Those who chuckled when analysts considered the prospect of turning South Africa into the global epicentre for a mushrooming cannabis industry are surely thinking differently after hearing the references by president Cyril Ramaphosa in last month’s State of the National Address. The official sanction is no surprise to serial entrepreneur Brian van Rooyen as he explains in this in-depth podcast on the potential for turning unproductive crops and mills into green gold. Van Rooyen is the CEO of Labat Africa, SA’s first cannabis-focused listing. – Alec Hogg
Okay, Brian, so everyone listening to this is probably saying, “That Brian van Rooyen. Is he the rugby guy?”
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Yes, indeed. It is the same guy that buggered up South African rugby, as some people see it.
Well, I hope that isn’t a universal thought.
I don’t think so.
Because we won the World Cup three times now. That’s pretty good going.
In 2007 yes as well.
But you actually did play rugby yourself.
Yes, I did. I played for the then Transvaal Independent Rugby Football Union and post-1992, the unification between the South African Rugby Union and the South African Rugby Board in Kimberley, the Transvaal Rugby Union of Ebrahim Patel, together with the Transvaal Rugby Union of Louis Luyt. We were the first ones to merge post 1992.
And then you went on in Rugby to become the chairman or the President of South African rugby. Fascinating story. On another occasion, I’m sure we’ll get into that but this is all about Labat and more specifically, the recent developments at Labat. Now, looking through your website, I can see in your annual report that you had a bit of rough time in the energy area with a company there because that really is your new thrust. What went on there?
I think what went on there was a discussion that we had with the PIC just before the whole inquiry started and there was an opportunity to consolidate the energy sector in South Africa. We thought that one of the things that we would be doing is to look at one of the major independent energy fuel providers and then set that up with somebody – a couple of the assets that the PIC had but because of the whole inquiry, that whole process within the PIC stopped and we were left with this energy asset, which we still believe is a good asset that you could take forward. Obviously, as you just mentioned, we had to take a massive write-off.
They made your numbers look horrible last year.
Yes, but everybody that knew, had not one single cent move in the share price, so people knew that it was a decision that we took in making sure that write off in what was a very difficult industry, particularly with illegal fuels coming in to South Africa.
We’ve got Mr David Shapiro who’s now got through the Johannesburg rain. We must never complain about Johannesburg rain, David.
No, getting into this… It’s a lovely building.
Isn’t it?
Yes, it absolutely is.
I see you were a bit surprised about the headphones – that they’ve all been cleaned.
Yes. I’ve never had that before. I’ve been on radio for what must be 25 years plus…
Wikus is here for Coronavirus so we’re going to talk about the headphone virus. It’s going to be quite interesting because you and I are quite sanguine about coronavirus because it’s feeling a little different.
I can understand why.
He’ll explain in just a moment. Brian van Rooyen you know from many years of broadcasting. His company, Labat Africa is driving aggressively into the cannabis sector. You should read the annual report. It is very exciting because we spoke about cannabis stocks in the past and the cannabis area. But what got you Brian, into the cannabis story?
Well, about 5 years ago, we had a huge facility that we were going to turn into an API facility within Labat.
What’s API?
Active Pharmaceutical Ingredients for the anti-retrovirals at the time and we did a lot of work going into the pharmaceutical sector. Unfortunately, some political intervention made that whole thing fall through. It never happened and as of today, South Africa doesn’t have an API manufacturing facility in South Africa. We didn’t stop anything going forward with Labat. We always knew that would be an area that we would continue after that we left it off about 7 or 8 years ago in the pharmaceutical sector. It just so happened that one of the things that we’ve been working on for the last 2 years was the whole cannabis…
Two years?
Yes. Two years we’ve been working on this whole implementation of the cannabis sector.
David hasn’t even had his cannabis shares for two years.
And I think that’s the exciting part of it because as we speak, there’s been a lot being said about cannabis in South Africa but it still remains a Schedule 7 drug under the Narcotics Act, which makes it illegal for commercial purposes in South Africa.
So, what was President Cyril Ramaphosa saying in the SONA that changed things, if any?
