Entrepreneurship Zone: 23 June 2021: Running a cannabis company in South Africa: An interview with Goodleaf CEO

Wed Jun 23 10:18:37 CAT 2021

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Entrepreneurship Zone:  23 June 2021: Running a cannabis company in South Africa: An interview with Goodleaf CEO

Goodleaf is a South African company supplying a range of products containing cannabidiol (CBD) from the cannabis plant, including oils, skincare topicals, sparkling flavoured water, natural vapes and powder sachets. In June 2021, Goodleaf announced its merger with Highlands Investments. Highlands, based in Lesotho, cultivates cannabis for the production of medical-grade products. The combined company is valued at $50 million and is the largest vertically integrated cannabis operation in Africa.

How we made it in Africa speaks with Warren Schewitz, founder and CEO of Goodleaf, about operating a cannabis products business in South Africa, industry challenges and the benefits of the Highlands merger.

Give us the backstory of Goodleaf and how you got involved in the cannabis industry.

The business was started in late 2018. A friend of mine who runs a merchant bank in Canada and who was active in the cannabis space alerted me to the opportunity. This sparked the idea for Goodleaf and we put everything in place. The first store opened a week after the South African minister of health announced the legal sale of CBD products in May 2019.

There are three sectors in the cannabis market: CBD, medical cannabis and recreational cannabis. Currently, only CBD is legal in South Africa, so we are not yet in the other sectors. If medical cannabis becomes legal, we will definitely enter that market.

What products does Goodleaf sell?

Goodleaf is a premium CBD wellness business. We focus on unlocking the healing power of cannabis by providing high-quality CBD products to the South African market. We have 25 products across the categories of skincare, vapes, drops and sachets.

After the merger with Highlands, we are now the largest cultivator of cannabis in Africa with a 200-hectare ISO-accredited facility in Lesotho. Highlands used to belong to Canopy Growth, one of the largest players globally, but it exited via a management buy-out, which allowed us to get the deal done.

Explain what the transaction with Highlands means for the future of Goodleaf.

Consumers are looking for wellness products where they know the source of origin. This deal allows traceability for our products. It also means a reliable, predictable, high-quality supply from one of the best global cannabis producers. We are excited about the UK and European market; Highlands is already exporting into the medical cannabis market there.

Tell us about Goodleaf’s manufacturing process.

We do not have our own manufacturing facility. Our products are all produced in pharma-grade GMP (Good Manufacturing Practice) facilities we have partnered with.

With the Highlands merger, we will be able to take the flower from Lesotho and run it through an extraction process to create our own oils. We currently import our oils and isolates from Colombia or the US. It would be great to have this process local.

Goodleaf recently merged with Highlands Investments, a company that cultivates cannabis in Lesotho.

What does your distribution look like?

Our range is sold in more than 1,000 outlets in South Africa. This includes retail brands such as Pick n Pay, Clicks, Spar and Woolworths. We also sell from our own three retail stores and our online shop.

We added the online store a few months after our first store, but only really got behind it after Covid-19 impacted the roll-out of retail outlets. Online now accounts for about 50% of our sales. Interestingly, we witnessed mental health become a real focus during the pandemic lockdowns. People were under a lot of pressure. CBD is known for its calming effect, for its anti-inflammatory and anti-anxiety qualities and it is great for sleep.

We focused on direct marketing on social media and we put partnerships in place such as with Vida e Caffè where you can now have a CBD coffee in any of its 300 outlets.

Which of Goodleaf’s products are the most important in terms of overall revenue?

Our CBD drops are our bestseller. They are efficient and work across a range of applications. Next are the beverages and sachets because they are so accessible. They are a low-cost entry point for someone who is curious and wants to try CBD.

Our cosmetic range is growing steadily. The global CBD cosmetics industry is shaping up to be a big market and we are starting to see some traction. These products are sold in Woolworths and Poetry stores in South Africa, as well as our own retail outlets. We are revamping this range to be 100% organic and have eliminated the majority of plastic from the packaging. We plan to launch the new range in August.

Are you currently exporting your products?

Highlands is already exporting the flowers into the medical cannabis market in the UK. Goodleaf is setting up for our UK product roll-out, with the first shipment in September, which we will be selling on Amazon as well as on our own UK online store. Our first shipment to Asia was about five months ago.

How competitive is the cannabis products industry in South Africa?

Like any new growth market, there are a lot of entrants. When we started there were only a couple, now there are about 20 players in South Africa.

The amount of capital and expertise required to build the brand and to integrate vertically, to ensure products adhere to very high standards and the internal costs that come with compliance, supply chain management, manufacturing and packaging – it definitely results in some competitors falling away. In time, there will be fewer high-quality players left.

What are the challenges of running this business?

Covid-19 has posed a major hurdle. We were focusing on our store roll-out when the pandemic hit and we had to turn to online sales. This was a blessing as online sales have improved significantly.

The regulatory environment is another challenge. The South African Government’s recommended daily dose for CBD – 20 mg per day – is much lower than other markets. The World Health Organisation, for example, says your body can tolerate up to 800 mg a day. With this light dosage, we are not convinced customers enjoy the full benefit.

Owing to maximum package size regulations, we are only allowed to package our drops in 600 mg bottles. Previously, our 1,500 mg and 1,000 mg bottles were very popular and we received good feedback from customers.

Are there any cannabis-related products you are not particularly enthusiastic about; products you wouldn’t invest in?

It all depends on efficacy and bio-availability. Bio-availability is the rate of absorption into your bloodstream. We believe CBD is a functional product that can be part of your daily routine and we want to maximise the benefit. However, we see a lot of products in the market – infused date balls, gummies, even ice cream – that we doubt are the best mechanism for CBD.-Howwemadeitinafrica

Goodleaf sells CBD drops, among other products.

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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