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Cannabis Execs Say Latin America Poised For Explosive Growth, But With Its Own Unique Challenges

April 18, 2019 4:35 pm
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Cheap labor and optimum growing conditions have made Latin America an increasingly important player in cannabis cultivation.

Impressive growth for legal medical and recreational cannabis companies in Latin America, where evolving consumer habits and regulatory change are driving increased demand, have caught the eye of North American producers and investors.

Competing On Cost

Kyle Detwiler, CEO of Northern Swan Holdings, a U.S. cannabis-focused investment fund, has made a big bet on Clever Leaves, a licensed medical cannabis producer in Colombia.

Clever Leaves has 700,000 square feet of cultivation greenhouses and expects to get to 1.5 million square feet by the end of 2019, with plans to eventually expand to 10 million square feet.

"There's really not anything like that out there in the world. Our strategy is to grow at low cost and sell at high price," Detwiler said of his Latin American cultivation strategy. 

Maruf Raza, a partner at Canadian accounting and business advisory firm MNP, said Latin America has already disrupted the industry paradigm as a low-cost producer.  

"It's hard for most countries to compete on cost when you see the startup numbers from Latin America. They would just blow out other competitors from a cost perspective," Raza said. 

He pointed to Colombia positioning itself as a global cannabis exporter after already making inroads as a producer of other cash crops like cocoa leaves and coffee for world markets.

"With historical trade routes, including for coffee and flowers, the structure is there," Raza said. 

Rapid Growth And Regulatory Challenges 

Chuck Smith, CEO of Dixie Brands (USA) Inc (OTC:DXBRF), a Denver-based American marijuana beverage producer, has launched itself in Latin America via a joint venture with Khiron Life Sciences Corp (OTC:KHRNF) to introduce its full line of cannabis-infused products into a fast-growing regional market. 

Khiron counts former Mexican president Vicente Fox as a board member. 

"You have a very explosive, high-population area of the world that is moving rapidly to legalization in some form, whether medical and ultimately recreational," Smith told the Benzinga Cannabis Capital Conference on Wednesday.

Brazil and Mexico are prime growth markets for medical marijuana products, he said. 

"Brazil will become the largest medical market in the world. It will evolve very quickly." 

Raza said the downsides to Latin America's cannabis market include regulatory hurdles such as unclear legal frameworks. 

"Take Colombia: at last count, there's 100 licenses. When someone says 'I have a license, let's do a deal,' you have to understand what that license means. And that's not always clear-cut with these jurisdictions." 

Banking is another hurdle. 

Cannabis consumption may be growing in certain Latin American markets, including Uruguay, which legalized adult consumption in 2014.

But American banks, bound by the Patriot Act, are not allowed to do business with banks in Uruguay that handle money from state-sanctioned cannabis sales at legal pharmacies.

"A cannabis company in Uruguay can't open a bank account," Raza said. 

So local cannabis retailers must send money to Swiss accounts.

"It's amazing that you're making people who aren't drug dealers look like drug dealers. That's our most significant challenge: our inability to move money in a legitimate way." 

Waiting For Clarity 

Based on current cannabis consumption in Latin America, New Frontier Data estimates the region has an annual market value of around $9.8 billion.

But with that figure including illicit cannabis products, the Benzinga conference panelists urged patience when it comes to penetrating the fast-growing regional market.

That includes allowing a clear regulatory framework to emerge in Latin America to ensure safe and profitable market growth.

"At the end of the day, you have to do things according to what the country wants," Northern Swan Holdings' Detwiler said.

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Panel moderator Bert Miller, CEO of Protis Global, left; Maruf Raza, partner at MNP; Chuck Smith, CEO at Dixie Brands; and Northern Swan CEO Kyle Detwiler at the Benzinga Cannabis Capital Conference Wednesday in Toronto. Photo by Juil Yoon. 

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