Cannabis propagation. Picture: 123RF/ERIC LIMON
Cannabis propagation. Picture: 123RF/ERIC LIMON

Investment holding company Labat Africa has put its fuel energy business, Force Fuel, into business rescue after muted sales volumes, the company said on Friday.

Labat CEO Brian van Rooyen said the move is the right path to take as sales volumes have declined significantly because of the lockdown, aimed at curbing the rapid spread of coronavirus, which has led to restricted travel for consumers.  

Asked what the value of the fuel business was to date, Van Rooyen said: “It’s worth some money, that’s why business rescue is the way to go because Covid-19 has impacted the business enormously. Our turnover for the month has gone from R30m to about R5m.”

The company was already planning to gradually move out of the fuel business, which was impaired by almost R50m in December. In the year to August 2019, Labat reported losses of R75m.

“The long-term debt that was acquired as part of the Force Fuel acquisition is ring-fenced in Force Fuel and Labat has not signed any security or cross-guarantees in relation to this bank funding. The intention is to safeguard the business of Force Fuel and return it to profitability in due course,” the company said.

Van Rooyen said its move away from the fuel business will help the company focus on its new strategy as it turns to the cannabis industry, estimated to be worth R27bn. Globally, the cannabidiol (CBD) market is expected to reach $25bn (R459.8bn) with an annual growth rate of 23.2%. 

Labat is raising R112m by way of the placement of 150-million shares, which it plans to sell to institutional and other investors to help it expand its medical healthcare business focused on cannabis.

Recent acquisitions include a 70% interest in Biodata IT, a medical research company set up initially as a holistic healing enterprise incorporating cannabinoids, as well as shares it has in packaging company Paccon, which specialises in manufacturing and packaging liquids, tablets, capsules, creams and gels.

It also bought CannAfrica, which offers training and education for cannabis production, for R15m.

At close of trade on Friday, Labat’s share price was down 5.71% to 33c, with a market capitalisation of R128.7m. The stock has lost 19.51% since the start of 2020.

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