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Colombia Challenges Canadian Cannabis Dominance

Colombia Challenges Canadian Cannabis Dominance

In 2020, Canada became the largest exporter of dried cannabis flower in the world. Today, Canada is looking over its shoulder at a formidable competitor in Colombia, which recently instigated some legislative changes that position the country to become the global cannabis leader. Colombia was already recognized for its robust infrastructure, distribution and exports of certain cannabis products such as medicinal oils and extracts, but the country had a gaping hole in exports by keeping dried cannabis flower strictly verboten. That hole was filled on July 23, 2021, when Colombian President Ivan Duque signed a legislative decree ending the prohibition on the export of dried cannabis flower — a significant global market and a potential windfall for Flora Growth Corp. (NASDAQ: FLGC)  and its expansive global operations. The broader industry should also benefit from this latest development since most majors, including Canopy Growth Corporation (NASDAQ: CGC), Tilray Inc. (NASDAQ: TLRY), Cronos Group Inc. (NASDAQ: CRON) and Sundial Growers Inc. (NASDAQ: SNDL), support the mainstream worldwide evolution of legal cannabis.

  • Colombia made history by modifying its cannabis laws, including allowing export of dried cannabis flower.
  • Flora’s Cosechemos cultivation facility, located in Bucaramanga, Colombia, offers an ideal cannabis-growing climate and features an expansive 247-acre land package.
  • Free sunlight and water from natural onsite springs, along with optimized cultivation techniques, results in strong yields per cannabis plant; costs only $0.06/gram compared to $1.89 in North America. 
  • Flora leverages cost-effective cannabis cultivation in Colombia to supply cannabis and its derivatives for portfolio of premium brands and products across several verticals.
  • Flora has more than 280 products, cosmetic and pharmaceutical manufacturing licenses, and 2,500-plus points of distribution across Latin America and the United States.

Colombia: A New Cannabis Star     

Near-perfect growing conditions, skilled labor and friendly regulations have underscored Colombia’s emergence in the legal cannabis space since the country first allowed the production of medical cannabis just over five years ago. However, until now, dried cannabis flower, or buds, could only be processed for export as a medicinal oil or extract for fear that flowers would find their way to the black market. The new law puts Colombia “at the forefront in terms of regulatory competitiveness,” according to President Duque, adding that his country will now participate in new markets, including food, beverages, cosmetics, and textiles, in addition to pharmaceuticals.

Upon signing the decree, Duque quoted experts in saying legal cannabis will represent a $64 billion global market by 2024 while noting that cannabis will serve as a tool for “economic reactivation” in Colombia post the COVID-19 pandemic. “According to a 2019 study, in Colombia, the cannabis sector generated 17.3 agricultural jobs per hectare,” said Colombia’s Minister of Justice Wilson Ruiz. The Colombian hierarchy seems determined to catapult the country into global leadership as a legal cannabis exporter in order to boost the economy and create a lot of jobs at home.

These circumstances may play right into the hands of Flora Growth Corp. (NASDAQ: FLGC), which is focused on cannabis cultivation and processing operations in Colombia to supply international markets. The new decree could prove to be a bonanza for established licensed producers, especially when considering the extremely low production costs and that dried cannabis flower represents the majority of sales in countries with mature markets, such as the United States, Germany, United Kingdom, and Australia.

Headquartered in Miami and already having established a globally recognized house of brands, Flora is positioned to be one of the world’s lowest-cost cannabis producers and has strategically positioned itself as a global cannabis consumer packaged goods (CPG) company with a vast international distribution platform. Flora has more than 280 products, cosmetic and pharmaceutical manufacturing licenses, and 2,500-plus points of distribution across Latin America and the United States.

Further, Flora has two separate LOIs executed for significant acquisitions and is forging partnerships to expand the breadth of its distribution domain by leveraging networks of others. Flora fundamentally believes against vertical integration and has positioned itself to be nimble and asset light, allowing it to work with the best of the best in their respective channels to bring product to market and capture incremental revenue while derisking the prospect of entering new jurisdictions and channel segments. Against this backdrop, the regulatory update in Colombia is likely to be a growth accelerator and supercharge revenues. Soaring revenues with high margin product is the holy grail of Wall Street.

A 25-Fold Advantage

It’s no industry secret that outdoor growing is far less expensive than greenhouse cultivation, but Flora has taken it to another level in Colombia. Free sunlight and water in three pilot plantings on 4.94 acres at Flora’s Cosechemos farm allowed for testing of 30 varieties of non-psychoactive (high-cannabidiol or CBD) cannabis and optimization of its growing techniques, which resulted in a cost base of just $0.06 per gram. That compares to $1.89 per gram in North America, calculated through an average of four major North American licensed producers.

Flora’s cost is even 60% lower than its nearest Colombian peer. In response to the updated laws in Colombia, Flora promptly signed a letter of intent with an international distributor to supply dried flower and derivatives immediately following the first commercial harvest and obtaining all requisite import licenses. With that harvest, Flora also expects to start supplying the Australian markets with medical cannabis, as well as over-the-counter CBD products via a partnership with Evergreen Pharmacare.

