between $40,000 to $50,000 per acre, in comparison to corn, which is just generating $1000 per acre; the farmers still do not believe that the first harvest of the hemp will bring in any profit for them.
Hemp Farming is mostly done with Hands
Hemp farming may bring big money into the farming community, but for this, they will have to put a huge effort into it. Hemp farming is a laborious task, especially when the farmers are not equipped with the necessary equipment to complete the process from seeding to harvesting efficiently. Although some of the hemp farmers may have been able to use modern equipment and machinery to farm hemp, others may have to invest thousands of dollars to purchase new retrofits and equipment. Moreover, as only certain types of plants need to be seeded into the ground, a lot of work needs to be done with the hands by the farmers for the seedling. Someone will have to it do this work, however dirty it may be.
Back during the time of original Rockstar cropping in the United States, slaves used to work in the hemp fields only because no one, especially white men, wanted to do anything related to it. The book “A history if the Hemp Industry in Kentucky” clearly indicated that slavery only flourished in the Bluegrass State because of Hemp. Let’s hope that things go the other way around this time.
Seeds of Hemp being Sold for CBD rich Plants is a Rip-off
There is a shortage of hemp seeds that can be used for producing high CBD yield plants. Many of the hemp farmers who have just started hemp businesses are focusing on capitalizing on the emerging case of CBD. But, for this, any old hemp will not solve the purpose. Farmers interested in producing hemp for selling it to the CBD processors will require only female plants. Many of the hemp farmers are getting ripped off due to the fact that hemp seeds they purchased recently are male plants of hemp. For the farmers who are expecting to sell their plants for CBD, these plants are completely worthless. Now, they won’t be able to sell their crops to the CBD processors, resulting in huge losses.
However, analysts have predicted that by the year 2023, the industrial hemp market could be worth $22 billion.
Thieves are stealing Hemp mistaking it as Marijuana
As marijuana and hemp are similar in odor and appearance, thieves have been mistaking it into marijuana and sneaking into the hemp fields and stealing the crops with enthusiasm. Many farmers in New York have complained about the lost crop because the pot seeking thieves have been stealing it every night.
Apparently, thieves have been mistakenly stealing hemp plants, and the problem is worsening with time, as reported by the hemp farmers. The stealing of hemp started with 20 plants and then slowly escalated to 100 plants. Moreover, in the beginning, such incidents happened just once a week, but it has now escalated to every night. These plants are completely useless to them, and they can smoke as much as they can without getting the ‘high’ they are looking for.
The farmers also fear that this significant loss of crops even before reaching the harvesting time could badly cripple them before they even start. The problem of theft is forcing the farmers to either assemble an independent team or invest in increased security to keep a look at their crop.
A farmer in New York reported that he is in big problem as he is sleep deprived because of spending countless nights watching out for his property. He said his family had spent many nights for the same reason.
Along with this, the hemp farmers are facing challenges with crop insurance, banking, and a shortage of sufficient pesticides and herbicides. In other words, it will be some time before the hemp production can get back to normal in the United States, and the farmers can enjoy farming without any issues. Moreover, considering the duration for which the crop was out of circulation, the country may never see a rise in the hemp production like expected.
Black Unemployment Rate Stays Higher, African-Americans Get Less Jobs
In May 2020, the black unemployment rate stood at 16.8% compared to 12.4% among white Americans. While the economic recovery brought down the all-American average from Aprils’ record 14.7% to 13.3%, it ticked 0.1% for African Americans. The ongoing protests over George Floyd’s death due to police brutality, and high rate of joblessness for blacks highlights the glaring social and economic disparity in a country viewed as the torchbearer of the world’s democratic values.
Many blame the coronavirus pandemic for unemployment among blacks, who predominantly work in state and local sectors that have witnessed major layoffs. However, it is the disparate racial mindset that makes black Americans subject to economic and social injustice. While white Americans are mostly businessmen and white-collar workers, blacks struggle to get jobs.
The data on black unemployment rate understates the bigger problem of disfavoring in the United States. African Americans face inequalities in access to healthcare, education, housing and means of prosperity. Their wages, income, health status and economic condition continue to suffer due to persistent racial discrimination visible socially, economically and physically.
The Deep-Rooted Economic Disparity
Historically African Americans are at the receiving end of economic development in the United States. In August 2019, when joblessness was its lowest in the country in decades, the black unemployment rate was still 2% above the 3.4% whites without a job. Whenever a recession hits the US market, African Americans are more vulnerable due to the fragile economic safety net they rely on. As the economy rebounds, their recovery is again slower compared to the white population.
Much blame for the high black unemployment rate and their economic backwardness goes to racial discrimination that continues since the US came into existence. African Americans were enslaved, and brought to the country to work for the prosperity of white farmers. Despite their support in the War of Independence, their enslavement continues, and they were denied economic advancement. Black people were excluded from the political process, and forced to serve the white men.
The abolition of slavery in 1863 failed to restore their property rights completely and White Americans continued to enjoy privileges in job and commerce. The sustained racial segregation and discrimination of black people by whites led to the Civil Rights Movement in the 1960s. Though it resulted in social, economic, and political reforms in favor of African Americans contributing to Barack Obama’s elevation as the first black US President, blacks continue to face systemic injustices. The absence of equal opportunities, wages, and education keeps them disadvantaged and the black unemployment rate remains higher than that of white Americans.
Why the Black Unemployment Rate Stays Higher
The foremost reason for the high black employment rate in the United States is “historical and systemic educational and economic disadvantages” meted out to them. For centuries, white Americans are “patronized” to maintain a “disproportionate economic edge” at the workplace. African Americans struggle to get better and quality jobs as they have too many hurdles, including lower pay, higher job insecurity, reduced benefits and fewer opportunities, compared to white people.
Systemic barriers also put obstacles for black Americans. They are victims of occupational segregation making them vulnerable to wage discrimination at the workplace. Blacks are viewed as fit for lower-paid jobs, and employers prefer whites over them for stable, well-paying offers. Whether it is a slowdown or economic recovery, they are “last hired, first fired.” About 55% of them have private health insurance compared to 75% among white workers.
The lack of entrepreneurship and fewer African American-owned businesses also contribute to the higher black unemployment rate. They lack the wealth to support their education, start a business, or move to a particular place and access better jobs. They face monetary barriers preventing their education, and end up with higher debt than white Americans. However, this has more to do with racial profiling in jobs than the absence of qualification among black people. Their systemic economic exclusion is as old as the US history.
Even after slavery was abolished, the offices created to resettle formerly enslaved people encouraged them to enter into a contract with their former masters, and continue to do the same occupation. States, such as Carolina, made laws barring African Americans from doing any job other than farming or domestic servitude. White-dominated legislatures approved acts that prevented the relocation of blacks, or their hiring for distant job openings.
Unfavorable agriculture policies and Ku Klux Klan terror in the South drove African Americans to the North during the 20th century. However, the lack of good education and employment discrimination forced them to accept lower-wage domestic and service vocations. The trend continues despite technological advancements leading to high-paying jobs in the country.
Intentional government inactions are also to blame for the higher black unemployment rate. Federal and state statutes enforcing non-discrimination at the workplace are never strictly implemented. Many of the agencies, including the US Equal Employment Opportunity Commission, remain only largely symbolic, while social discrimination perpetuates economic inequality. This, in turn, has forced African American workers to endure lower-income, fewer jobs and exclusion from better opportunities.