NEW YORK, Sept. 30, 2021 /PRNewswire/ -- While North America is the leading cannabis market, the federal government appears reluctant to legalize the substance and remove major legislative roadblocks to the market's continued growth and success. Countries in South America, however, seem much more eager to embrace the future of cannabis, with several countries passing new laws designed to end cannabis prohibition and support the growing industry. This government support will likely generate government revenue, cut into illicit sales and provide innovative treatment options to people in need. Colombia, Mexico and Panama have established themselves as leaders in the global move toward cannabis progress, which is good news for Flora Growth Corp. (NASDAQ:FLGC) (Profile), which has a cultivation facility in Colombia. Other major players in the cannabis sector, including Aurora Cannabis Inc. (NASDAQ:ACB), Cronos Group Inc. (NASDAQ:CRON), HEXO Corp. (NASDAQ:HEXO) and GrowGeneration Corp. (NASDAQ:GRWG), are paying close attention to what's taking place on the worldwide cannabis stage as each major move is likely to have global ramifications.
- LATAM countries are making moves designed to provide stronger support for legal cannabis industries.
- An emerging leader in Colombia, Flora Growth has built an impressive portfolio of brands along with dozens of licenses and burgeoning distribution networks globally.
- Flora's Colombian 247-acre cultivation operations produce premium organic cannabis at $0.06 per gram, almost 98% cheaper than some Canadian peers.
- A family of companies and massive land position may give Flora Growth a competitive edge in the wake of newly passed Colombian legislation.
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Catching Investment Attention
As South American countries, known as LATAM, show support for the future of cannabis, the region has caught the attention of the investment world. That support is exemplified in a variety of ways, including Mexico's Supreme Court opening the door to adult-use marijuana legalization by declaring prohibition of recreation cannabis as unconstitutional. In addition, Panama legalized medical marijuana, bringing the country in line with at least seven other LATAM countries that allow some form of cannabis at the federal level.
And in what might be the biggest LATAM cannabis news of the summer, Colombia authorized exports of dried cannabis flower for medical use, that last in a series of legislative changes supporting legal cannabis. Previously the country had established cannabis infrastructure by allowing production, distribution and exports of cannabis goods such as seeds and derivatives. However, had stopped short of legalizing the export of dried flower — the most popular version of the plant. That all changed when the government issued Decree 811, making the country's intentions clear to be a market leader.
As the operator of one of the largest outdoor, organic cannabis cultivation facilities in Colombia, Flora Growth Corp. (NASDAQ:FLGC) benefits from production costs that are significantly below industry averages. In addition to lower production costs, Flora Growth also has the distinction of being the first traditional cannabis company to IPO on the Nasdaq exchange and successfully completed its initial public offering in May.
Flora's cannabis involvement in Colombia reaches beyond cultivation. The company has diversified businesses the include production, research and development, wholesale, and consumer packaged goods that features a brand portfolio including pharmaceuticals, textiles, cosmetics, and food and beverage goods. In fact, Flora offerings include more than 340 products, 70-plus medical and cosmetic licenses and more than 2,500 points of distribution across LATAM and the United States with sales across 13 other countries. The company lists an impressive roster of Colombian partners as well, including Importaciones y Asesorias Tropi S.A.S., better known as Tropi, the largest food distributor in Colombia.
Just as the new Colombian export laws go into effect, Flora's sales channels are expanding internationally, with distribution reaching throughout LATAM and beyond into Europe and the United Kingdom. In June, Flora announced plans to acquire Switzerland-based Koch & Gsell, the parent of the hemp cigarette brand Heimat, a move that portends future revenue increase as well. The company also signed a letter of intent for a 2-million-euro investment in the European cannabis company Hoshi International Inc.
Ultra-Low Labor & Production Costs
The second edition of the Latin America and Caribbean Cannabis Report, released by Prohibition Partners, reports that low-cost labor and construction costs in the LATAM region could result in regional cannabis production costs up to 80% lower than North American counterparts. Leveraging this advantage, Flora has reported 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).
Flora achieves these ultra-low production expenses by combining low labor costs, zero-cost water from the property's six natural springs and high yields from near-ideal climate conditions that lead to at least three harvests annually. It's worth nothing that low-cost labor doesn't mean unskilled labor. The Colombian economy revolves around agriculture, including growing cut flowers that supply more than 70% of all those imported by the United States.