Look, I think from the cannabis perspective, we’ve got to be very clear when we talk about cannabis. People have this view that you’re going to make billions and billions of rands out of cannabis in South Africa. In South Africa, it’s still illegal. That’s why our first license that we’ve obtained is in Lesotho, which makes it legal in Lesotho. In South Africa, the problem – not only in South Africa but in the world – there’s a clear distinction between the two cannabis trains (for lack of a better word). One is the marijuana – this is the thing that people smoke that make you high – the high THC levels and everything else. Everybody thinks that that is the route to go. Then you’ve got your hemp side from the cannabis – the low THC – some instances no THC but high CBD content for oils, gels, supplementary medicines, foods, fibres and industrials. That’s where your big industry for South Africa lies, between the two. We’ve taken the view that we will not enter the cannabis market for recreational purposes. That’s just the decision we’ve taken.
So, reading your annual report, you’ve got a lot of land in Lesotho.
Yes.
Are you growing the plants there?
Yes. What we do in Lesotho (because it’s legal in Lesotho); we’ve got an operation called Labat Botanicals. There we will grow very high THC content – up to 30/35% – but that we do for the medicinal and pharmaceutical market and we’ve got a 5-year off-date agreement as announced with a European company.
So, that’s pre-sold?
Yes, that’s pre-sold.
How big…?
It’s about R5bn in projected turnover for that. That is one company so we will grow it. There is a big operation in Lesotho and let me just mention it is MGL (MediGrow). They’re the first ones that have been in Lesotho. We’re obviously not going to go the same route. We’re going to grow. We’re going to cultivate and we’re going to do it all under GMP requirements and then export it. That goes straight out. Our whole cannabis market in South Africa is held back by legislation, and government is obviously now looking at separating the legislation from the narcotics (the high THC) to your (CBD) and your hemp industrial.
So, you’ve got a head start because you’re busy in Lesotho and once South Africa’s legislation is changed, you’ll presumably have the opportunity to leverage that knowledge into this market.
No. We’re in South Africa already.
You’re in South Africa already.
Because there are exceptions in the legislation, so you can sell any cannabis-related product as long as it is in terms of the prescription of SAHRA.
So, tell me about the rating of Labat relative to the rating of Canadian cannabis stocks.
I think we’re at the beginning right now. There’ve been a lot of licenses going. I think the Lesotho government has issued about 135 licenses and you can literally go on the corner of a street and buy a license. The problem with that is that you need to have your off-take and that is for that particular market – that high THC. The Canadians came into South Africa. I think its public knowledge that Canopy Growth, Supreme, and a couple of them invested big bucks.
What’s big bucks?
Close to R50m/R100m into entities in the cannabis side of it. What we’ve done is we’ve started off with our botanicals, which is an off-take. It’s there. It’s done and dusted but we went straight into the retail because in South Africa, you can go to Clicks and you can go to Dischem and you can buy CBD-infused products in the country at the moment because the regulation says as long as it doesn’t contain more than 20mg in CBD.
So, it’s not going to make you high.
No, that’s CBD. CBD won’t make you high at all. The THC – the international norm is about 0.03%. Ours is 0.001%. That is why you saw in December there was a clampdown on a company called Canapax – I can mention it because it’s also public knowledge – that has been selling these products but they contain more than the required… So, there’s a huge policing problem in South Africa. Our products are on the market and the first thing that we did was we acquired a SAPRA-approved facility in Durban, so that SAPRA-approved facility allows us.
Do you know about this stuff, David? Have you been following much of it?
I’ve been following it as a theme. We know it’s going to be big. We know it’s going to be big in the pharmaceutical area. It’s been difficult to really find something that you can get your head around but I have to tell you an amusing story. This is on the recreational side. I’ve got a very good friend from Toronto and he’s come back, and he says there it’s recreationally approved. He says the only problem is that the cops there are very tough on drink and drive but they don’t know how to handle a person who’s high because there’s no breathalyser and there are no regulations. All they can do is tell the person to put the car on the side of the road, walk home, or get someone else but they cannot arrest you.
