So far, 2021 is proving to be a banner year for the Latin American cannabis market and this is a trend that we are closely following. The industry has benefited from being able to export cannabis and hemp products to the European Union (EU), in addition to Colombia offering insurance coverage to medical cannabis patients.
In the back half of the year, we expect to see recreational cannabis legislation be passed in Mexico and believe that this will prove to be a substantial growth catalyst for companies that are levered to this opportunity.
When compared to the Canadian cannabis sector, the Latin American cannabis market is less saturated, and the economics are more attractive. Some Latin American cannabis producers have reported to be cultivating cannabis for as low as $0.06 per gram.
According to Prohibition Partners, the Latin American cannabis industry is expected to be worth $800 million by 2024. During the last year, the Latin American cannabis industry has recorded impressive growth. We attribute much of the growth to Colombia offering insurance to medical cannabis patients and to the opening of new markets.
Another key development for the Latin American cannabis industry in the last year is related to how leading operators are executing on a differentiated growth strategy. Today, we have highlighted 3 Latin American cannabis companies that represent differentiated opportunities and will be monitoring these operators on a going forward basis.
Khiron Life Sciences: A Dominant Patient-Focused Medical Cannabis Provider
We consider Khiron Life Sciences Corp. (TSXV: KHRN) (OTCQX: KHRNF) (Frankfurt: A2JMZC) to be a leading Latin American cannabis company and are bullish on how the business has advanced. So far this year, Khiron has filled far more prescriptions than it did in all of 2020 and we expect this trend to become more significant on go-forward basis.
This month, Khiron reported to have successfully completed its first sale of medical cannabis products in Brazil and we consider this to be an important milestone for the business. By leveraging production, distribution, and clinical assets in Latin America, along with marketing agreements with leading Brazilian pharmaceutical distributors, Khiron sees an opportunity to disrupt the Brazilian market by providing patients with affordable high-quality products and an unparalleled patient experience.
With a population of 200+ million, Brazil is the largest market in Latin America and is considered to be an emerging cannabis market that is largely underserved. We believe that Khiron’s strategic alliance with CANNAB, a patient association that connects physicians, patients, academic institutions, and suppliers, will play an important role in how the business captures market shares and consider this to be an attractive aspect of the story.
Through the alliance, Khiron has been able to treat a three-year old child from Salvador de Bahia who suffers from epilepsy. She is the first Brazilian patient to receive Khiron’s medical cannabis product and we consider this to be an inflection point for the business. Going forward, Khiron will continue to work with ANVISA (the Brazilian National Health Surveillance Agency) and collaborate with CANNAB to offer its medical products to patients in need. Khiron also plans to expand its Zerenia™ vertically integrated clinic model into Brazil, increasing patient access to affordable, high-quality medical cannabis products.
According to Prohibition Partners, the Brazilian medical cannabis user base could reach close to 3 million people in the next few years, and we are favorable on the first mover advantage that Khiron has. We expect the relationship it has with ANVISA and CANNAB to play a key role in how Khiron executes in Brazil and will continue to closely monitor this aspect of the story.
Mexico’s Supreme Court recently voted in favor of decriminalizing recreational cannabis, shining a spotlight on the country’s market potential. Following the announcement, Khiron reiterated plans to enter the Mexican medical cannabis market in 2021 through its previously announced clinic and education strategy. We are bullish on the company’s experience in Colombia, which is expected to provide a competitive advantage for its entry into Mexico’s medical cannabis market.
Days before the Supreme Court announcement, Khiron also announced finalized agreements to manufacture finished medical cannabis products in Mexico. By finalizing agreements for the manufacturing and distribution of finished medical cannabis products, Khiron has executed on a key aspect of its Mexican supply chain growth strategy and we are favorable on how the management team continues to advance this aspect of the business.
Another aspect of Khiron’s Mexican strategy is the export of medical cannabis product from Colombia to Mexico. In this regard, the company expects to accelerate first medical sales by several months after Mexico became a destination country within Khiron’s international THC quota. Going forward, we expect Khiron to replicate the success it had in Colombia and Peru in Mexico and are bullish on the growth prospects that are associated with this.
As part of its Mexican growth strategy, Khiron plans to leverage its education partnership with Tecnologico de Monterrey. Earlier this year, the company rolled out Latin America’s first internationally accredited post graduate medical cannabis program that is hosted in partnership with Mexico’s TecSalud School of Medicine and Health Sciences.
So far, approx. 550 Latin American physicians have obtained their diploma by completing Khiron’s medical education program and we are favorable on how the platform is gaining traction. We expect this vertical of the business to support the company’s efforts to capture market share in Mexico and are bullish on this opportunity.
With an inventory of EU-GMP certified medical cannabis products available to patients in both the UK and Germany, Khiron is well-positioned to execute on some of the most attractive markets in the EU. The management team is executing on a multi-national growth strategy that is centered around increasing patient access by broadening its product portfolio and leveraging its Latin America assets (i.e. clinical data, IP, brands, and genetics) in Europe.
