In February 2017, Lesotho became the first African nation to legalize marijuana for medicinal purposes.
Prohibition Partners’ recent African Cannabis Report estimates that the African legal cannabis market could top $7.1 billion by 2023 if key markets legalize medical and recreational marijuana. With its first-mover advantage on the continent, Lesotho is undoubtedly the tip of the spear for cannabis investors looking to gain exposure to the African marijuana market.
Due to a handful of factors, Lesotho is one of the best countries in the world to grow weed. Thanks to its progressive government, high altitude, and cultivation-friendly climate, the Kingdom of Lesotho is already shaping up to be a potential cannabis hub for the African continent and potentially medical marijuana markets around the globe.
Investing in Lesotho’s Up-and-Coming Cannabis Industry
While the country’s Ministry of Health awarded the first provisional cannabis operators licence in Lesotho to a company called Medi Kingdom allowing it to grow, process, and sell marijuana for therapeutic purposes, the company is privately-held and therefore not investable.
While the first company to win its Lesotho cannabis license is private, there are still some publicly-traded options for investors to consider looking at. Unlike Canada and the United States, however, Lesotho has far fewer choices when it comes to publicly-traded cannabis stocks with noteworthy exposure.
Cannabis Stocks With Exposure to Lesotho
In June of 2017, a South African company by the name of Verve Dynamics announced that it received the second cannabis licenses from the Lesotho Ministry of Health. Now approximately 30%-owned by Aphria Inc. (TSX:APHA) (NYSE:APHA) (FRA:10E) through a joint venture called CannInvest Africa Ltd. since a $4.05 million CAD transaction announced in May 2018, Verve Dynamics just recently completed its first sale in March of 2019.
In March of 2018, The Supreme Cannabis Company, Inc. (TSX:FIRE) (OTC:SPRWF) (FRA:53S1) made a strategic equity investment in Medigrow Lesotho, another federally licensed producer of cannabis in the Kingdom of Lesotho. Despite the sizeable $10 million CAD investment, it still only got Supreme an approximate 10% ownership interest in Medigrow. This may have been due to the fact that, according to BBC News, Medigrow was granted permission by the Lesotho government to begin cultivation in 2016, a year before the state legalised medicinal marijuana for all companies.
Then, in May of 2018, Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) (FRA:11L1) announced that the company acquired Daddy Cann Lesotho PTY Ltd., doing business as as “Highlands” for approximately $28.8 million CAD.
Finally, in December of 2018, Halo Labs Inc. announced a partnership with Bophelo Bioscience and Wellness Pty Ltd., a Lesotho-based holder of one of the limited number of licenses in Lesotho to import, cultivate, manufacture and export cannabis products. Under this partnership, Halo will provide management services and expertise to build, design and operate cGAP cultivation and cGMP extraction facilities in exchange for a 20% equity position in Bophelo Bioscience, as well as a royalty on future extracted products and an off-take agreement.
Halo followed this up in June of 2019 with an agreement to acquire 100% of Bophelo for approximately $13.2 million CAD worth of shares based on today’s share price.
Finding Value in Lesotho-Exposed Cannabis Stocks
Based on the average of the valuations paid for Lesotho cannabis license-holders by the four different cannabis companies, Halo Labs picked up Bophelo for at an approximate 66% discount to its implied value thanks to the advantageous deal it signed in December 2018 that leveraged its cannabis industry expertise.
|Public Cannabis Company||Lesotho-Focused Deal Date||Investment Amount ($CAD)||Equity Stake (%)||Implied Lesotho License Valuation|
|Supreme Cannabis||March 20, 2018||$10 MM CAD||~10%||$100 MM CAD|
|Aphria||May 28, 2018||$4.05 MM CAD||~30%||$13.5 MM CAD|
|Canopy Growth||May 30, 2018||$28.8 MM CAD||100%||$28.8 MM CAD|
|Halo Labs||June 17, 2019||$13.2 MM CAD||100%||$13,2 MM CAD|
|AVERAGE||$38.9 MM CAD|
Furthermore, at over 200 hectares (454 acres), Halo Labs’ partner, Bophelo, is the largest cannabis cultivation license in Lesotho – which will serve the 70 million + citizens of South Africa, the European Union, Australia, Israel and many other countries..
If we compare the four publicly-traded cannabis stocks with exposure to Lesotho by valuation data from Wallmine, we can also see that Halo Labs is the undervalued player in the bunch.
|Public Cannabis Company||Share Price ($USD on 9.22.19)||Market Cap. ($USD)||P/S Ratio|
|Aphria||$6.16 USD||$1.55 Billion USD||38.82x|
|Canopy Growth||$25.56 USD||$8.87 Billion USD||211.69x|
|Halo Labs||$0.25 USD||$45.74 Million USD||1.84x|
|Supreme Cannabis||$1.03 USD||$345.12 Million USD||40.94x|
Thanks to the company’s impressive cannabis extraction operations in California, Oregon and Nevada, Halo already dominates extracted product sales in these states’ wholesale markets.
According to the Midas Letter, Halo has shipped over 4 million grams of oil concentrates since April 2016, and currently sells 200,000 grams of concentrates and oil every month, driving first half 2019 net revenues of over $18 million.
Given that Halo Labs holds 100% of a Lesotho cannabis company worth an estimated $25.68 million CAD more than it paid, and that its shares trade at a price-to-sales ratio of under 2x, we’ll be keeping a close eye on Halo Labs, and suggest you do too as Lesotho’s marijuana market heats up.
Maybe one day soon, marijuana will displace garments and diamonds as Lesotho’s largest exports.
As neither myself, nor DMO Holdings Corp., MJobserver.com, or any of its affiliates are registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendations, be sure to do your own research and consult a professional financial advisor before making an investment decision.
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