Two years after a merger reportedly valued at R560m, one of the biggest outdoor cannabis-growing facilities in southern Africa was auctioned off for just R18.8m this week.
Highlands Investments — which was granted a licence in Lesotho to cultivate, manufacture, supply, import and export medical cannabis products in 2017 — was bought by an unnamed telephonic bidder at an auction at Wanderers in Johannesburg.
Highlands director Warren Schewitz, the founder and CEO of Cape Town wellness and lifestyle brand Goodleaf, which merged with Highlands Investments in 2021, declined to comment on the reason for the sale.
However, while the 2022 African Cannabis Report stated that the total size of the legal African cannabis market was estimated to be $41m (about R755m), former Highlands strategic adviser Tony Budden believes the company was a victim of oversupply.
“The market is just not big enough yet for grow operations this size to be financially feasible. The entire legal medical cannabis market in the world consists of about 25t a year. That is not really a lot. If you add overregulation and oversupply to the mix you have a problem,” he said.
Budden, who cofounded South Africa’s oldest hemp business, Hemporium, has not been involved with Highlands since its merger with Goodleaf in 2021.
He said outdoor cultivation could pose quality problems.
“Taking advantage of our best African resource — the sun — by cultivating outdoors, also brings challenges like cross-pollination by illicit growth operations. Cannabis pollen can travel up to 20km in the right conditions. If you are not growing in filtered greenhouses you may end up with seeds in the cannabis, and that makes it unsuitable for the sophisticated international medical market.”
He believes the sale to be a warning to others who plan to cultivate cannabis for the medical market.
“What happened to Highlands is a symptom of what is happening in the larger industry. There is too much focus on cultivation and not enough on the development of new markets.”
When South Africa decriminalised private use and cultivation of cannabis in 2018 a “green rush” ensued, yet further changes in enabling legislation have yet to follow.
“Everybody expected a model similar to the American medical card model — but that has not really happened and a large part of the South African medical market is still inaccessible to producers,” Budden said.
“A lot of assumptions were made based on the black market numbers and estimation, and those turned out to be inaccurate.”
Farming cannabis on a large scale is expensive.
“In general, a grow-operation this size will cost about R1m/ha, so whoever bought Highlands will have to have deep pockets if they want to continue producing. Understanding the ongoing operational costs is an important aspect for any new investor to consider.”
This week’s sale included 20ha of cannabis, including strains such as Moby Dick, Diet Durban, Cloud Walker and Super Silver Haze. Also included is the company’s medical cannabis cultivation licence for cultivation of up to 200ha, and a 60-year lease with room for further expansion.
Other assets included in the sale are a processing and packaging facility, a natural aquifer, three mega boreholes, three 1-million litre reservoirs, an integrated irrigation system and several tons of cannabidiol (CBD) and tetrahydrocannabinol biomass.
Norman Raad, CEO of Broll Auctions and Sales which handled the auction, said Highlands was established with an initial investment of about $20m. “The farm meets global standards for medical cannabis cultivation,” Raad said.
In a promotional e-mail in August, Goodleaf — which concentrated on CBD products — offered discounts of 50% “before we say goodbye”.
The e-mail blamed over-restrictive policies of the South African Health Products Regulatory Authority for Goodleaf’s economic plight. “At the same time government have been painfully slow in establishing a coherent cannabis policy. For these reasons, we have regretfully taken the decision to press pause on Goodleaf.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.