Nutritional Holdings says acquisition target has secured a R1bn contract

Nutritional Holdings, which is managing and seeking to acquire cannabis group Ukusekela, says its target has secured a three-year contract in Germany worth about R1bn, putting the group on track to meet its ambitious growth goals.

Ukusekela has signed an agreement for the supply of “the ultimate immune booster” to a leading manufacturing and distribution company in Germany, the group said.

The contract puts Nutritional on course for achieving an initial turnover target of R500m, said CEO Mohammad Tariq Azum, and the group is also pursuing other contracts.

“The contract will get us about a third of the way there,” he said, adding “our growth over the next year is going to be astronomical”.

Nutritional Holdings, which had turnover of about R42m as of the end of February, has traditionally manufactured and distributed nutritionally enriched foods to schools and prisons, among other products.

Tariq Azum, who became CEO in November, said the group has since moved to reduce the number of those types of products,  while also extending its geographic reach — for example, into the Gulf states.

Current focus is on the legal cannabis market, he said, given its rapid growth.

The global legal marijuana market is expected to grow to $73.6bn (R1.2-trillion) by 2027, according to market research group Grand View Research, implying a compound annual growth rate of 18.1% for the industry, Nutritional said.

The group is also looking to produce cannabidiol-infused breakfast cereals, and pet food products.

Nutritional Holdings said the German contract could give it access to other European markets as well. Germany is the third-largest medical cannabis market in the world and is the front-runner in Europe, it said.

The company said in December it had entered an agreement to buy Ukusekela for R140m, payable by a combination of cash and the issue of Nutritional shares at 4.5c per share.

Tariq Azum said a circular to shareholders has been delayed by Covid-19, but the group has taken over management of Ukusekela, and already has irrevocable support from about 70% of shareholders.

The circular is expected to be distributed in the next few days, he said.

Ukusekela holds various licences in Lesotho, Zimbabwe and Swaziland for the cultivation, harvesting, manufacturing, distribution, importing and exporting of cannabis. The company also has a research laboratory in SA.

Nutritional is just one of a number of JSE-listed counters seeking to grow their presence in SA’s rapidly growing cannabis market, with Labat announcing on Tuesday that it is considering acquiring a cannabis operation in the Eastern Cape.

Nutritional’s little-traded share was unmoved at 1c on Wednesday, giving the group a market capitalisation of R137m.

Correction: September 9 2020 
An earlier version of this article misspelt the name of Nutritional’s CEO; it is, in fact, Mohammad Tariq Azum.

gernetzkyk@businesslive.co.za