3 Key South American Cannabis Markets Investors Need To Be Watching

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The cannabis sector has recorded significant advancements during the last year, as new markets have opened up and this is a trend that our readers need to be aware of.

New markets create additional opportunities for all types of companies, and we have been working to identify the businesses that will benefit the most from the cannabis legalization trend. South America has been a hotbed of activity for the legal cannabis industry and we are favorable on the economics associated with the production of cannabis in this region.

Although Colombia represents a premier destination for cannabis companies that are focused on the opportunity in Latin America, we have also been keeping an eye on other markets in the region and believe that some of these opportunities are flying under the radar. Today, we have highlighted 3 companies that are levered to different regions that are associated with the Latin American cannabis market and believe that these are opportunities to be following.

Uruguay has Not Lived up to Expectations so Far

Although Canada is often credited for being the catalyst behind the legal recreational cannabis movement, it was not the first country to legalize it at the federal level. Uruguay was the first country to legalize recreational cannabis and this is a market that does not get the attention that it deserves.

During the last year, we noticed a substantial increase in interest in the Latin American cannabis movement. When it comes to the opportunity in Uruguay, there has not been too much action and this is a trend that surprises us. In late 2018, Aurora Cannabis (ACB.TO) (ACB) made a major splash in Uruguay when it acquired ICC Labs.

The acquisition of ICC was supposed to establish Aurora Cannabis as a leading operator in Latin American, a region with more than 650 million people. ICC, based in Uruguay, has developed a strong portfolio of low-cost production assets, product offerings, and commercial agreements. ICC’s science and its GMP compliant processing facility is expected to play an important role in the export opportunity for Aurora Cannabis and we will monitor how the asset is able to generate value in 2020 and beyond.

In late 2019, Aurora Cannabis issued an operational update that highlighted ICC. According to the update, ICC was preparing for the 2019 hemp season and is expecting to yield more than 100,000 kilograms of raw material upon harvest in April. The hemp biomass will be processed at the company’s GMP compliant extraction facility and we will monitor how the team is able to execute on this opportunity.

Aurora Cannabis considered ICC to be the jewel of Latin America and expected the acquisition to immediately prove to be accretive. Although we are impressed with how the ICC story has evolved since inception, the asset has not been able to live up to expectations so far.

When it comes to the international cannabis opportunity, Aurora Cannabis has been a leader and has amassed an impressive portfolio of assets. If the company is able to fund these growth initiatives, we expect Aurora Cannabis to be one of the greatest beneficiaries of the legal cannabis movement. Currently, the market does not believe that the company will be able to fund all of these growth projects and we will keep an eye on how the ICC asset plays into the mix.

Argentina is a Cannabis Market that is Flying Under the Radar

Argentina is a market that does not get the attention that it deserves and we have been highly focused on the emerging cannabis market. During the last few years, we have seen an increase in activity in Argentina and believe that it is a much less saturated cannabis market when compared to Colombia.

Blueberries Medical Corp. (BBM.CN) (BBRRF) has been highly focused on the Latin America cannabis opportunity and the business has attractive leverage to the Argentinian market. Initially, the company was only focused on the Colombian market and we are favorable on how the story has evolved since then.

Last year, Blueberries Medical finalized a definitive share purchase agreement to acquire cannabis cultivation, processing, manufacturing and other rights in Argentina from BBV Labs. Pursuant to a definitive joint venture agreement with the Argentinean state-owned company Cannabis Avatara, BBV Labs entered into a joint venture with Cannava to develop and cultivate cannabis on a 3.2 million sq. ft. property.

The signing of a definitive agreement represents a major milestone for Blueberries Medical as it gains rights to one of the limited cannabis licenses in Argentina and further expands its production footprint. Going forward, Blueberries Medical will construct a large-scale modern cultivation facility and processing center of excellence in Argentina, while Cannava will contribute the necessary licenses and permits to import seeds, cultivate cannabis, process and extract cannabis oil, export cannabis and derivative products, as well as import/export equipment and products.

The first phase of the joint venture will be a pilot cultivation program that consists of the preparation and cultivation of cannabis on a 107,000 sq. ft. area, with the goal of producing 4,000 kilograms of dry cannabis flower. The company has prepared a proposed pilot project plan to be approved by Cannava and hopes to complete the pilot program by May 2020. This represents a significant opportunity for Blueberries Medical and we expect to see a much larger land package allocated to the company if the pilot program proves to be a success.

We are favorable on the skills that each company brings to the relationship and will monitor how the teams are able to execute on this opportunity. Argentina represents an emerging cannabis industry that is barely in the first innings of a multi-decade growth cycle. We believe that Blueberries Medical is an opportunity that is flying under the radar and expect 2020 to be a banner year for the business.

Capitalizing on the Colombian Cannabis Market

We have highlighted Colombia as a premier destination for businesses that are looking to capitalize on the Latin American cannabis market. During the last year, we noticed a significant increase in interest as it relates to the Colombian market and are impressed with how the industry has evolved in such a short period of time.

When it comes to the Colombian cannabis market, selectivity is key and we are focused on identifying leading operators in the region. Chemesis International Inc. (CSI.CN) (CADMF) caught our attention in 2019 when it acquired La Finca Interacviva-Arachna Med and this is an opportunity that our readers should be aware of.

In late 2019, Chemesis issued an update on La Finca and stated that it is on track to complete its Agronomic Evaluation Programs in the first quarter of 2020. This represents an important milestone for the business as it works to register its own genetics as Intellectual Property (IP). By leveraging the genetics, La Finca believes it will be able to build a stable and consistent revenue stream as a global seed supplier. We are favorable on the amount of value that can be created if La Finca is able to create this platform and we are bullish on this aspect of the story.

La Finca has been focused on increasing the size of its land package and continues to work with the Ministry of Agriculture and local farmers to do so through its previously announced non-profit organization, the Association for the Promotion of Cannabis Cultivation. The association works with local indigenous farming communities and we are favorable on the strategy to increase its production footprint.

Another exciting aspect of the La Finca story is related to the work it is doing to build its seed stock through cultivation. As a result of this, the company expects to have larger harvests in early calendar 2020 and we find this to be significant. La Finca expects to harvest over 5,000 kilograms of biomass in the first quarter of 2020 and we are favorable on the amount of revenue that can be generated through this asset.

We believe that La Finca has made incredible progress in a very short period of time. When compared to other Colombian cannabis operations, the company has been nothing short of an execution story as it works to increase its land package and complete the Agronomic Evaluations. Chemesis believes that La Finca could be a leader in cannabis cultivation, manufacturing and retail in Colombia and we are favorable on this aspect of the business.

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