Production of high-CBD strains of cannabis are already well underway at Cosechemos, with prep work now being done to propagate strains high in THC, the psychoactive component in cannabis. Moreover, an extraction lab at the facility constructed to EU-GMP standards is expected to be completed this quarter, for which Flora will seek EU-GMP certification. As soon as Flora receives the requisite paperwork in order for it to export its cannabis products, the company will be positioned to immediately capitalize on the massive global dried cannabis flower market segment that was previously unavailable.

Ideal Climate, Plenty of Acreage

Colombia’s climate is ideal for the cultivation of cannabis year-round, and Flora owns some of the country’s finest farming acreage. Flora’s Cosechemos farm in Bucaramanga, Colombia, covers 247 acres (10.8 million square feet). Flora also holds the rights to another 5,268 acres (230 million square feet) licensed in Puerto Boyacá, Santander, about 170 miles southwest of Bucaramanga.

Situated on the equator, Flora’s licensed land in Colombia’s climate is perfect for year-round cannabis cultivation. The property sees 12.8 hours of sunshine 365 days per year, has extremely fertile soil, and receives optimal wind conditions (3 mph average), which helps reduce risks of contamination from other plants. The land also hosts six natural spring water deposits, meaning Flora has zero water costs.

Colombia is the cut-flower capital of the world, and a top producer of coffee, bananas and more, resulting in a highly skilled agricultural labor force that work for roughly one-tenth of comparable peers in the United States. The combination of these factors facilitates a minimum of three harvests per year, which is up to three times that of its North American peers.

Marketing Opportunity for New Products

Unlike Canada and the U.S., where companies must essentially rely on word of mouth for awareness and branding, Colombia is removing marketing restrictions on its domestic cannabis products. For Flora, this means advertising across its portfolio of products to drive sales at its more than 1,500 points of distribution throughout Colombia. It could also be beneficial as it relates to an LOI with Avaria for Flora to introduce Avaria’s KaLaya, an award-winning pain cream distributed across Canada to Colombia and the Americas.

The new Colombian regulations allowing cannabinoid-infused food and beverage opens the door for developing new products and introducing products already in the Flora’s Kasa Wholefoods food and beverage unit. A perfect storm brewing, the new laws dovetail with Kasa recently signing a distribution agreement with Importaciones y Asesorias Tropi S.A.S., Colombia’s largest CPG distributor, which is expected to generate $10 million in annual revenue for Flora by delivering premium and sustainable canned products to Colombians, with the opportunity to expand the product line in the future.

Follow the Money: Cannabis Investment

Duque referencing a $64 billion market in 2024 seems in line with other pundit’s forecasts. Fortune Business Insights in June said it foresees the global cannabis market reaching $97.35 billion by 2026 with 32.9% compound annual growth. Safe to say, the legal cannabis market is still growing in leaps and bounds, which breeds bullishness in major players throughout the world.

Canopy Growth Corporation (NASDAQ: CGC) is a story for the ages for long-term traders that watched it grow from a tiny company named Tweed Marijuana into the industry’s 700-pound gorilla that keeps rolling up companies, including recently acquiring Supreme Cannabis. Canopy paid $435 million for Supreme, with the main prizes being the 7ACRES brand and a production facility in Kincardine, Ontario, with a history of producing premium flower.

Tilray Inc. (NASDAQ: TLRY), a leading global cannabis-lifestyle and consumer packaged goods  company, has completed a “business combination” with Aphria Inc. bringing together two highly complementary businesses to create the leading cannabis-focused CPG company with the largest global geographic footprint in the industry. The combined company will operate as Tilray with the strategic footprint and operational scale necessary to compete more effectively in today’s consolidating cannabis market with a strong, flexible balance sheet, strong cash balance, and access to capital.

Cronos Group Inc. (NASDAQ: CRON) is another major looking to get bigger through investment in others. In June, a Cronos subsidiary agreed to an option to acquire a 10.5% stake in PharmaCann, one of the largest vertically integrated cannabis companies in the United States. PharmaCann operates six production facilities and 23 dispensaries under the Verilife™ brand in six states. This is in addition to its organic growth initiatives, including the recent launch of a new line of dual flavor cannabis gummies called SOURZ by Spinach™.

Sundial Growers Inc. (NASDAQ: SNDL) is also participating in the merger and acquisition (M&A) game as a direct part of its two-prong strategy. M&A on one hand, Sundial’s other business is as a licensed producer of small-batch cannabis using state-of-the-art indoor facilities. Sundial completed its latest acquisition in June, finalizing its buyout of cannabis retailer Inner Spirit Holdings Ltd. for about $131 million. The acquisition gave Sundial the well-established Spiritleaf franchised and corporate-owned stores, representing Canada’s largest single-brand recreational cannabis retailer with 100-plus stores across six provinces.

The global cannabis market is turning from one of pure speculation to one underpinned by solid fundamentals and real investment opportunities. Soaring revenues and high margins are strong indicators of potential future success in any almost sector. Combine these attributes with the burgeoning cannabis market, and it might just deliver some eye-popping rewards.

This article originally appeared on PR Newswire.

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