Pair of deals point towards Canadian cannabis interest in South America

A pair of announcements this week from a small cannabis company backed by industry powerhouse Aphria Inc. point to increasing interest in South America from Canadian marijuana companies.

Scythian Biosciences Corp., which counts Aphria as its largest shareholder and is chaired by Aphria CEO Vic Neufeld, announced Monday its intention to acquire Ontario-based MMJ Colombia Partners Inc., which is in the process of buying a Colombian cannabis company.

It also announced that an Argentinian company it is trying to buy has secured a license to import cannabis oil into Argentina for medical research. The oil will be supplied by Aphria.

Both deals are small, uncertain steps, and are conditional upon several other deals closing.

But they are part of a wider trend of transactions that have seen Canadian cannabis executives warm to the possibilities of South American markets.

Those opportunities — Latin America is both a potentially large medical market and a source for low-cost agricultural exports — have for months been eagerly pitched by smaller Canadian or Canadian-financed cannabis companies active in South America.

“It just doesn’t make sense to spend $10 million retrofitting a warehouse in Paris, Ontario to grow cannabis. It just doesn’t make agricultural, agronomic sense,” said Michael Galego, director of ICC Labs, which operates a facility in Uruguay, the first country in the world to allow legal recreational cannabis. “We want to be a wholesale, low-cost producer for any Canadian LP that wants us.”

His company, which intends to focus on cannabis extracts like cannabidiol (CBD) oil for export, has signed supply deals with Ontario licensed producer Emblem Corp. and Nuuvera Inc., which was recently acquired by Aphria.

While Uruguay leads the pack in terms of legalization, several other South American countries are moving toward broader acceptance of medical marijuana. It’s now legal in Argentina and Chile, as well as in Mexico, although it has to be imported and can only be prescribed for a limited number of ailments.

“The markets haven’t opened up as quickly as we thought they would, but I think eventually we’ll get to a spot where it’s more prevalent in Argentina and Brazil, and that’s 300 million plus people,” Galego said.

Colombia, with its low-cost equatorial growing climate, and long, though troubled, experience with narcotic cultivation, is going further, allowing in-country cannabis growing.

“Once you break down the barriers for the countries, you start talking about the market size, you start talking about the opportunity for growth, Colombia could position itself … to take over that entire region,” said Alvaro Torres, CEO of Colombia-based, Canadian-financed Khiron Life Sciences Corp.

In contrast to other Colombian cannabis plays focused primarily on low-cost growing, Torres is trying to build a value-added medical brand by investing in clinics and hosting medical conferences. Still, “in the end this is a plant that grows naturally in these countries,” said Torres.

It’s not only niche companies that are eyeing South America. Canopy Growth Corp., the largest Canadian cannabis company, has established a foothold on the continent through Bedrocan Brazil and Spectrum Chile.

“Canopy owns 85 per cent of Spectrum Chile S.A. and is conducting research and development activities in Santiago. In Brazil, Canopy owns approximately 39 per cent of Bedrocan Brazil S.A., which facilitates the importation of cannabis into the Brazilian market, and approximately 38 per cent of Entourage Partiçipaões, which is conducting research and development activities in Sao Paulo, Brazil,” according to Canopy’s most recent prospectus offering from January.

“Canopy was an early mover into Latin America and we continue to view Spectrum Chile and Bedrocan Brasil as important parts of our international expansion strategy as those markets develop,” Canopy’s communications manager Jordan Sinclair wrote in an emailed statement.

Then there’s Cannabis Wheaton Income Corp. which bought a property in Uruguay earlier this year, and Tilray Inc. and Medreleaf Corp., which have shipped medical products to Chile and Argentina, although on a limited basis.

Despite the interest, however, it’s unclear how these medical markets will develop over the next few years, and, as with other international plays, there’s considerable regulatory risk. You only have to look to Germany, where Canadian companies have been left in limbo after a German court halted the government’s licensing process for in-country cultivation.

“I don’t know politically that the next (Colombian) president won’t retrench some of the advances they’ve made (on cannabis legalization),” said Galego of the presidential election happening this year.

A Scythian spokesperson said no one was available to comment, and Aphria did not respond to a request for comment.