3 Latin American companies to watch in 2020

3 Latin American companies to watch in 2020

Although 2018 was a banner year for the Latin American cannabis industry, the amount of interest in the burgeoning cannabis market has decreased in 2019. Going forward, this is a trend that we do not expect will continue and believe that 2020 will be a transformational year for the Latin American cannabis market. 

From Canopy Growth (WEED.TO) (CGC) to Aurora Cannabis (ACB.TO) (ACB), some of the most high-profile names in the cannabis industry have made several strategic acquisitions of Latin American cannabis operators and this is a market that we have been bullish on. One of the main reasons for our bullish view on this market is related to the economics associated with cannabis and we believe that this provides operators with a major competitive advantage when compared to cannabis producers based in Canada. 

If you were to compare the average cost per gram of cannabis that is produced in Colombia to Canada, you will notice a major difference. In Latin America, it cost approx. $0.10 to produce each gram. In Canada, it costs approx. $1.00 to $1.50 to produce each gram and we find this to be of significance. 

In 2020, we expect to see the cannabis industry continue to record strong growth as new markets open and demand for products increase. Over the long-term, we believe that the companies that are scale operations in Latin American markets benefit from an ideal climate for cannabis cultivation and are the best positioned for growth we want to highlight 3 businesses that have been focused on this opportunity. 

Aurora Cannabis: Slow to Execute but an Opportunity to Watch

When we think of the Latin American cannabis industry, Aurora Cannabis is one of the first names to come to mind. In 2018, the Canadian cannabis producer acquired ICC Labs which was a first mover in the Latin American cannabis market. ICC was initially focused on the cannabis market in Uruguay and this is an opportunity that we are excited about. Uruguay was the first country in South America to legalize both medical and recreational cannabis and ICC was able to benefit from the first move advantage that it had on this market.

During the last few months, Aurora Cannabis has been under considerable pressure and has traded lower with the rest of the industry. When it comes to the international cannabis opportunity, the company has been slow to execute and we believe that this has impacted investor sentiment as it relates to the operation. 

From Europe to South America, Aurora Cannabis is one of the best diversified companies and own strategic assets and licenses in more than 20 cannabis markets across the world. Although Canada has been the most significant revenue driver for the business, we believe that the market wants to see the company start generating substantial revenues on the international side of the operation and we will be closely monitoring how the team is able to execute on this opportunity on a going forward basis. 

When looking at the reports published by leading Canadian broker-dealers, there is a major capital concern when it comes to Aurora Cannabis. The company has spent hundreds of millions of dollars on constructing cultivation facilities in Canada and the market believes that it does not have enough capital on hand to complete its international expansion. Going forward, we are of the opinion that the market will be highly focused on how the management team is able to advance operations in South America and in the European Union (EU). We believe that 2020 is a make or break year for the Canadian cannabis producer and this is a story that will have our full attention as we head into the new year. 

Chemesis International: A Global Growth Story in the Making

During the last year, we have seen a significant increase in the number of Canadian cannabis companies that are focused on the Latin America cannabis opportunity. In the US, the focus on the Latin American cannabis market was not as significant and only a few companies announced plans to capitalize on this opportunity. 

One US cannabis company that has been highly focused on the Latin American cannabis market is Chemesis International Inc. (CSE:CSI) (OTC:CADMF) (FRA:CWAA) and this is an opportunity that we are excited about. From California to Puerto Rico, Chemesis has been executing on a US expansion strategy and has attractive growth prospects heading into 2020. 

In early December, Chemesis reported a significant development after its wholly owned subsidiary, La Finca Interacviva-Arachna Med reported to be on track to complete its Agronomic Evaluation Programs in the first calendar quarter of 2020. The completion of the program represents a major milestone and brings the operation one step closer to registering its own genetics as intellectual property. 

Although this development did not generate traction with the market, there is a lot to look forward to when it comes to the Latin American side of the Chemesis business. By leveraging its own genetics, La Finca believes that it will be able to build a stable and consistent revenue stream as a global seed supplier. We are favorable on the amount of value that can be created through this vertical of the business and believe that the market under appreciates this aspect of the story. 

Going forward, Chemesis is focused on expanding its position in the Latin American market and La Finca continues to work to increase its land package through the Association for the Promotion of Cannabis Cultivation, a non-profit organization. The association works with local indigenous farming communities to provide education, technical advice, and a crop purchasing program. We are favorable on the growth prospects associated with a lager land package and will monitor how the management team is able to further expand its position.

