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The South American Cannabis Opportunity Is Very Real and Should Be On Investors Radars

Nov 17, 2021 • 8:23 AM EST
5 MIN READ  •  By Michael Berger
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A few years ago, several Canadian Licensed Producers (LPs) announced transactions or started to execute on initiatives that provided leverage to the Latin American cannabis markets. 

As of today, most of the previously announced transactions or initiatives have been cancelled and written off. We find this trend to be significant as the Latin American cannabis industry has been gaining traction and believe that our readers should be aware of this trend. 

Today, we have highlighted 3 companies that continue to be focused on the Latin American cannabis industry. The diversity of the business plans for the companies that are levered to the Latin American cannabis industry is worth noting and we will continue to monitor how this vertical of the industry continues to evolve.

Avicanna is Executing on an International Expansion Strategy

Earlier this month, Avicanna Inc. (TSX: AVCN) (OTCQX: AVCNF) (FSE: 0NN) released third quarter financial results and reported to have generated slightly more than $1 million of revenue, which is record amount for the business. 

When compared to the prior quarter, Avicanna benefited from a more than 60% increase in the amount of cannabis 2.0 products that were delivered. The Latin American cannabis company reported to have exported products to its 12th market in the quarter and we are favorable on the markets that it is levered to.

During the third quarter, Avicanna shipped company-branded cannabidiol (CBD) and tetrahydrocannabinol (THC) cannabis extracts to Austria, Peru, and Brazil. We are favorable on the geographic diversity that is associated with the markets the company is levered to. 

In the coming years, we expect the European Union (EU) to become a significant cannabis market and believe that Avicanna is well positioned to capitalize on this trend over the long-term. The management team’s ability to execute has played an important role in how the business evolved from research and development (R&D) to a rapidly expanding global operator with several business units that are generating revenue in several markets.

From the strength of the management team to the international markets the business is levered to, we consider Avicanna to be an underappreciated opportunity with significant potential growth catalyst. At current levels, we believe the company has a favorable risk-reward profile and will monitor how the story continues to advance. 

Flora Growth: A Global Growth Story 

Flora Growth Corporation (Nasdaq: FLGC) is a diversified cannabis company that is highly levered to Latin America and the European Union (EU). The company is considered to be a leading all-outdoor cultivator and manufacturer of global cannabis products and brands and we are favorable on the way the story has recently advanced.

Most recently, Flora reported to have completed the acquisition of Vessel Brands, which provides the business with leverage to the US market. Based on the trailing 12-months revenue, the transaction is expected to be immediately accretive and we will monitor how the transactions supports the growth of the business. 

Last month, Flora reported to have entered into an agreement to commence scientific clinical trials on the use of cannabinoids in patients who are suffering from fibromyalgia, brain health, and pain. The company expects the primary research sites to be located in the US and the United Kingdom (UK). 

As part of the growth strategy, Flora will work to identify scientific gaps in the cannabis industry and translate such gaps into pharmaceutical cannabis products that are backed by scientific data. We are favorable to the focus of the company and believe that positive developments could prove to be a major catalyst for the entire business. 

Since inception, Flora has successfully executed on a strategy to allow for the development, manufacturing, and commercialization of cannabis products in Colombia. We believe the long-term opportunity that is associated with the biotech side of the cannabis industry is a massive opportunity and are favorable on how the management team has advanced this aspect of the business at the right time. 

When we first started to cover Flora, one of the initial statistics that stood out was the cost per gram. The team at the Cosechemos facility reported producing cannabis for $0.06 per gram and we find the economics that are associated with this price point to be very attractive. By cultivating cannabis for such a low-cost, the team has shown how it has maximized the cultivation potential that is provided by the climate and infrastructure.

During the last quarter, Flora has come under considerable pressure and we will monitor the trend from here. We are of the opinion that the company’s strategic investments and sales agreements has de-risked the opportunity over the long-term and our readers should be aware of this.

Aurora Cannabis Moved Too Quickly on the Latin American Market

Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) was one of the first movers on the Latin American cannabis market. When the Latin American cannabis market was gaining traction a few years ago, the Canadian LP acquired International Cannabis Company and referred to the business as the jewel of Latin America.

Fast forward to today and the company has not provided an update on this aspect of the business. We classify Aurora Cannabis as an operator that completed several expensive acquisitions of operators that are no longer operations. During the last year, the management team has written off a significant amount of assets and continue to closely follow the story. 

During the last two years, Aurora Cannabis has recorded a transformation with the writing off of defunct cannabis assets and by changing the management team. We believe the new management team is executing on a growth strategy that is centered around cutting costs and are cautiously optimistic with the business. 

Over the next year, we expect to learn more about Aurora Cannabis’ multi-national growth strategy and will provide updates on how the story continues to evolve. At current levels, we are on the sidelines with Aurora Cannabis and want to see the management team execute on previously announced growth initiatives to regain some confidence in the long-term outlook of the business. 

If you are interested in learning more about companies that are capitalizing on the Latin American cannabis market, please send an email to support@technical420.com with the subject “Latin American Cannabis Market” to be added to our distribution list. 

For the fastest access to data on companies that are levered to the Latin American cannabis market, sign up for our free newsletter!

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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