In the investment community, it’s common knowledge that adult use of cannabis in now legal across Canada. In the U.S., the winds of change continue to blow, with midterm elections resulting in more Americans having access to marijuana, albeit for recreational or medicinal purposes. The cannabis evolution is not confined to North America by any stretch; it is of global scale and savvy companies are looking to invest in jurisdictions that can give them a competitive advantage to capture share in a market in what Grand View Research forecasts will reach $146.4 billion by 2025.
Some first movers are actively looking to Colombia, a South American country that commands the second largest federally regulated medical marijuana market in the world. While marijuana oils, tinctures and other medical products are legal in Colombia (and for export), smokable buds remain illicit. In addition to the favorable regulatory setting, it certainly doesn’t hurt that the country also happens to be situated geographically with nearly perfect climate for growing cannabis, lending to the rationale for Canadian firms to cement a footprint there.
The reasons abound as to why Colombia is ideal for the cannabis market and why investors should be looking at it, including the biggest reason of all: costs. Production of marijuana in Canada is in the area of $1.50 per gram, versus just 5 cents per gram in Colombia. Part of this is because the minimum wage in Colombia is fixed at just $251.32 per month (or $1.57 per hour/40 hour week), compared to C$11.35 per hour in Canada (which increases to C$13.85 on June 1, 2019). Further helping to contain opex are Colombia’s abundant sunlight and low electricity costs.
This underscores why Canopy Growth (TSX: CGC)(NYSE: CGC) subsidiary Spectrum Cannabis Colombia is investing $60 million in Colombia for research, greenhouses and production facilities. Canopy Growth agreed to pay up to $96 million for Spectrum earlier this year as part of its new LATAM unit tasked with building the Latin American market. Canopy also agreed to pay up to $56 million for Canindica Capital Ltd, a company controlled by Antonio Droghett, now head of Canopy LATAM.
Spectrum is headquartered in Huila, Colombia, a rich agricultural state that averages 280 sunny days per year. “Colombia has a proud history of agricultural production and global leadership, from coffee to cacao to roses to orchids, and thanks to progressive cannabis legislation, it is strategically positioned to serve as Canopy Growth’s production, processing, and export hub for Latin America with its operations central to the growth strategy for Canopy LATAM,” the company said in a statement on the launch of the subsidiary.
Colombia’s Top Players
Orion Nutraceuticals (CSE: ORI) last month completed a $2 million capital raise and made its CSE debut, giving the public an opportunity to invest in a well-connected upstart aiming to set a new standard in cannabis life sciences. In conjunction with its network of experts, Orion’s mission is creating a line of sports medicine, cannabidiol (CBD) based, products for a diverse target market, including athletes, athletic therapists, retailers, homeopathic and pharmaceutical companies, manufacturers and more.
Headquartered in Vancouver, Orion leadership, led by former MYM Nutraceuticals (CSE:MYM)(OTC: MYMMF) CEO Jonathan Fiteni, has moved quickly to build a footprint in Canada and Colombia. In Canada, the company acquired Medic Oasis, with the plans to complete a 20,000 square foot vertical farming facility in Dorval, Quebec by June capable of producing 1,300 kilograms of cannabis oil and 6,500 kilograms of dried flower annually. Towards this goal, Medic Oasis is in advanced stages of Health Canada’s application process to become a licensed cannabis producer under the agency’s Access to Cannabis for Medical Purposes Regulations (ACMPR).
The Orion team is also getting strategic advice from Matthew Bennett, President and Founder of Bennett’s Choice and Orion Advisory Board member. Bennett is recognized as a leader in improving recovery from concussions and preventing neurological disease. He gained widespread acclaim throughout Canada through a successful pitch on the popular investment show Dragons’ Den, which earned his business a $200,000 investment from Dragons Jim Treliving and Michael Wekerle for “Brain Evolve,” a brain-healing supplement approved by Health Canada and sold in GNC, amongst other retail outlets.
The licensing milestone is a linchpin to Orion building its global footprint in combination with the importing/exporting of cannabis oil from Colombia through its joint venture in Medellin-based FCM Global. In August and September 2017, FCM was distinguished as Colombia’s first fully licensed cannabis producer and exporter for non-psychoactive cannabis for medical and research purposes. Furthermore, the company expects to receive its high-THC (the cannabinoid in cannabis responsible for the psychotropic high) license this quarter, which positions FCM as a leading Colombian supplier of a broad spectrum of CBD and THC extracts, isolates, seeds and strains internationally.
FCM is a “soil-to-oil” company, controlling the complete supply chain through distribution. The company currently has a 235,800 square foot production facility in La Ceja, Colombia designed and operated to GAP and GMP standards with an integrated ERP system with seed-to-sale traceability. FCM is primed to scale via a fully secured 450+ hectare property in Natagaima, Tolima Colombia, including over 300 hectares suitable for controlled outdoor cultivation with the remaining land available for centralized production and export infrastructure.
Orion believes FCM has the potential to generate $1 billion in revenue by the end of 2023, with production costs less than 4 cents per gram of dried flower and under 15 cents per gram of oil.
ORI’s market capitalization of only $20 million speaks to the incredible growth possibilities for the company. Thanks to a broad swoon in cannabis stocks, investors are getting a rare opportunity here, with shares of ORI trading at 45 cents, representing a discount of a nickel per share compared to those who participated in the private placement ahead of Orion coming public.
Elsewhere, the investment community has been clamoring throughout 2018 about the timing of PharmaCielo coming public. Headed by Canadian entrepreneur Anthony Wile, the company trumpets itself as having the biggest cannabis production capacity in Colombia (15 million square feet of capacity, 13.3 million of which are accessed through contract growers) and over 150 cannabis strains in its portfolio. In August – from its 1.3 million square feet in Rionegro, Colombia that went into production late in 2017 – PhamaCielo had 200,000 CBD-dominant plants being harvested and processed, as well as 45,000 THC-dominant plants in the cultivation stage. These achievements served as cornerstones for the company recently raising $39.2 million.
PharmaCielo is in the midst of a reverse takeover of AAJ Capital 1 Corp. (TSX-V: AAJ.P) that potential could see PharmaCielo enter the public domain in the coming months.
If that happens, PharmaCielo will join that ranks of its Colombian rival Khiron Life Sciences (TSX-V: KHRN)(OTC: KHRNF), a company that had its processing license suspended a year ago because of a lawsuit filed against them by PharmaCielo. PharmaCielo alleged that confidential information was leaked to Khiron chief executive Alvaro Torres, but little details were provided. The lawsuit was also settled quickly with tight lips…and a transfer of 100,000 shares of Khiron to PharmaCielo.
Khiron and PharmaCielo are two of the handful of select companies in Colombia that possess all the requisite cultivation, processing and sales licenses in the country related to cannabis operations. To that end, they are likely acquisition targets for bigger companies looking to immediately command a strong market presence in Colombia. When Canopy Growth made their play (acquisitions and luring Droghetti to run Canopy LATAM) this summer to move into Latin America, a big step was taken in what looks to be turning into a stampede of investment in Colombia’s cannabis industry. Khiron and PharmaCielo have managed to raise more than $75 million between them from Canadian investors in the last year alone. With that in mind, investors should certainly be looking at Orion as joining the ranks of these two bigger peers very soon, considering their assets are nearly running in parallel.
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