One of the most exciting trends in the cannabis industry has been related to the Latin American market, an opportunity that is barely in the first inning of a major growth cycle. During the last few years, there has been a significant increase in the number of countries in Central and South America that have legalized medical cannabis.
Demand for medical cannabis has been steadily increasing in Latin America and this is a trend that we expect to become more pronounced on a year-over-year basis. Over the next year, we expect to see significant advancements when it comes to the Latin American cannabis market and this is an opportunity that we have been closely watching.
Earlier this year, we published a report on Blueberries Medical Corp. (BBM.CN) (BBRRF) (1OA) which has been laser focused on the cannabis oil opportunity in Latin America and is in the middle of a major expansion. The company is a fully licensed producer of medical cannabis flower and oil products in Colombia. We are favorable on Blueberries Medical’s leverage to this market and its recent expansion into Argentina.
Argentina Represents a Significant Growth Opportunity
In late March, Blueberries Medical signed a binding agreement to acquire cannabis cultivation, processing, manufacturing, export and other rights in Argentina from BBV Labs Inc. Pursuant to a definitive agreement with the Argentinian state-owned company Cannabis Avatara, S.E., BBV Labs has entered into a joint venture with Cannava to develop and cultivate cannabis on a 3.2 million square foot (74 acres or 30 hectares) prime agricultural property.
Under the agreement, Blueberries Medical will build a large-scale modern cultivation facility and processing center in Argentina. According to the agreement, Cannava will contribute all cooperation agreements with the National Institute of Agricultural Technology (INTA), Ministry of Security, Ministry of Public Health, National Council of Scientific and Technological Investigations (CONICET) and other regulatory and technological Argentinian authorities as required.
Cannava will contribute the land as well as all required permits and authorizations necessary to import seeds, cultivate, grow and harvest cannabis, process cannabis and extract cannabis oil and other derivative products for scientific, medicinal and therapeutic purposes and to export cannabis and derivative products and to import and export related equipment and products to the joint venture.
Blueberries Medical will acquire 75% of BBV Labs rights under the joint venture with Cannava in an all-stock transaction. Pursuant to the joint venture agreement, proceeds from the manufacturing and distribution activities will be allocated 90% to BBV Labs and 10% to Cannava; and proceeds from the cultivation and growth activities will be distributed 70% to BBV Labs and 30% to Cannava.
Last week, Blueberries Medical announced that it has commenced the Phase 1 planning process with Cannava and we are monitoring how the team executes on this opportunity.
The first phase of the joint venture project will be a Pilot Cultivation Program that consists of the preparation and cultivation of cannabis on a 107,000 square foot area on property provided by Cannava with the goal of producing 4,000 kilograms of cannabis flower and 400 liters of cannabis oil. The pilot project will also evaluate and characterize cannabis seeds and strains that are ideal for the climate conditions of the Jujuy province in Argentina. We are favorable on this process whereby the companies will be able to cultivate cannabis in a highly efficient manner.
Blueberries Medical plans to complete the pilot project by May 2020 and this represents a significant growth opportunity. Upon successful execution of the pilot project, the companies expect to start the commercial production phase of the joint venture. Commercial production under the joint venture is expected to commence upon Cannava’s approval of the proposed definitive cultivation plan and the receipt of all necessary permits from the Argentine federal government.
The climate conditions in the Jujuy province are very attractive for cannabis cultivators and this joint venture could prove to be a major catalyst for Blueberries Medical. The company expects the pilot project to need a maximum of $1 million in working capital requirements and this is an opportunity that we are watching.
An Emerging Opportunity to be Watching
Blueberries Medical is in the middle of a major expansion and we are favorable on its focus on the cannabis oil opportunity. During the last year, there has been a significant increase in demand for cannabis oils, especially high cannabidiol (CBD) oil. This is a trend that we expect to continue for years to come and we are favorable on the leverage that Blueberries Medical has to this opportunity.
We believe that the cannabis oil opportunity represents one of the most attractive segments of the cannabis industry and will monitor how the company is able to capitalize on this. When compared to cannabis flower, the margins and the prices associated with cannabis oil are much more attractive and we find this to be significant. Cannabis oil also has a much longer shelf life when compared to cannabis flower and we are favorable on this.
One of the reasons we are favorable on Blueberries Medical is due to the attractive economics associated with cultivating cannabis in South America. In Canada, it cost approx. $1.50 to $2.50 to produce each gram of cannabis. In South America, it costs a fraction of this amount to produce each gram of cannabis and this provides the company with a significant advantage when compared to Canadian cannabis producers.
Another reason why we are favorable on this opportunity is due to the attractive valuation when compared to its peers. Blueberries Medical is trading at a significant discount to PharmaCielo (PCLO.V) (PHCEF) and Khiron Life Sciences (KHRN.V) (KHRNF), which are the two best known cannabis companies in Colombia. Blueberries Medical has a market cap of approx. $80 million while PharmaCielo is valued at more than $1 billion and Khiron at more than $330 million and we find this difference to be significant.
Blueberries Medical represents a multi-faceted growth opportunity that has significant catalysts for growth. The company is levered to one of the most attractive operating environments for cannabis producers and we find this to be an important part of the story. Over the next few months, we expect to see Blueberries Medical further advance its story and this is an opportunity that investors should have on their radar.
To learn more about this Latin American cannabis company, please contact firstname.lastname@example.org.
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