Major Player on African Cannabis Markets in Free Fall
Bonno
05-03-2023
Share price of Labat Africa, flopped 67%. Why? And will more companies meet the same fate?
Though management vows to stage a recovery in 2023, the reasons for Labat’s collapse have raised alarms – as observers warn the company is doing too much; too fast.
Stock Drop
“It’s such a fall from grace. Though Labat Africa’s stock decline is sobering; the reasons can’t be singular,” says independent economist Carter Mavhiza, speculating that contrary to Labat’s management’s sunny outlook in 2023, the stock might decline even more, rather than recover.
Labat Africa’s stock took a catastrophic fall in 2022 and ended the year at 10 South African cents after debuting at 30 cents. The slide continues with the current stock price representing a 10% loss in January of 2023.
The fall is a remarkable reversal of fortunes for Labat Africa whose shares momentarily soared 16% in December 2021 after it announced that it has successfully listed on the Frankfurt Stocks Exchange in Germany.
Market Maturity
The South African financial and equities market is not yet ready for cannabis, Labat Africa’s CEO Van Rooyen told reporters.. Van Rooyen says his predicament is not unique and cited Cilo Cybn, the colorful South African cannabis startup that flopped massively in November 2022 when it ran a special acquisition purpose vehicle (SPAC) drive to raise ZAR 2bn ($115mn).
Shareholders proposed to buy just ZAR 20,5Mn ($1,18mn) of shares in the proposed SPAC and Cilo Cybn ended up refunding investors their contributions after failing to list the SPAC on the Johannesburg Stocks Exchange. “It is in the company’s best interest to focus on its growth initiatives and postpone listings to a later date,” Gabriel Theron, the CEO of Cilo Cybn, said in a statement issued in November 2022.
“I sympathize with Labat and Cilo Cybn on these financial struggles,”
“The law around cannabis in South Africa is still fuzzy. Police are still aggressive in shutting down the greenhouse. Investors, therefore, balk at throwing massive amounts of money into the sector.”
Too fast; too much
Other observers say Labat Africa has itself for investors developing cold feet towards its prospects and its shares ultimately struggling.
“It has bought too many companies on a spree; Labat Africa can’t define itself whether it is a medical cannabis cultivator, processor, or exporter. It wants it all and spreads itself widely,” Dikeledi Matla chairperson of the Soweto Cannabis Alliance Forum, a South African lobby for Black cannabis cultivators, says, arguing that multinational cannabis corporations like Labat Africa are monopolizing the cannabis market in South Africa and dwarfing out small upstart entrepreneurs like him. Matla was referring to Labat Africa’s aggressive operations which have seen in March 2022 acquired 80% of stockholding in Sweet Waters, a specialist medical cannabis cultivator along South Africa’s east coast; buying 70% ownership in Zarenka Group, a Lesotho cannabis manufacturer in 2019; buying Leaf Botanicals, another grower in 2021, etc.
“Labat Africa doesn’t want to grow organically. It wants to sprint by mergers and acquisitions. At some point, shareholders begin to fear you don’t have the management and resources to manage all those disparate acquisitions – and once that fear grows, your shares flop,” Matla says.
Over-confident?
Labat Africa says the future of its operations is bright and cites that its Sweet Waters subsidiary has already bagged deals to supply 200kg a month of medical cannabis flower to Switzerland; supplying 200kg of medical cannabis to Australia per year in 2023; plans to launch a pharmaceutical sales, marketing, and distribution business in Germany in 2023; and rolling out more Cannafrica stores in South Africa in 2023 so that there is a total of 10 stores by June 2024.
“It’s brilliant, it’s bold and it’s risky,” economist Carter Mavhiza says of Labat Africa’s aggressive expansion agenda.
“Labat Africa profits can soar if exports start to roll in huge volumes. Labat Africa’s widely spread operations can struggle; the stock may crash further and shake down with it investor confidence in Africa’s cannabis stocks”.
Labat Africa is a South African-owned investment holding company listed on the Johannesburg Stocks Exchange and the Frankfurt Stocks Exchange – and it says its management has made a ‘strategic’ decision to venture into the medical and wellness cannabis market in the next decade.
