During the last year, we have seen a significant increase in the number of companies that are focused on the Latin American cannabis opportunity and we have been closely monitoring this trend.
One of the reasons why we are excited about this emerging cannabis market is due to the economics associated with cultivating cannabis. Companies in Latin America are able to produce cannabis for a couple cents per gram which is much more attractive than the amount it costs to produce in Canada.
The Latin American cannabis market has become a hotbed of opportunity for companies and we have seen leading Canadian Licensed Producers (LPs) make significant acquisitions to further improve its leverage to this burgeoning market. Last year, we saw Canopy Growth (WEED.TO) (CGC) expand its reach in the Latin American market through a variety of growth initiatives, while Aurora Cannabis (ACB.TO) (ACB) and Aphria Inc. (APHA.TO) (APHA) made significant acquisitions of Latin American cannabis companies to gain leverage to this attractive market.
We have been laser focused on the Latin America cannabis market and continue to monitor the opportunities that are available to investors. Aside from these leading Canadians LPs, there are a number of companies that are not owned by a Canadian LP and that have significant leverage to this massive cannabis market.
Today, we want to highlight 3 Latin American cannabis companies that are based in Colombia and represent attractive growth opportunities. These companies are not owned by a Canadian LP and we would be putting these opportunities on our radar.
Blueberries Medical has Been Flying Under the Radar
In early February, we highlighted Blueberries Medical Corp. (CSE:BBM) (OTC: BBRRF) as a Colombian cannabis company that has been flying under the radar and this an opportunity that we are very excited about. Blueberries Medical is in the middle of a major expansion and recently started trading on the Canadian Stock Exchange. The company is a fully licensed producer of medical cannabis flower and oil products in Colombia and has significant catalysts for growth.
Blueberries Medical significantly expanded its position in Colombia by completing the acquisition of the Zipaquira Property, a 37-acre agricultural property in the Bogota Savannah. The property is located close to the company’s current facility, Guatavita Farm, a 107,000 sq. ft. fully operational cannabis greenhouse that is on a 7.4-acre property.
Blueberries is currently finalizing plans for a large-scale 1,300,000 sq. ft. cannabis greenhouse facility on the Zipaquira Property, which is expected to yield approx. 72,000 kg of dried cannabis per year (once completed). The company expects to complete construction in three phases, with the first phase being fully-funded and consisting of approx. 500,000 sq. ft. (expected to yield approximately 30,000 kg of dried cannabis per year). The first phase is expected to be completed and operating in the fourth quarter of 2019 and this represents a significant opportunity for the company.
The acquisition provides Blueberries Medical with a significant scalability advantage and this is an important part of the growth story. The acquisition of this property and the construction of a state-of-the-art purpose-built cultivation facility is a significant step in Blueberries’ strategy to become a leading cannabis producer in Colombia and we are bullish on the growth prospects associated with this.
In February, Blueberries Medical announced a letter of intent for a joint venture with India Colorada S.A.S., one of the leading Colombian artisanal brewers and the producer of the oldest craft beer in Colombia, to research, develop and commercialize non-alcoholic cannabis-based beverages.This joint venture represents a significant opportunity for the company, and we have been favorable on the smokeless cannabis product market.
Demand for cannabis oils and smokeless cannabis products continues to increase and this is a trend that we expect to continue. The joint venture is expected to focus on the research, development and commercialization of non-alcoholic cannabis-based beverages with the goal of being the first to market in Latin America. We are bullish on the cannabis beverage opportunity and will monitor how Blueberries Medical is able to execute on this burgeoning market.
We are favorable on the combined expertise, the potential to have a first mover advantage, and the focus on the development of smokeless cannabis products. The joint venture has significant growth prospects if it is able to successfully create a line of non-alcoholic cannabis-based beverages and this is something we are watching.
Although Blueberries Medical has been executing flawlessly, the shares are trading at a massive discount to its peers and this has created a great opportunity for investors that are interested in the Latin American cannabis market. We are bullish on the company’s growth prospects and believe that the shares have been flying under the radar. This is an opportunity to be monitoring.
Khiron Life Sciences Continues Expand and Execute
2019 is already proving to be a banner year for Khiron Life Sciences (KHRN.V) (KHRNF) and this is a Latin American cannabis opportunity that we have been favorable on. In July 2018, we highlighted Khiron after we met with the company’s management team at the GRIT Capital event in Muscoka, Canada. We were very impressed with the management team when we met with them and highlighted Khiron as an opportunity to watch after this event.
Earlier last month, the Latin America cannabis company announced $20 million private placement and had to quickly increase the size of this offering to $25 million due to the amount of demand. Khiron plans to use these proceeds to expand operating capacity, for working capital requirements, and other general corporate purposes.
In January, Khiron entered into a binding letter agreement to acquire 100% of NettaGrowth International Inc., an arm’s length party, which will own, at the time of completion of the transaction, all the outstanding shares of Dormul S.A. (doing business as Cannapur). This is significant because Dormul obtained the first license to produce medical cannabis with THC for commercialization in Uruguay.
In late 2018, Khiron completed its acquisition of the Latin American Institute of Neurology and the Nervous System (ILANS), one of the most respected, fastest growing, and largest health service network providers in Colombia and Latin America. The ILANS network represents 100,000 patients in Colombia and will position Khiron with approximately C$10.5 Million in gross revenue and C$1.8 Million of EBITDA (2017 Audited Financial Statements). The ILANS acquisition provides a secure and scalable revenue stream and opportunity to enhance profitability from introducing medical cannabis to ILANS patients.
Through organic and inorganic growth initiatives, Khiron has significantly advanced its fundamental story and we are favorable on the growth prospects going forward. During the last month, the shares have rallied more than 100% and has recently been coming off these highs. Although we are favorable on the long-term growth prospects, we are cautiously monitoring price movements from here and will keep an eye on this one.
PharmaCielo: A Latin American Leader to Watch
In late January, PharmaCielo Ltd. (PCLO.V) (PHCEF) commenced trading on the TSX Venture exchange and we have been closely monitoring this Colombian cannabis company. Following its listing on the TSX Venture, PharmaCielo has recorded mixed movements and this is a trend that we continue to watch. Although the recent price movements have been volatile, the company has a firm position in Colombia and has been expanding into new markets.
Last month, PharmaCielo recoded a major development and entered the Mexican cannabis market through an equity joint venture with MINO Labs S.A. de C.V., a specialty pharmaceutical company and medical supply distributor based in Mexico. The joint venture is called PharmaCielo Mexico and we are monitoring how the companies execute on this emerging opportunity.
The announcement represents a significant milestone for PharmaCielo and supports its plan to become a leading global exporter of high-quality medical cannabis oils and derivative products. The company expects to start delivering cannabis oil to the Mexican market in the fourth quarter of 2019, subject to the joint venture and PharmaCielo obtaining the required registrations and licenses.
PharmaCielo has several significant catalysts for growth and we are favorable on the leverage to the Mexican cannabis market. This market represents a significant opportunity and we expect to see the company capture significant market share. PharmaCielo has significant growth prospects as a result of this relationship and this is an opportunity we are closely monitoring.
From a valuation standpoint, PharmaCielo is much more expensive than Khiron which is much more expensive than Blueberries Medical. With a market cap that is north of $700 million, PharmaCielo has a lot to prove and this is an opportunity we continue to monitor.
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