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LABAT AFRICA LIMITED - Detail caution, establish Labat Cannabis, acq of business, new & withdraw cautionaries, relaunch of new Labat brand

Release Date: 05/09/2019 08:31
Code(s): LAB     PDF:  
 
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Detail caution, establish Labat Cannabis, acq of  business, new & withdraw cautionaries, relaunch of new Labat brand

LABAT AFRICA LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1986/001616/06)
(“Labat” or “the Company”)
ISIN Code: ZAE 000018354 Share code: LAB


DETAILED CAUTIONARY ANNOUNCEMENT RELATING TO THE ESTABLISHMENT OF LABAT CANNABIS AND
THE ACQUISITION OF RELATED BUSINESSES, NEW CAUTIONARY ANNOUNCEMENT, WITHDRAWAL OF
PREVIOUS CAUTIONARY ANNOUNCEMENT AND LAUNCH OF A NEW LABAT BRAND


1)   Background
     Shareholders are advised that Labat has entered into agreements with a number of parties
     to give effect to the establishment of a fully integrated cannabis business within the Labat
     Group of companies. Labat has, as part of its long-term strategy and as previously
     announced, invested over the years an enormous amount of time and resources in
     investigating opportunities in the Pharmaceutical sector, including investigating the
     establishment of an active pharmaceutical ingredient (“API”) facility in Pretoria. Recently, the
     Company has been investigating a variety of synergistic opportunities in the Cannabis
     industry, with a focus on the pharmaceutical opportunities.

     Shareholders are accordingly advised that Labat has concluded the following agreements:

     -     The acquisition of 70% of a seeds and genetics business, known as Knuckle Genetics.
           Knuckle Genetics produce high quality cannabis flower, oils and concentrates with a
           very high (more than 20%) Tetrahydrocannabinol (THC) content for the export market
           (“Knuckle Genetics”);

     -     Secured the acquisition of a license to cultivate, manufacture, supply, hold, import,
           export and transit cannabis in the Kingdom of Lesotho (further details to be announced
           in due course once the final terms are agreed and the agreement is signed); and

     -     The acquisition of 100% of a South African Health Products Regulatory Authority
           (“SAHPRA”) approved pharmaceutical facility – Pac-con Pharmaceuticals Proprietary
           Limited    (“Pac-con     Pharmaceuticals”).     Pac-con   Pharmaceuticals    currently
           manufactures and packages liquids, tablets, capsules, creams and gels for various
           clients. Pac-con will be utilised to produce high grade CBD oils and related cannabis
           products for the retail and wholesale markets,

     together, the Acquisitions.

In addition, the Board is pleased to announce that it has secured the appointment of Mr Mike
Stringer a former Managing Director of an API facility in Cape Town as Chief Executive Officer of
the Cannabis operations, to be known as Labat Cannabis.

2)    Terms of the Acquisitions

2.1   Knuckle Genetics Acquisition
      Knuckle Genetics has over 15 years of experience in the developing, testing and stabilizing of
      cannabis genetics which have led to high quality cannabis flower cultivation. The company
      creates and stabilizes genetics for specific requirements such as API Development and
      extraction for a variety of medical ailments.

      A cash consideration of R4 million for the majority stake of the Knuckle Genetics brand and
      intellectual property is payable in two tranches, being R2 million 90 days after the effective
      date of the transaction and an additional R2 million at the end of the first year of trading. The
      effective date of the acquisition is 1 August 2019.

      The Knuckle Genetics management team will remain in the business for a minimum of five
      years.

      The outstanding suspensive conditions are at an advanced stage and are expected to be
      completed shortly. These include inter alia:

      -    The parties concluding the sale of business agreements and the agreement/s becoming
           unconditional. The sale of business agreement/s will contain the normal warranties and
           indemnities associated with a transaction of this nature;
      -    The Board providing a certified extract of the Board resolution approving the Acquisition;
      -    Any regulatory approvals to the extent required;

      The Knuckle Genetics Acquisition, is categorised as a category 2 transaction in terms of the
      JSE Listings Requirements. None of the vendors are related parties to Labat. Accordingly,
      shareholder approval is not required.

2.2   Pac-con Pharmaceuticals Acquisition
      Labat has acquired 100% of the shares in Pac-Con Pharmaceuticals, which has a SAHPRA
      approved pharmaceutical facility in Isithebe Kwa-Zulu Natal. The facility will be used for the
      hemp processing and CBD oil extraction operations.

      The purchase price for the 100% interest will be settled through the issue of 5 million ordinary
      shares in Labat, issued at a price of ZAR1.00 per share and a R5 million cash consideration to
      be paid no later than 01 December 2019. The effective date of the acquisition is 1 September
      2019.

