Millions Invested by Cannabis Sector into Latin American Markets Projected to Soon be Worth Billions

October 11, 2018 - Baystreet.ca


While the markets are waiting intently for the widespread legalization of cannabis in Canada, the sector’s largest players are already starting to look south at Latin America. Seen as a logical next frontier, Latin American markets are beginning to steadily embark on paths to legalization—including the already fully legal market in Uruguay, a thriving medical marijuana market in Colombia, and the newly blossoming medical marijuana market in Mexico.

According to the newly published LATAM Cannabis Report from market intelligence and advisory group Prohibition Partners, legal cannabis sales in Latin America are worth $125 million in 2018—but that number is expected to rise to $12.7 billion by 2028.

Canada’s biggest cannabis players aren’t blind to this potential. Armed with Spanish/English dictionaries, several are already entering Latin American markets, including Aphria Inc. (OTC: APHQF) (TSX: APH), Canopy Growth Inc. (TSX: WEED) (OTC: TWMJF), Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), Aurora Cannabis (OTC: ACBFF) (TSX: ACB), and The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF).

Despite being the first country to fully legalize cannabis, Uruguay has yet to attract many companies yet—probably because its low population.

However, there’s already been plenty of attention given to Colombia, which is actively looking to become the world’s largest supplier of pot. At least seven licensed Canadian cannabis producers have begun operations in Colombia, so far investing more than $100 million into the sector.

But perhaps potentially the largest Latin American market to begin accepting businesses in the cannabis sector, is Mexico. With its more than 120 million people, Mexico’s legal marijuana market has been estimated to soon be worth more than US $5 billion. It has been estimated that the country already has 12 million medical patients.

So far, cannabis giants such as Canopy Growth, Aphria, Aurora Cannabis, and Cronos Group have each embarked on their own forays into Latin America through projects initiating in Colombia. Now, The Green Organic Dutchman (or TGOD) has chosen a new route, starting its Latin American ventures through the massive market in Mexico.

But the potential remains the same for all, as the wave of legalization sparked by Uruguay and Colombia is set to sweep across all Latin American countries in the near future.

MEXICO FOLLOWING URUGUAY AND COLOMBIA’S LEAD

Uruguay set itself apart of its Latin American peers early, when it became the first nation to legalize pot. Now the small South American country that neighbours Argentina and Brazil has established itself as a premiere market—despite only housing total national population the size of a major US city. However, marijuana’s popularity in Uruguay has soared, with dispensaries already reporting supply shortages.

Now Uruguay and Colombia have emerged as the two largest (legal) producers in South America. “[They're] two of the top countries driving investor interest in South America,” Viridian Capital Advisors Vice President Harrison Phillips told Benzinga. “We have also seen some interest in Brazil.”

But it’s through their lead that other nations will join in on the explosive cannabis growth in Latin America. As predicted in the LATAM Cannabis Report, Mexico and Chile will be engines of growth. According to these growth drivers, the cannabis sector is set to grow at an explosive rate of over 300% per year over the coming decade.

There are currently over 40 licensed producers active in the region—Colombia alone has issued the most cultivation licenses in Latin America, allocating 142 licenses to date. Medical cannabis will account for more than two thirds of the legal cannabis industry in Latin America, estimated to be worth $8.5 billion. According to the Prohibition Partners report, patient numbers will spike to over 4.6 million by 2028.

But what gives the region perhaps its most significant advantage are its low costs. Facility and construction costs in Latin America are pegged to be 80% lower than in North America and Europe.

Upon launching the LATAM Cannabis Report, Prohibition Partners Managing Director Stephen Murphy, Managing Director professed, "We believe that the expansion of a Latin American market will significantly impact the global cannabis industry, undercutting producers and pricing worldwide. Strong forecast population growth, a perfect climate for cannabis cultivation, bolstered by progressive legislation and regulatory change are set to ensure Latin America remains a very attractive prospect for cannabis companies, and investors."

