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Latin America, Not US, Spearheading Advancements in Global Cannabis Markets

NetworkNewsWire Editorial Coverage: When Democrats took control of Capitol Hill during the elections in November 2020, there was growing optimism that federal legalization of cannabis was in the cards for Americans. Nine months into the new administration, progress has been slow in the United States. Latin American (“LATAM”) countries, on the other hand, have moved forward with new laws ending cannabis prohibition and supporting the industry, moves to generate government revenue, cut into illicit sales and bring novel therapeutic options to people in need. Colombia, Mexico and Panama are emerging as global pioneers promoting responsible cannabis commerce, which bodes well for Flora Growth Corp. (NASDAQ: FLGC) (Profile), a company with robust operations in Colombia. These countries are following the example set forth by Canada, which has given rise to some of the legal cannabis’ juggernauts, such as Canopy Growth Corporation (NASDAQ: CGC), Tilray Inc. (NASDAQ: TLRY) and Sundial Growers Inc. (NASDAQ: SNDL), as other companies such as Innovative Industrial Properties Inc. (NYSE: IIPR) lend additional support to the growing market.

  • Mexico, Panama and Colombia made significant moves supporting legal cannabis industries, including Colombia now allowing exports of dried flower
  • Flora Growth is an emerging leader in Colombia with a portfolio of brands, dozens of licenses and burgeoning distribution networks globally
  • Flora’s operations include 247 square acres of licensed land proven to grow premium organic cannabis at $0.06 per gram, nearly 98% cheaper than some Canadian peers
  • A spate of new laws in Colombia gives Flora a competitive edge for expedited growth through its family of companies and massive land position

Colombia: A Beacon in LATAM Cannabis

LATAM commands investor attention as a region where meaningful progress is happening, not stagnating as in the United States. Late in June, Mexico’s Supreme Court opened the door to adult-use marijuana legalization by declaring prohibition of recreation cannabis as unconstitutional. Last month, Panama legalized medical marijuana, aligning the country with at least seven other LATAM countries that allow some form of cannabis at the federal level.

Perhaps the biggest news of the summer out of LATAM arrived in July when Colombia authorized exports of dried cannabis flower for medical use, bookending about five years’ worth of legislative changes favoring legal cannabis. Colombia had already established cannabis infrastructure by allowing production, distribution, and exports of many cannabis goods, including seeds and derivatives such as ointments, but the country had held exporting dried flower – far and away the most popular version of the plant – as verboten. Decree 811, issued July 23, 2021, changed that, making the country’s intentions clear to be a market leader.

Flora Growth Corp. (NASDAQ: FLGC) has the distinction of being the first traditional cannabis company to IPO on the Nasdaq exchange, successfully completing its initial public offering in May. It also has the distinction of operating one of the largest outdoor, organic cannabis cultivation facilities in Colombia, where it benefits from production costs that are markedly lower than industry averages.

Flora is entrenched in cannabis in Colombia, where it has diversified businesses spanning the market spectrum including production, research and development, wholesale, and consumer packaged goods with a brand portfolio covering pharmaceuticals, textiles, cosmetics, and food and beverage goods. All told, Flora has more than 340 products, 70-plus medical and cosmetic licenses and more than 2,500 points of distribution across LATAM and the U.S. with sales across 13 other countries. The company’s partners in Colombia include Importaciones y Asesorias Tropi S.A.S., better known as Tropi, the largest food distributor in Colombia, which has more than 130,000 distribution points across the country.

Flora’s sales channels are expanding internationally, which dovetails perfectly with the new Colombian export laws as Flora’s distribution extends throughout LATAM, Europe and the United Kingdom. Future revenue was bolstered in June when Flora agreed to acquire Switzerland-based Koch & Gsell, the parent of the hemp cigarette brand Heimat. The company also deepened its E.U. inroads with an LOI for a 2-million-euro investment in the European cannabis company, Hoshi International Inc.

Low Production Costs, Big Competitive Edge

As noted by Prohibition Partners in its second edition of the Latin America and Caribbean Cannabis Report, low-cost labor and construction costs in the LATAM region mean that the overall cost of cannabis production can be up to 80% lower than North American counterparts. Flora takes it to the next level, with production costs in pilot programs on the company’s 10.8 million square feet (247 square acres) of licensed land at only $0.06 per gram of cannabis, about 97% less than the reported costs of Aphria and Sundial (~$1.85/gram).

These ultra-low production expenses are made possible through the combination of low labor costs, free water from the property’s six natural springs and high yields from near-ideal climate conditions that are conducive to at least three harvests per year. Inexpensive labor doesn’t imply unskilled. Agriculture is at the heart of the Colombian economy, including growing cut flowers that supply over 70% of all those imported by the U.S.

