The Tides Are Turning In South America As Major Cannabis Companies Implement New Strategies

The Tides Are Turning In South America As Major Cannabis Companies Implement New Strategies

Last week, Canopy Growth Corporation (WEED.TO) (CGC) reported a number of changes to the structure of the business and this was a development that caught our attention. The changes are intended to improve production, to balance supply and demand and to enhance overall efficiencies. The announcement caught us by surprise, and we will monitor how other cannabis producers respond to the development.

One of the reasons we were surprised by the announcement was due to the amount of money and time that has been invested into the platform. With regards to the international cannabis opportunity, Canopy Growth was by far the biggest player in the space and we want to highlight some of the changes that were reported by the company:

  1. Quitting operations in South Africa and Lesotho, with a plan to transfer ownership of all African operations
  2. Closing an indoor facility in Saskatchewan in response to the market climate in Canada
  3. Halting operations at its Colombia cultivation facility and beggining to rely on local suppliers for raw materials
  4. Halted farming activities in New York on account of having a surplus amount of hemp

The changes are expected to significantly decrease the amount of capital expenditures that Canopy Growth was expected to incur. For the quarter that ended on March 31st, the company expects to record projected pre-tax charges of around $495.9-566.8 million in the quarter and we will monitor how the market responds to this.

Blueberries Medical is the First to Implement a Contract Cultivation Strategy

When it comes to the Latin American cannabis market, one aspect of Canopy Growth’s restructuring strategy stands out. We are especially interested in the company’s plans to rely on local suppliers for raw materials. This strategy is similar to Blueberries Medical Corp. (BBM.CN) (BBRRF) which has been highly focused on the Colombian cannabis market.

Since inception, Blueberries Medical has been working with indigenous farmers in Colombia and has been able to significantly increase production capacity through the formation of strategic agreements with these farmers. When it comes to the Latin American cannabis opportunity, Blueberries Medical has been ahead of the curve and we believe that the market does not provide it with any credit as it relates to the strategy.

Blueberries Medical is a pioneer in the cannabis sector and has developed a cultivation model that will be scaled by third party contract growers. These growers will play an important role in the growth strategy as they allow the company to increase production capacoty without the need for additional future capital investment.

During the last year, Blueberries Medical has been under considerable pressure and we believe that it is an opportunity to be aware of. Although the trend has been to the downside, the company has been highly focused on the Colombian cannabis market and is working to be a major beneficiary of the legal cannabis movement in Latin America.

Is the Latin American Cannabis Industry Living up to the Hype?

In 2017 and 2018, we noticed a significant increase in the amount of interest in the Latin American cannabis market. During this time, leading Canadian cannabis producers were acquiring Latin American companies for $100+ million and this is a trend that the market was initially excited about.

During the last year, we noticed that these cannabis producers were no longer providing updates on the Latin American cannabis market. The drop off in news flow on the Latin American cannabis market created a cause for concern and we were not surprised how Canopy Growth restructured its business.

Although the Latin American cannabis industry has lost a majority of its momentum, we continue to closely monitor the market. The economics associated with cultivating cannabis in Latin America is attractive and we will keep an eye on how the market evolves from here.

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Authored By

Anthony Varrell

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

Published at Mon, 27 Apr 2020 11:19:00 +0000

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