      The Pac-con Pharmaceuticals key management team will remain in the company for a
      minimum of five years.

      There are no conditions precedent in relation to the Pac-con Pharmaceuticals Acquisition,
      which is categorised as a category 2 transaction in terms of the JSE Listings Requirements.
      None of the vendors are related parties to Labat. Accordingly, shareholder approval is not
      required.

2.3   Appointment of Mike Stringer
      Mike has worked for thirty years in the API industry and the last five years as CEO of a large API
      facility. He was key in developing the USA and EU markets together with highly competent
      agents. Mike initially studied chemical engineering whilst working in the laboratory but was
      eventually persuaded to transfer to the commercial part of the business’ procurement and
      supply chain and eventually business development was part of his previous roles. Due to his
      outstanding performance he was rewarded with the position of CEO for one of the world’s
      top API manufacturers.

      Mike subsequently completed his Executive Leadership Programme at the UCT Graduate
      School of Business and then his MBA in leadership and sustainability in the UK. Mike brings with
      the essential API experience – regulatory, technical expertise and business development
      knowledge. He has worked for the last ten years actively on the regulatory side of the
      cannabis industry. He will be heading up Labat Cannabis as Chief Executive Officer.

3)    Rationale for the Acquisitions
      The Acquisitions and agreements will assist Labat in its quest to become a major player in the
      cannabis industry which is currently highly regulated in South Africa but more de regulated in
      countries like Lesotho and Zimbabwe. There has been a lot of interest in the cannabis industry
      in Southern Africa, but several international investors have been wary to take advantage of
      the opportunity in the private sector. A few International companies have seen large
      investments not come to fruition and companies not having the expertise and know-how to
      produce high quality cannabis products. Labat will provide a gateway to a number of
      investors through its 30-year old business, which has been listed for 25 years, providing the
      opportunity to invest in the Cannabis market in Southern Africa industry on a public platform.
      Part of the plan is to create a platform for small scale farmers to take advantage of the
      industrial component of the cannabis business: INDUSTRIAL HEMP Labat intend setting up a
      decortification facility for a range of industrial hemp products. For this purpose, Labat has
      identified 58 hectares of Land in the Eastern Cape and are currently in negotiations with a
      number of other parties for additional land. Further announcements will be made in due
      course.

4)    Funding
      The Acquisitions will be financed by way of a combination of the issue of Labat shares and
      cash.

5)    Financial Information
      Financial information required in accordance with the JSE Listings Requirements will be
      published in due course, once received.

6)    Relaunch of Labat and its strategy
      The Company is 30 years old and has been listed for 25 years. A repositioning and rebranding
      launch of the Labat group will be held at the Johannesburg Stock Exchange on Wednesday,
      11 September 2019, where the longer-term strategy will be discussed. Shareholders are
      reminded that Labat has had a range of diversified investments over the years, which
      businesses it has built up and sold or unbundled into separate listings. This will continue to be
      considered going forward.

      The current businesses of Labat are the fuel and logistics business and the ICT business through
      SAMES *which manufactures high end microchips amongst other products.

      The Cannabis Industry will form part of the focus on pharmaceutical interests, which has been
      a long-term interest of the Labat board. Once well established, Labat will consider unbundling
      one or more of the businesses for the benefit of the shareholders.

7)    Withdrawal of cautionary announcement:
      Shareholders are advised due to the protracted negotiations that the renewal of the
      cautionary on 31 July 2019 in respect of Senna Motors and Centenary Tanker Hire is herewith
      withdrawn. The Company continues in discussions with the parties and an announcement will
      be made in the event that new agreements are entered into between the parties.

8)    New cautionary announcement
      Shareholders are advised that further information is required to be published in relation to the
      Acquisitions, once received. Labat remains in discussions and/or negotiations relating to other
      acquisitions in each of the three segments (none of which would be Category One acquisition
      to the best knowledge and belief of the board as at today’s date), which, if successfully
      concluded, may have a material effect on the price of the Company’s securities, as set out
      below:

      Cannabis
      Additional licences with a facility with a different extraction process and different market
      segments.

      ICT
      A video linked tracking system for logistics, which will complement the existing technology
      and logistics business.

      Logistics and fuel
      In discussions to expand the footprint of Labat’s logistics and fuel distribution.

      Accordingly, shareholders are advised to exercise caution until further announcements are
      made.

Shareholders are advised that the trading halt as published on SENS yesterday will be lifted following
the publication of this announcement.

5 September 2019
Johannesburg

Sponsor
Arbor Capital Sponsors Proprietary Limited

Date: 05/09/2019 08:31:00
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