By Luke Daniel, Business Insider SA
As South Africa’s lockdown prohibition laws continue to cripple the liquor industry, the country’s leading producer of spirits and ciders, Distell, has turned to invest in the burgeoning dagga market.
Distell announced that it bought a 20% stake in the local brand RETHINK, which produces a wide range of dagga-based products, including CBD oils, teas, and skincare items. Cannabidiol (CBD) is a chemical compound found in the cannabis plant both in the hemp and marijuana varieties. South African law allows CBD products, not exceeding 20mg per daily dose, to be sold. RETHINK does not produce Tetrahydrocannabinol (THC) based products which have a psychoactive effect.
Remgro’s venture capital arm, Invenfin, will also buy a 20% stake in the company.
During the first alcohol ban amid South Africa’s first wave of Covid-19 infections and associated lockdown restrictions, Distell reported that its domestic sales fell by almost a fifth in the year to August. It lost some 100 million litres in sales volumes and an estimated R4.3 billion in revenue due to the lockdown.
Looking to diversify its portfolio amid crippling lockdown restrictions – which saw the alcohol ban return at the end of 2020 – and leveraging the decriminalisation of cannabis use granted two years earlier, Distell’s foray into the weed business is expected to fast-track the sector’s growth, with the company looking to contribute its expertise in distribution and marketing as part of the new acquisition.
South Africa’s dagga industry is expected to be worth R14 billion, with predictions of a surge towards R28 billion by 2024, according to the Department of Trade and Industry and the Agricultural Research Council.
Following an initial High Court ruling in 2017, which deemed laws prohibiting the private cultivation and use of cannabis as invalid, the Constitutional Court unanimously resolved to decriminalise cannabis. Since 2018, the law allows for the personal private use and cultivation of cannabis by adults. The Cannabis for Private Purposes Bill, which aims to regulate possession and supply, is currently before Parliament.
“The cannabis sector is still in its infancy and is primed for growth as legislation to control and legalise certain aspects of usage is developed,” says Rushton.
Distell is, however, tight-lipped about the cost of the 20% stake in RETHINK.
“We aren’t in a position to disclose the value but it’s immaterial to Distell and in line with our selective and measured capital allocation decisions relating to adjacent and venture related opportunities that we continue to explore and execute,” says Frank Ford, Distell’s Group Manager of Investor Relations.
While Invenfin has stakes across various sectors, including a partnership with BOS Iced Tea, major investment outside of the alcohol industry is a first for Distell.
Distell owns popular brands like Savanna, Hunter’s, Klipdrift, Sedgwick’s Old Brown, Nederburg and J.C. Le Roux.