3 cannabis stocks capitalizing on Latin America

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Latin America is one of the most exciting emerging cannabis markets and this is a trend that has been gaining traction. During the last year, we have seen increased interest in the Latin American cannabis market and have been highly focused on this opportunity.

One of the main reasons for the increased interest in the Latin American cannabis market is due to the economics associated with cultivating cannabis. When compared to Canadian cannabis producers, Latin American cannabis producers can cultivate cannabis for a fraction of the cost, and we find this to be significant. In Canada, the all-in cost associated with producing cannabis is approx. $2 per gram. In Latin America, the all-in cost is less than $0.50 per gram and this provides companies with a major competitive advantage.

Today, we want to discuss the Latin American cannabis opportunity and highlight 3 companies that have been highly focused on this emerging cannabis market. Over the next year, we expect the Latin American cannabis market to record strong growth and expect these companies to benefit from this.

When looking at the types of companies that are focused on the Latin American cannabis market, you will notice that most of the operators are based in Canada. Only a few US companies have been focused on the Latin American cannabis opportunity and we have been monitoring these operators.

Chemesis: A Colombian Execution Story to be Watching

Chemesis International Inc. (CSE: CSI) (OTC: CADMF) (FRA: CWAA) is one of the few companies to have legitimate leverage to the North and South American cannabis market and has been nothing short of an execution story.  Last month, Chemesis issued an operational update for its operating entities in the U.S., Puerto Rico and Colombia, that highlighted all aspects of the business and we are favorable on how the South American side of the business has progressed so far this year.

In the operational update, Chemesis issued an update on La Finca which is highly focused on the Colombian cannabis opportunity. La Finca is on track to increase its land package by 10,000 acres within the next three years and the company continues to increase its seed stock to ensure that it is able to significantly increase the planted acreage. We are favorable on the plan to increase production capacity and will monitor how the team is able to execute on this.

An important part of the operational update was related to how La Finca is starting agronomic evaluations in three of the twelve subregions defined by the ICA (Ministry of Agriculture). This is a necessary step as a prerequisite for obtaining commercial cultivar certification per seed type on each of the 12 subregions. Within six months, La Finca expects to have completed all requirements in order to start its propagation plan.

La Finca’s plan remains on track for both the extraction and cosmetics manufacturing lab. The facilities are being constructed under GMP and EU GMP standards in preparation for future exports to international markets. La Finca’s facilities are strategically located next to Bogotá’s international airport, considered a major hub for international flights connecting the América’s and Europe as well as the Caribbean. La Finca is working closely with regulators and is on track to obtain THC cultivation and manufacturing of THC derivatives licenses. This allows Chemesis to partake in one of the fastest growing medical cannabis markets in the world as a potential supplier of CBD and THC raw materials and finished products.

Over the next year, we expect the Colombian operation to play a much larger role in the business and will closely monitor how the management team continues to advance this aspect of the operation. During the last month, Chemesis has been under massive pressure and has been trading lower with the market. We believe that the market is missing out on something big and will be closely watching this opportunity.

Next Green Wave: A North and South American Expansion Story

Next Green Wave (NGW.CN) (NXGWF) is a US cannabis company that has been able to differentiate itself through strategic investment in Organic Medical Growth OMG3 INC. (OMG), which is focused on producing and commercializing CBD products derived from medical and industrial cannabis in Colombia. Although Next Green Wave has been primarily focused on California, we are favorable on the leverage to the Colombian cannabis market and find this to be an attractive aspect of the story.

OMG is positioning itself to become a low-cost producer of premium cannabis in Colombia and its wholly owned subsidiary, Proymed S.A.S., is focused on producing and commercializing non-psychoactive cannabidiol (CBD) products derived from cannabis. Proymed is also finalizing its transformation and psychoactive licenses for THC products in Colombia as well as finalizing international distribution agreements.

Through this asset, Next Green Wave will have access to biomass that is being grown at a fraction of the cost when compared to California and we find this to be significant. We believe that OMG represents a strategic partner and will monitor how the company is able to execute on the Latin American opportunity. Through OMG’s current distribution channel of 7,300 pharmacies, Next Green Wave has the opportunity to license its collection of brands and products into the Colombian market.

One of the reasons we are favorable on OMG is due to the joint venture with Cannabolland Cluster S.A.S, a vertical biotech cluster based in Colombia that groups companies with cannabis licenses with the goal of structuring the companies, consolidating the licenses, providing technical knowledge and infrastructure. According to the agreement, OMG has access to the planned production of cannabis on 5,000 hectares with the possible extension of the cultivation licenses to the geographical area of the cluster (up to 12,000 acres). The six companies within Cannabolland, that include 2,500 associated growers, have 3 psychoactive (THC) and 3 non-psychoactive (CBD) licenses, as well as 2 transformational (extraction) licenses.

We are favorable on the leverage that Next Green Wave has to the Latin American cannabis market and expect the investment in OMG to prove to be a strategic decision. Over the next year, we expect the Latin American cannabis market to report strong growth and will monitor how this benefits Next Green Wave.

Khiron Life Sciences: A Latin American Execution Story

When looking at the leading Latin American companies, Khiron Life Sciences (KHRN.V) (KHRNF) is one of the first to come to mind. During the last quarter, the company has been under heavy pressure and momentum has been trending lower. Following the recent weakness, we believe that this is an opportunity to be watching and want to provide an update on the Colombian cannabis company.

Last month, Khiron received approval for the commercialization of 17 stains of cannabis and this brings the total number of registered strains to 22. This development positions the company to commercialize and distribute cannabis that is high in CBD that is in the process of being cultivated. This development firmly positions the company to commercialize its medical cannabis product sales in the third quarter and we are excited about this opportunity.

Khiron is a company of firsts and was the first to introduce CBD skin care products to the Colombian market. Since the initial exclusive launch of the product with Colombian retailer Farmatodo, the company has secured distribution arrangements with many of the largest retailers in the Colombian market. Collectively, these retailers represent over 176 points of sale and this is significant.

By the end of the year, Khiron expects to reach 700 points of distribution in Colombia and we are bullish on the growth prospects associated with this level of distribution. The company has already launched six pop-up stores in key retail malls within four priority cities and plans to have 20 pop-up stores by the end of 2019.

Khiron has established cultivation activities within Colombia, Uruguay and Chile. Over the next year, the company’s production capacity is expected to significantly increase, and we are bullish on the growth prospects associated with this. From an expansion standpoint, the company plans to enter markets in North America, Europe, and additional Latin American countries outside Colombia.

The recent weakness has made Khiron a company to watch as we are favorable on its opportunity to capitalize on the Latin American market. The company is highly focused on expanding its product line and we are bullish on the number of avenues that the business has for growth. From an economics standpoint, Khiron represents an attractive long-term opportunity and this is an opportunity that we will continue to closely monitor.

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