LATIN AMERICAN CANNABIS VENTURES

Aphria Inc. (OTC: APHQF) (TSX: APH)

Through an exclusive supply agreement with Colcanna SAS, Ontario-based Aphria Inc. officially entered the Latin American market back in May. The acquisition gave Aphria access to a Colombia-based pharmaceutical import and distribution company licensed to import, sell and distribute medical cannabis, medical products and derivatives in Colombia. Colcanna is specifically licensed to harvest cannabidiol (CBD) on 34 acres of land in the country’s western coffee zone, as well as import and export CBD oil. Aphria also has exposure to Argentina where only CBD oil for medical use is permitted, through ownership of pharmaceutical importer and wholesaler ABP S.A, which is licensed to import CBD Oil.

Aurora Cannabis (OTC: ACBFF) (TSX: ACB)

Last month, Aurora announced the acquisition of ICC Labs Inc. in a $290 million, all-share deal. The acquisition gives Aurora a foothold in South America, adding to its already large footprint in Canada and Europe. Buying ICC Labs gave Aurora licenses in Colombia to produce medical cannabis, as well as interests in Uruguay.

Canopy Growth Inc. (TSX: WEED) (NYSE: CGC)

Through a plan that could potentially cost US$150-million-plus, Canopy Growth crafted a bold initiative to target Latin America’s emerging medical marijuana market—Through its new subsidiary Canopy LATAM Corp. The subsidiary began its mission by acquiring Spectrum Cannabis Colombia S.A.S., for a deal potentially worth US$96 million in Canopy stock. Moving forward, Spectrum Cannabis Colombia will now build value-added production facilities for sales in Colombia and surrounding regions. Canopy also own an existing business in Chile, and has also spoken of a strategy for entry into Brazil.

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON)

Cronos Group made its move into Latin America back in August, through a joint venture with an affiliate of Colombian agricultural provider Agroidea. Together the partnership is creating a new entity called NatuEra. The newly formed company will set up a custom-built facility on 207 acres of land in Cundinamarca, Colombia. As per the 50/50 joint venture agreement, each partner will contribute capital to fund the construction of the facility. Construction will begin once the proper permits and approvals are in place.

The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF)

After going international by entering the European market, The Green Organic Dutchman’s management began stating it wasn’t done with its expansions. Now TGOD has officially entered the massive Latin American market, through a strategic venture in Mexico to enter its medicinal cannabis market. With its new partners LLACA Grupo Empresarial, TGOD has access to 100% coast-to-coast distribution coverage of the entire country. This network meets all technical requirements of the Mexican Ministries of Health and Finance to sell narcotics and nutraceuticals. With nearly 130 million people, Mexico is set to be one of the world’s largest legal marijuana markets by population.

TGOD’S MEXICAN BORDER CROSSING

As part of its continued expansion of its international portfolio, The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF) has seen a major opportunity to enter the Mexican legal marijuana market. Looking to seize upon the massive potential for the approximately 125 million population market, TGOD has chosen Mexico as its embarking point into Latin America.

The new venture begins with a strategic partnership with LLACA Grupo Empresarial, to create a jointly-owned medical cannabis company. LLACA brings several years of Mexican distribution expertise, operating a warehouse network that fully covers the country coast to coast. Beyond distribution, the joint venture will give TGOD full access to LLACA’s strategic services, including distribution, warehousing, product registrations, regulatory representations and authorized clinical trials. Several international and national pharmaceutical companies already use these services through LLACA.

“The Mexican population is roughly 3.5 times the size of Canada’s population. We are truly excited to be entering the Mexican market with this quality partnership,” said Brian Athaide, TGOD CEO. “This is an exciting step in TGOD becoming the global leader in premium, organic cannabis.”

“This joint venture allows TGOD to enter the Mexican market at scale,” said Csaba Reider, President of TGOD. “The distribution includes thousands of potential retailers, significantly expanding our global footprint.”

“We respect TGOD’s organic principles, which will serve well in the medical market in Mexico,” said Alejandro Perea, Medical Cannabis Commercialization Director of LLACA. “We like their forward-thinking management and are excited about the brand. We expect that the Mexican market is ready for the organic cannabis story.”

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