BUSINESS MAVERICK

Joint venture: Distell and Remgro target cannabis opportunity

By Sasha Planting 20 January 2021

(Photo: Unsplash / Matthew Brodeur)

Consumer companies from Colgate-Palmolive to tobacco giant Altria are eying the opportunities that the commercialisation of cannabis and its related products present. Restrictive regulation means the industry remains minute in SA, but this may change. Meanwhile, bigger companies are positioning for a slice of the action.

Sasha Planting

JSE-listed firms Distell and Remgro have taken a tentative step into the rapidly growing cannabis sector with an investment into cannabis wellness brand Rethink.

The brand was launched by Paarl-based Releaf Pharmaceuticals in 2019. 

The two firms, with Remgro investing via its venture capital arm Invenfin, have each purchased a 20% stake in the Rethink brand and range of products to establish a three-way partnership. Their vision is to grow its portfolio of cannabis-based products.

They will join a small group of JSE-listed firms, including Labat Africa and penny stock Nutrition Holdings, which are positioning themselves for opportunities in the cannabis industry.

Globally, liquor companies are watching the burgeoning cannabis industry with interest, and AB InBev, Molson Coors and Constellation Brands are all dipping their toes into the fast-growing industry.

With a worldwide shift towards legalisation of cannabis products, the sector is poised for significant growth. The global market for cannabidiol (CBD) oil and the overall CBD consumer health market could be worth an eye-watering $123-billion in 2027, averaging a compound annual growth rate (CAGR) of 25.6% until then, according to data from Research and Markets. 

The global cannabis beverage market is narrower in scope, and Fortune Business Insights projects that by 2027 it’ll be worth $8.5-billion. That said, this market was worth just $367.4-million in 2019, meaning it’s growing at a much higher CAGR of 50.9%.

In South Africa, the market for CBD products has exploded in the past two years, with drops, vape products, teas, supplements and rubbing oils available at outlets ranging from health shops to flea markets.  

The floodgates were opened in May 2019 when the minister of health legalised preparations containing no more than 20mg per daily dose of CBD. This was a temporary measure, but was ratified in 2020 when the minister published new regulations governing the use of CBD in products.

CBD is a naturally occurring chemical in cannabis plants that has gained recognition as a natural alternative to conventional medicine for a variety of health concerns. Its application is expanding to cover different wellness needs such as the relief of minor symptoms such as pain, inflammation, restlessness and anxiety, made available in different products including daily oils, capsules and teas. 

The Department of Trade and Industry and the Agricultural Research Council have estimated that the informal and formal cannabis industry in South Africa is now worth R14-billion. By 2024 this could rise to R28-billion, 70% of the R44-billion estimated African market.

Distell has been watching the evolution of the cannabis industry with interest, says Dr Caroline Snyman, Distell’s head of innovation. 

In countries where the legislation is enabling, there has been rapid growth of the industry. Canada is one example where the industry growth has accelerated. The US is another, though its federal model means different rules apply in different states. 

“There is a global trend towards more conscious consumption and it will affect our industry,” she says. “We are all becoming more aware of what we put in our bodies, which is a trend that Covid has amplified and accelerated.”

For Releaf Pharmaceuticals, the partnership could not have come at a better time. 

“Competition in the sector is growing and the partnership will support our efforts to build and position the brand in the market and to support the extension of the product portfolio.

“Our focus is on products that incorporate CBD oil for its medicinal benefits,” says Releaf CEO Martin Coetzer, a qualified pharmacist

“We work closely with the regulator — the South African Health Products Regulatory Authority — and we are fully compliant. If we were not you would not find us on retail shelves like Dis-Chem, Clicks and the independent pharmacies.”

Invenfin brings a deep understanding of what it takes to support and build small businesses.  

“The business has big growth plans in a sector that is still in the very early stages of development, and we believe the team has the technical skills to achieve those objectives,” says CEO Stuart Gast.

Partnering with corporate muscle is a major advantage for a small company operating in a sector where legislation is still evolving and regulatory compliance is onerous. For some smaller firms, SA’s regulatory burden is too onerous.  

“South Africa’s regulatory space around marijuana is evolving and companies and brands are looking to establish a presence and gain market share,” says Gabriel Crouse, an analyst with the Institute of Race Relations. “The ongoing effort to legitimise this industry — within specific guidelines — is a good thing.”

However, as bigger players emerge on to the scene he worries about smaller operators, in particular the smaller growers. “I worry that small growers will get screwed by a corporate supply chain that will squeeze all of the potential life out of them.”

This is a legitimate concern, but it is one that companies like Releaf cannot do much about. 

“We would like to support the local industry,” says Coetzer, “but at this point, legislation does not permit it. All our product is imported from Europe.”

Distell too is alive to these concerns. 

“Business in South Africa has to think about shared value — it is becoming an investment principle,” says Snyman. “The only way that the cannabis industry can create economic value is if there is broad-based economic participation, and we intend to play our role to ensure that this is the case.” 

The proposed Cannabis for Private Purposes Bill was passed by the Cabinet in August, and will be deliberated in Parliament during 2021. While it is an important step in developing enabling legislation, many activists and campaigners believe that it moves against global trends in that it ignores any commercial opportunities for cannabis and does not do enough to accommodate its medicinal uses. DM/BM

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  • The Cannabis for Private Purposes Bill is a load of rubbish. It reads as if the authors of this pointless document have succumbed to commercial pressure and bigoted zeal. They have simply disregarded the attempts of the courts to integrate the rights of people who use this plant with those guaranteed by our Constitution. In his wisdom Judge Dennis Davis used a simple threshold as comparison and asked the naysayers to prove that cannabis is more harmful than alcohol, Naturally, try as they might they could not and the court’s decision reflected that. Following reason, recreational cannabis users must at very least enjoy the same rights as those of alcohol users. Is there a restriction on the amount of vines you may plant in your vineyard? How many bottles, or indeed casks of wine may you keep in your cellar? How is your collection of whisky coming along? You get the picture. While the wisdom of the criteria used by the court is unassailable, the comparison with alcohol is in other ways misleading as the problems with alcohol are widespread while the uses of cannabis are many. Besides being a highly nutritious feed and food cannabis can be planted to regenerate denuded land and is many, many times more productive and less harmful to the environment than using trees when planted as feedstock for the pulp industry. The list is endless. The comparison with tobacco is completely disingenuous. We love cannabinoids, what we can’t get from our food is manufactured in our bodies. Not so with nicotine. The short version is should Parliament attempt to pass this bill in it’s present form they will be taken back to court and those responsible for this shoddy piece of work should be censured.

  • It is absolutely essential that small growers must be incorporated into the value chain as this industry grows, otherwise this new industry will leave thousands of families worth off, while the big companies make a killing. If ever “shared value” meant anything, it is that those who grow should get get shares in the downstream companies that make the money. Otherwise it will be like coffee, cocoa and tea where small farmers work for a pittance while these multinational make a killing. This is such an opportunity to pilot a new economic model – but here’s betting nothing much happens. Let those who talk about inclusive growth make this happen.

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