AKANDA’s wholly owned subsidiary Bophelo Bioscience, which operates the company’s key cultivation facility in Lesotho, has been taken into liquidation by the country’s high court in what the company is calling a ‘retaliation’ from a disgruntled former director.
The company is now scrambling to have the ‘unauthorised’ decision reversed, retrieve lost loans and prevent the South African business from falling into full-blown insolvency.
It comes just weeks after a dramatic shareholder revolt at Akanda, which saw its entire board of directors, bar its CEO Tej Virk, ousted from the company.
Behind these recent theatrics comes pressure from investors (who have seen share prices drop nearly 90% since early May) to accelerate the company’s path to profitability, a task Mr Virk told BusinessCann is now his main focus.
On July 15, the Honourable Mr Justice Mokhesi signed an order to place Bophelo into liquidation after an application and request was submitted by its former Executive Chairman Louisa Mojela and the Mophuti Matsoso Development Trust (MMD Trust), which she founded.
Akanda acquired Bophelo in July last year as part of a share purchase agreement with multinational cannabis company Halo, which owns a 40% stake in Akanda.
Bophelo, which owns the group’s South African cultivation facility, began trading in 2018 and its development has been a key focus for Akanda since its public listing on the NASDAQ in March.
According to Akanda, Ms Mojela, who was ousted from the company on June 23 amid the boardroom overhaul, filed the ‘unauthorised’ application ‘without Akanda’s prior authorisation, knowledge or consent’.
This extraordinary move, according to Mr Virk, reflects her ‘efforts to retaliate against the company in response to her dismissal and removal from the board of directors of Akanda’.
“It is appalling that Ms Mojela would take the extraordinary and significant action of seeking to cause Bophelo to be declared insolvent without consulting with, or obtaining the consent of, the Board of Directors or the senior management team of Akanda, which is the beneficial owner of 100% of Bophelo’s equity interests, or even of the full Board of Directors of Bophelo itself,” he stated.
Bophelo’s 200-hectare campus, including a 5.6-hectare enclosure, is leased from MMD Trust, which is listed as filing the application alongside Ms Mojela.
BusinessCann has attempted to contact both MMD Trust and Ms Mojela, but is yet to receive any comment from either, while MMD Trust’s website as listed on Bophelo’s investor page is no longer active.
Now the company is launching legal action in an effort to prevent losing its operations in Lesotho entirely, and intends to convene a special committee to investigate Ms Mojela’s conduct.
Alongside bringing legal action against its former employee, Akanda says it will ‘pursue all of its available legal rights’ to reverse the liquidation, while seeking to recover ‘significant loans it has made to Bophelo’ to fund its business plan.
In an interview with Mr Virk held prior to the developments in Lesotho, he said that the millions in IPO funds that were earmarked for the development of Bophelo’s facility have been ‘put to work’.
He explained that ‘capital has been moving into the operation’, seeing the expansion of its postharvest capabilities, expansion of its covered outdoor cultivation capabilities, and the ‘perfection of growth methods for the greenhouses’ all taking place in Lesotho since March.
There has also reportedly been ‘a lot of work put into Lesotho’ to overhaul the company’s systems to ensure everything is compliant with European pharmaceutical standards.
Though Akanda seemingly has a lot to lose in Lesotho, Mr Virk sought to assuage investor concerns, stating that should it be unable to reverse the court’s decision, ‘Akanda may actually experience considerable savings and greater profitability as a result of reduced expenditures and the elimination of losses associated with Bophelo’s operations’.
“Financially, the reality is that an Akanda without Bophelo is on an accelerated path to profitability and positive free cash flow.”
Path to Profitability
Akanda’s recent investor revolt is understood to have been driven directly by the former board’s ‘lack of focus on profitability’, especially at Bophelo under Ms Mojela’s guidance.
According to Mr Virk, who says the investors’ decision to retain him alone as CEO and member of the board is a ‘vote of confidence in the strategy I’ve set out’, Akanda’s core focus is now on accelerating its timeline to profitability.
“Now we’re really in the middle of assessing our strategy to focus on profitability… We’re going over our budgets in detail, and we’re in close communication with our major shareholders on how to do this even faster.
“If you look at the space, I think it’s understandable that there’s an interest to be focused on seeing profitability. There’s many companies that have either never achieved or maintained steady profitability, and I think that that’s really the name of the game here.”
Its focus will now be on maximising efficiency and profitability at its recently acquired business in Portugal, Holigen Limited, and renewing its focus on ‘the UK and Europe’.
Initially, its new Portuguese operation had been pitched as a ‘hub’, or ‘relay point between Africa and the rest of Europe’, enabling it to take control of a much larger portion of its supply chain and ‘retain more margin in-house’.
While its utility as a hub for Bophelo to import product into Europe has now been thrown into doubt, Holigen still holds great value for Akanda as a producer of what the company has described as ‘recreational quality’ cannabis.
According to Mr Virk, ‘there’s a scarcity of supply when it comes to the quality that’s being produced at our facility’ in Portugal, which includes ‘two tonnes of premium indoor cultivation capacity’.
“We’re seeing THC flower with THC levels anywhere between 25% and 28%, and that itself is scarce within Europe, and all EU GMP.”
Akanda’s major US investor Halo also presents opportunities for this product inside the North American recreational market.
“We have a very collaborative relationship with our shareholders and they can help open doors to brands and know-how and IP in California, and we’re definitely leveraging that in order to develop our business in Europe. So, are we evaluating different downstream ideas and channels? Absolutely.”