Partnerships Starting to Bloom

Flora’s key partnerships include a new joint venture with Canada’s Avaria, the owner of the popular KaLaya brand pain cream sold across Canada at leading retailers including Loblaws, Walmart and London Drugs. Flora is a perfect partner for Avaria because it does not hold a license in Canada to produce cannabis-derived versions of its products at a commercial scale. Per the pact, Avaria will supply the product and Flora will distribute it throughout its expansive LATAM network with plans to penetrate U.S. markets too, while Flora Lab in Colombia works to produce KaLaya’s CBD-infused products using cannabis from Flora’s Colombian cultivation facility, Cosechemos.

This summer, Flora’s Kasa Wholefoods Co. inked a sales agreement with Tropi for which the distribution giant will begin placing Kasa products throughout the country. The first shipment was delivered in July with a value of $1.1 million as part of an initial one-year contract. Management expects to see that current contract increase to $2 million monthly for its CBD and hemp-based foods and drinks.

Mambe, Kasa’s leading brand, already has more than 980 distribution points within Colombia, with expectations to exceed 1,200 by year’s end, including sales in Tostao’ Café & Pan, one of Colombia’s largest coffee chains. Mambe calls Laura Londoño its brand ambassador, with the award-winning Latin-American actress talking up the brand to her 1.3-plus million Instagram followers. Flora has a knack for attracting superstars, including adding former Miss Universe (2014) and Miss Colombia (2013) Paulina Vega as a founding partner in Flora Beauty products.

More New Laws

While the flower export laws are significant on their own, they are not the only legislative changes that Colombia has implemented recently to signal the country’s commitment to the industry. Other new laws allow for the manufacturing, sale and export of cannabinoid ingestible products; substantially reduce marketing restrictions on domestic cannabis products (meaning, brands can actually do some advertising now); allow for the sale of cannabinoid medical products through drugstores as “custom formulas” (meaning pharmacists can prescribe and prepare products designed to complement medical prescriptions specific to a patient); and allow full industrial use of cannabis in textiles, plastics, paper and construction materials.

These are particularly important changes for Flora because of the scalability of operations. The company has run pilot tests on only about five acres of its 247 acres with plans to start ramping up — and that’s just scratching the surface. Flora also has rights to license another 5,268 acres (230.3 million square feet) licensed in Puerto Boyacá, Santander, in north-central Colombia.

Just Wait, Legal Cannabis Won’t Be Denied

While progress in the U.S. may seem slow, it is easily arguable that it is only a matter of time before the entire world is onboard. When, not if, is the question. As it happens, the wheat is being separated from the chaff for producers with certain companies establishing leadership positions, while others push for legalization for different reasons that can most definitely benefit both the top and bottom lines.

Canopy Growth Corporation (NASDAQ: CGC) is best known as the world’s largest cannabis company by market capitalization, but it is broadly a diversified cannabis, hemp and vaporization company. During the first quarter of fiscal 2022, ended June 30, 2021, Canopy reported net revenue of C$136 million, up 23% from the year prior quarter. Total net cannabis revenue was up 17% to $93 million during the quarter, as the company held the top market share in tracked Canadian recreational cannabis market. The company also recently completed the acquisitions of Ace Valley and Supreme Cannabis during the quarter.

Tilray Inc. (NASDAQ: TLRY) is a leading global cannabis-lifestyle and consumer packaged goods company with operations in Canada, the United States, Europe, Australia and Latin America. The company’s production platform supports more than 20 brands in over 20 countries, with comprehensive cannabis offerings, hemp-based foods and alcoholic beverages. In a blockbuster merger earlier this year, Tilray acquired Aphria in a $4.8 billion deal, making what has been touted as the biggest global cannabis company by revenue.

Sundial Growers Inc. (NASDAQ: SNDL), a Canadian licensed producer that crafts premium cannabis, has launched Caviar Cones. This is SNDL’s newest product innovation under its award-winning Top Leaf brand. The Forbidden Lemon Caviar Cones will be the first caviar cone product to hit the Canadian market. This launch reinforces Sundial’s focused innovation pipeline around premium inhalables in the Canadian cannabis market. The launch of Caviar Cones is not only a milestone for Sundial but also represents the first product of its kind to launch in the Canadian cannabis market at large.

Innovative Industrial Properties Inc. (NYSE: IIPR) is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated cannabis facilities. Taxed as a real estate investment trust (“REIT”), IIPR is the first and only real estate company on the NYSE focused on the regulated U.S. cannabis industry. This month, the REIT added to its portfolio, acquiring a property in Missouri and entering into a long-term lease with a subsidiary of Calyx Peak for the purpose of constructing an approximately 83,000-square-foot property that will be operated as a licensed cannabis cultivation and processing facility.

The fact is that while there are still some teetotaling-type opponents, the value of legal cannabis is becoming undeniable. Research is proving the medical value. Canada has squarely demonstrated the benefits on the government revenue, dampening criminal activity and job creation, among other things. There seems to be a bit of a pause going on in the cyclic nature of the market, but it is only a matter of time before cannabis regulation is front and center again.

For more information about Flora Growth Corp. (NASDAQ: FLGC), please visit Flora Growth Corp. (NASDAQ: FLGC).

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