The Power of Partnerships
In another key advantage, Flora has developed powerful partnerships, its most recent being 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. The partnership is ideal because Avaria does not hold a Canadian license to produce cannabis-derived versions of its products at a commercial scale. Therefore, according to the agreement, Avaria will supply the product and Flora will distribute it throughout its extensive LATAM network; plans are also underway to expand into U.S. markets. In addition, FLGC's Colombian Flora Lab intends to produce KaLaya's CBD-infused products using cannabinoids from Flora's Colombian cultivation facility, Cosechemos.
Another partnership was forged this summer when Flora's Kasa Wholefoods Co. signed a sales agreement with Tropi to begin placing Kasa products throughout the country. The first shipment, valued at $1.1 million, was delivered in July, the initial order on the one-year contract. Flora management anticipates that contract will increase to $2 million monthly over time for its food and beverage portfolio.
Mambe, Kasa's leading brand, has almost 1,000 distribution points throughout Colombia, including Tostao' Café & Pan, one of Colombia's largest coffee chains. The company plans to expand to more than 1,200 locations by year's end. Mambe also counts the award-winning Latin-American actress Laura Londoño as its brand ambassador. And Londoño isn't the only widely recognized Flora advocate. Former Miss Universe (2014) and Miss Colombia (2013) Paulina Vega is a founding partner in Flora Beauty products.
Ramping Up Allowed
Flower export laws aren't the only legislative signs of Colombia's commitment to support cannabis. Other new laws provide for the manufacturing, sale and export of cannabinoid ingestible products; substantially reduce marketing restrictions on domestic cannabis products, which means brands can advertise their products; allow for the sale of cannabinoid medical products as "custom formulas" available at drugstores, 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 important changes impact Flora because of their scalability of operations. The company has run pilot tests on about five acres, leaving more than 240 acres available as the company starts ramping up operations. In addition, Flora has rights to license another 5,268 acres (230.3 million square feet) in in north-central Colombia.
An Enviable Position
While progress in the cannabis space may seem slow at times, global adaptation and acceptance appear certain. The real question is when not if, and as support spreads, companies already operating in the space will be in an enviable position as they benefit from the true potential of the market.
Aurora Cannabis Inc. (NASDAQ:ACB) launched three new proprietary cultivars under the company's premium adult-use cannabis brand San Rafael '71; the three new offerings are Stonefruit Sunset, Lemon Rocket and Driftwood Diesel. Guided by consumer insights to identify highly desirable traits, the new cultivars were developed at Aurora Coast, ACB's state-of-the-art research facility dedicated to cannabis breeding, which is also home to one of the largest and most comprehensive genetic libraries in the world. The new hybrid and indica cultivars are also the first adult-use flower products Aurora has commercialized from Aurora Coast.
Cronos Group Inc. (NASDAQ:CRON) has partnered with Ginkgo Bioworks to produce cultured cannabinoids. The two companies recently announced the achievement of the first target productivity milestone in that collaboration. Using Ginkgo's platform for organism design and development, Cronos Group has successfully achieved the productivity target for cannabigerolic acid (CBGA), which will support the Cronos Group's planned CBG product launch this fall. "As leading companies in our respective industries, Cronos Group and Ginkgo are uniquely positioned to elevate the cannabis industry through cannabinoid and product innovation to unlock the next generation of its potential," said Cronos group president and CEO Kurt Schmidt.
HEXO Corp. (NYSE:HEXO) announced the completion of its previously announced acquisition of Redecan, Canada's largest privately owned licensed cannabis producer. The transaction included HEXO obtaining all of the outstanding shares of the entities that carry on the Redecan business. "This is an exciting day for HEXO and Redecan employees, investors, consumers and stakeholders," said HEXO CEO and co-founder Sebastien St-Louis. "The completion of this transaction is aligned with our corporate growth strategy and will further strengthen our position as a leader in the Canadian cannabis industry, bolstering the combined company as we look towards becoming a top-three global cannabis products company and continue on the path towards positive EPS."
GrowGeneration Corp. (NASDAQ:GRWG) has opened two new hydroponic garden centers to serve the largest hydroponic market in the country: Los Angeles County, California. The two new super garden centers, which are the 11th and 12th locations for the company, give GrowGen an additional 122,000 square feet of retail and distribution space. The two stores, the largest hydroponic garden centers in Southern California, position GrowGen to sell to the highest concentration of commercial indoor cannabis growers in California. GrowGen is defining the next generation of garden centers, with the largest selection, best service and grow professionals, to deliver solutions for all types of growers.
Growing government support around the world bodes well for the cannabis industry, and companies operating in countries making significant moves in that direction should see significant advantages.
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