In Colombia, Khiron continues to stimulate market demand and we expect the company to do the same in Europe by leveraging its experience in Colombia. In the first quarter of 2021, European sales contributed approximately 10% of medical cannabis revenues and we are bullish on the growth potential given that European sales are expected to triple in Q2 and contribute a more significant portion of revenue through year end. According to the company, average per patient spend in Europe is $1,800/year1 versus $450/year2 in Latin America.
During the last two quarters, the company has reported impressive growth as it relates to the number of medical cannabis prescriptions that have been filled. During this time, Khiron has filled over 26,000 prescriptions. Between the fourth quarter of 2020 and the first quarter of 2021, medical cannabis revenues increased by over 140% and the gross margin that is associated with this aspect of the business is greater than 90%.
Over the next year, we expect Khiron to benefit from an increase in the amount of external health care providers that have finished its medical cannabis education program. During this time, we expect physician engagement and willingness to prescribe cannabis to continue to improve due to Khiron’s differentiated education platform and real-world evidence.
We believe the market is underestimating the potential for Khiron to capitalize on Colombia, the UK, and Germany. Going forward, we expect the company to capitalize on the insurance coverage trend for approved patients in Colombia and Peru. As the management team continues to execute, we expect the company to receive more coverage from broker-dealers and find this to be significant.
Flora Growth: A Differentiated Global Cannabis Operator
When compared to Khiron, Flora Growth Corporation (Nasdaq: FLGC) is executing a differentiated growth strategy and has been reporting major developments since commencing trading on the Nasdaq in May.
We are favorable on the verticals that Flora’s management team have identified as attractive growth markets as well as the structure of the business. With 5 divisions and more than 280 products, the business has more than 2,500 distribution points in Latin America and in the US. Over the next year, we expect this number to increase and believe the focus on the EU will support the growth of the business.
Earlier this month, Flora reported to have signed a letter of intent (LOI) to invest €2M in Hoshi International Inc., a European cannabis company. The transaction is significant and is the company’s initial investment in the European cannabis company and we are favorable on how the deal advances its global growth strategy.
Flora plans to leverage Hoshi’s experienced leadership team and deep understanding of global medical and recreational markets to analyze additional markets and to expand production and distribution capabilities. Hoshi’s infrastructure is expected to serve as a springboard for the distribution of Flora’s Colombian cannabis and product portfolio into the EU.
The proposed investment into Hoshi will establish Flora as a preferred strategic supplier to Hoshi’s two EU processing facilities which are in Portugal and Malta. We consider these markets to provide attractive avenues for growth in the EU and will monitor how these regions start to generate revenue for the business.
Last month, Flora reported to have expanded into the UK and Costa Rica. Initially, the company will fulfill initial orders from two new distributors, and we believe that the management team is executing on a multi-national growth strategy and are favorable on the direction the business is going.
PharmaCielo: A Latin America Operator to be Aware of
PharmaCielo Ltd. (TSXV: PCLO) (PCLOF) was once considered to be a leader in the Latin American cannabis market but we believe that it has not lived up to expectations.Last month, the Latin American cannabis company reported fourth quarter financial results.
The company recorded a more than $18 million net loss on less than $1 million of revenue. These results have not impressed us and we will monitor if/how the management team is able to turn the business around.
Earlier this year, PharmaCielo issued an update on its ongoing GMP compliance process and reported an important development as it relates to the Mexican cannabis market. The company announced that its joint venture with MINO Labs has initiated a GMP pre-audit process and we find this to be of significance.
PharmaCielo Mexico is positioned to be an early mover on the Mexican medical cannabis market and is expected to become a primary supplier of premium medical extracts. The company expects to receive the GMP certification in the near future and we will monitor how the story advances from here.
If you are interested in learning more about the Latin American cannabis market, please send an email to email@example.com with the subject “Latin American cannabis companies” to be added to our distribution list.
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1 Source: Prohibition Partners – The European Cannabis Report Edition 6th and management estimates
2 Source: Prohibition Partners – The Latin America and Caribbean Cannabis Report 2nd Edition
Pursuant to an agreement between StoneBridge Partners LLC and Khiron Life Sciences Inc. (KHRN) we have been hired for a period of 90 days beginning May 5, 2021 and ending August 5, 2021 to publicly disseminate information about (KHRN) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (KHRN) for or were paid “0” shares of restricted common shares. We own zero shares of (KHRN), which we purchased in the open market. We plan to sell the “ZERO” shares of (KHRN) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (KHRN) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
Pursuant to an agreement between StoneBridge Partners LLC and Flora Growth Corp. (FLGC) we have been hired for a period of 180 days beginning May 13, 2021 and ending November 13, 2021 to publicly disseminate information about (FLGC) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (FLGC) and were not issued any shares of restricted common shares. We own zero shares of (FLGC), which we purchased in the open market. We plan to sell the “ZERO” shares of (FLGC) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (FLGC) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.