Although the cannabis sector has been under considerable pressure since the first calendar quarter of 2021, we believe that the fundamental landscape of the entire industry has seen significant progress.
From the European Union (EU) to Latin America, there are several emerging cannabis markets outside of North America and this is a central pillar of our long-term bullish view of the sector. We believe that the international cannabis market (consisting of all continents except North America) is only in the early stages of a multi-decade growth cycle and we expect revenues from these markets to will increase steadily in 2022 and beyond.
Today we want to highlight 3 emerging international cannabis markets and some of the companies that are taking advantage of them. We view these markets as attractive long-term growth opportunities and are particularly optimistic about operators building the infrastructure to take advantage of them.
Colombia continues to dominate the cannabis industry in Latin America
Latin America is a market that we find particularly intriguing due to the ideal climate for cannabis cultivation and population. Over the past year, the cannabis market in Latin America has seen gradual growth and we attribute much of this growth to Colombia.
In December 2020, Colombia reported a development in the transformation of its cannabis industry by starting to offer medical cannabis patient insurance. Compared to medical cannabis, the cost associated with treating a Colombian patient with neuropathic pain is considerably higher for the insurance company.
For this reason, we have seen a substantial increase in the number of insurance companies covering the cost of cannabis and consider this a bullish indicator for the Latin American market over the long term.
Khiron Life Sciences Corp. (TSX Venture: KHRN) (OTCQX: KHRNF) (Frankfurt: A2JMZC) is strongly linked to Latin America and the EU and we believe the company is well positioned to benefit from the advancement of the industry in these regions.
In mid-2021, Khiron began selling medical cannabis prescriptions in Peru and this is a market we are optimistic about. Last week, the company announced a partnership with a pain clinic in Peru, Clínica del Dolor Lima (CDL), to provide access to medical cannabis treatment to a population of over 10,000 chronic pain patients. .
As part of this relationship, Khiron will leverage the existing infrastructure and reputation of CDL to provide access to cannabinoid-based treatments to a growing group of patients in and around Lima. We are optimistic about the growth prospects associated with the relationship and see it as a major revenue-generating potential for the business.
With the opening, Khiron has 16 medical cannabis clinics in Colombia, Peru and the United Kingdom (UK). Later this year, we expect the company to begin generating revenue in additional markets in Latin America and believe Mexico is one of the most significant potential catalysts for the business.
Israel is a booming international market
Israel is another booming international cannabis market and we are optimistic about the progress of the market over the past year. In 2020, Israel overtook Germany as the world’s largest importer of medical cannabis flowers (according to data compiled by Israel’s Cannabis Magazine and Marijuana Business Daily).
There are two reasons for our optimistic view of the Israeli cannabis market: 1) compared to Canada, Israel is located much closer to the EU and we welcome long-term export opportunities; and 2) the country’s climate is perfect for growing cannabis and some growers have been able to grow cannabis for less than $0.40 per gram (all-in costs).
From an economic point of view, the better climate and the shorter distance to the EU make the Israeli cannabis market more attractive from a profitability point of view. Given that Canadian licensed producers (LPs) can tap into capital markets for longer than they could before, we believe profitability is the name of the game going forward.
Over the past year, we have seen an increase in the number of companies shipping cannabis to Israel. More recently, Flora Growth Corp. (Nasdaq: FLGC) announced an agreement with Artos to sell approximately 3,600 kg of high-THC dried cannabis flower to Israel from its factory in Colombia.
Through this agreement, Flora Growth seeks to partner with the Artos team to expand its cannabis product offering for the Israeli market. We welcome the relationship because of what each operator brings to it.
Artos was established in 2007 and is an Israeli consumer products distribution company with over 4,000 distribution outlets across the country. We consider the combination of Flora’s premium dried cannabis with Artos’ infrastructure to be a recipe for success and will monitor how the relationship develops.
A few months before Flora’s announcement, Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) was exporting approx. 10 million Canadian dollars of cannabis in Israel and has a strong focus on the market. Although we consider Aurora Cannabis to be a formidable competitor in Israel, several operators are known to produce premium products and will be watching how the Canadian LP can gain market share in Israel.
Should Thailand be on your radar?
Although Asia was one of the last regions on our minds when it came to the cannabis industry, Thailand is starting to make noise and it caught our attention.
Earlier this year, the Thai government passed a bill legalizing the production and use of hemp in products. The types of products allowed to contain hemp range from cosmetics to medical supplements. By law, products must contain less than 1% THC. One of the main reasons for our optimistic view of Thailand has to do with how the government has issued a limited number of licenses to profit from.
So far we have seen an increase in activity in the region and will be watching for this trend to continue in 2022 and beyond. Due to the size of the population in Asia, hemp could become a major emerging industry and will continue to watch developments in this region.
If you would like to learn more about companies tapping into emerging international cannabis markets, please email [email protected] with the topic “Leading International Cannabis Operators” to add to our mailing list.
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