After the listing of medical cannabis group Cilo Cybin as a special purpose acquisition company (SPAC) on the JSE’s alternative exchange, the local exchange said it was engaging with similar companies with the potential to join the bourse.
The group, the first in the country to receive both medical cannabis cultivation and manufacturing licences, made its debut on the JSE’s AltX on Tuesday, making it the only listed SPAC in the country.
A SPAC, as defined by the JSE, is a company that lists on the securities exchange specifically to raise money through an initial public offering to fund the acquisition of one or more existing companies or other assets. These companies have no commercial operations, as they list on the market to raise funds. Should a SPAC fail to meet its target in 36 months, the company will be liquidated and the funds returned to investors.
The JSE introduced SPAC listings in 2013. The first company to list under this category was Capital Appreciation, a financial technology company that made its debut on the JSE in 2015. The company has since migrated to the software and computer services sector on the JSE.
However, in 11 years, only nine companies have listed as SPACs. The JSE said the eight companies, who together raised R3bn, have since merged with other companies or acquired their target assets.
Head of equity and balanced funds at Aluwani Capital Partners Patrick Mathidi said SPACs could be seen by investors as high risk.
We can cultivate, extract the oil from the flower, and then they can formulate it into a product. We are the first company in South Africa to do all that under one roof.
— Gabriel Theron, Cilo Cybin CEO
Mathidi said the JSE had worked to relax the rules, to help these companies succeed, but they were not the most attractive entities. He added that people who invested in them had to “like the story”.
“They have no track record, they have no assets outside what they are targeting, and they list because they are looking for capital. Liquidity can also be a constraint. These guys really struggle, and it does not make it easy for them to move to the main board,” he said.
Cilo Cybin’s first targeted asset is Cilo Cybin Pharmaceutical and its 2,500m2 manufacturing facility in Midrand.
CEO Gabriel Theron said it was targeting this facility because it was unique. “We can cultivate, extract the oil from the flower, and then they can formulate it into a product. We are the first company in South Africa to do all that under one roof,” he said.
Theron said that while the company intended to operate in South Africa it was looking to export 99.9% of its products. The group was looking to sell its products in Australia, where medicinal cannabis was legalised in 2016.
Globally, cannabis is a $400bn (R7.2-trillion) industry, with only 10% of it legalised. In South Africa, cultivating marijuana for personal use was legalised in 2018, when the government legalised the sale of cannabidiol, a non-psychoactive compound derived from the cannabis plant. However, the sale of other products is still prohibited.
Recently, President Cyril Ramaphosa signed the Cannabis for Private Purposes Act into law. This legislation regulates the cultivation, possession and use of cannabis by adults in a private setting.
The presidency said, “This [act] will further enable amendment of the schedules to the Medicines and Related Substances Act and provide for targeted regulatory reform of the Plant Breeders’ Rights Act and the Plant Improvement Act, as well as other pieces of legislation that require amendment to allow for the industrialisation of the cannabis sector.”
Theron said that, while this was a positive step, the country was still far from legalising the sale of these products.
“In South Africa, this is a small and time-consuming market. There is still a long way to go. The minister of health has to de-schedule, [and] thereafter [the] government needs to put in place measures in terms of who can sell, similar to a liquor licence.”
Theron said that, to mitigate the restrictive challenges, the group was looking to start clinical trials after acquiring its first asset.
“That way, we can get a registered cannabis product into the global market. This opens us up to all countries, [and we will not be] limited to where the sale of marijuana is legal.”
While SPACs are given a three-year deadline to meet their target, Cilo Cybin said it hoped to move to the JSE’s main board in the next two years.
The JSE’s director of capital markets, Valdene Reddy, said the exchange had seen an increase in listings this year, and expected to see more before the end of 2024. When it came to SPACs, she said, “while [the JSE] encourages companies to list under this category, the decision ultimately lies with the founders”.