Heading into 2020, we believe that one of the most significant growth initiatives for La Finca is related to how it continues to build its seed stock through cultivation. Starting in early 2020, the company expects to have considerably larger harvests and we expect the success of this initiative to be a major potential catalyst for growth. 

When cannabis companies expand operations, there tends to be an important transition period for the business where the cultivation team works to refine the growing process to optimize results from a quality and yield standpoint. Chemesis has been ahead of the curve with this and has secured a strategic relationship with the Universidad Nacional de Colombia to further refine seed genetics for each individual region. 

Through this relationship, the company is able to ensure high quality and consistent yields and we find this to be significant. Following the vaping health crisis, safety has become the largest concern for consumers and we are favorable on the process in place for La Finca. Going forward, we are bullish on the growth prospects associated with the Latin America side of the Chemesis operation. In the first calendar quarter of 2020, La Finca expects to harvest more than 5,000 kg of biomass and this is something that we are excited about. 

Chemesis believes that through its continued dedication for quality and compliance, La Finca will be a leader in cannabis cultivation, manufacturing and retail in Colombia. We believe that this aspect of the story is not fully appreciated by the street and are bullish on the growth prospects associated with the Latin American side of the business. If you look at the structure of the entire operation, we would not be surprised to see Chemesis spin-off La Finca as a standalone public company in 2020. The management team has been highly focused on creating value for shareholders and this would be a strategic way to do so. At current levels, Chemesis has an attractive risk-reward profile and this is an opportunity we are excited about heading into 2020. 

Blueberries Medical: What to Watch for in 2020

In early 2019, we started to notice an increase in interest in the Latin American cannabis market and several leading Canadian cannabis producers acquired assets that are levered to it. The valuations associated with these acquisitions were rich and the operations were acquired for massive premiums. Due to this, we became focused on early stage Latin American cannabis operators that were trading at huge discounts when compared to these acquisitions.

Blueberries Medical Corp. (CSE: BBM) (OTC: BBRRF) (FRA: 1OA) is an operator that caught our attention during this time and this is an opportunity that we have been highly focused on. A few weeks ago, the company announced a major change in the management team and appointed co-founder Camilo Villalba as CEO. We are favorable on the appointment and believe that it removed an important headwind from the operation. As CEO, Mr. Villalba will lead the company’s next phase of operational development, with initial exports expected during the first half of 2020. 

Timing could not have been better for this appointment and we are favorable on how the operation is positioned for growth. 2019 has been a banner year for the business and Blueberries is considered to be a leading operator in Colombia. Going forward, the company is well positioned for growth and has the necessary infrastructure in place to cultivate previous approved cannabis strains. Blueberries Medical is well positioned to ramp up production and meet local and international demand through its company owned facilities and also through agreements with contract growers.

When looking at Blueberries Medical, we see an operation that has substantial potential catalysts for growth and this is an opportunity that we are excited about. Last month, Blueberries reported a major milestone and harvested its first commercial crops at its 3.2-hectare Guatavita facility. The crops consist of five registered non-psychoactive cannabidiol (CBD) strains and we are bullish on the amount of value that can be created through the sale of the crops. 

We have been excited about the Guatavita opportunity due to the size of the existing facility as well as the potential it has to expand. Currently, the Guatavita facility has 150,000 square feet of open-air greenhouse with dedicated propagation and production facilities to allow the company to leverage local contract growers. When looking at the potential value drivers for the business in 2020, we are most excited about how the management team continues to advance its custom-built EU-GMP compliant extraction line (expected to be completed in January). In the first quarter of 2020, Blueberries expects start selling cannabis oil products and we are bullish on this aspect of the story.  

At current levels, Blueberries Medical is trading at a considerable discount to its peers and we find this to be of significance. The company has been working tirelessly on its Colombian expansion and we are impressed with how the story has advanced in such a short period of time. Under the leadership of Camilo Villalba as CEO, we believe that Blueberries Medical is well positioned for growth and is an opportunity to have on your radar.  

Pursuant to an agreement between StoneBridge Partners LLC and Chemesis International we have been hired for a period of 365 days beginning July 15, 2018 and ending July 15, 2019 to publicly disseminate information about (CSI) including on the Website and other media including Facebook and Twitter. We are being paid $5,000 per month for a period of 3 months. We own zero shares of (CSI), which we purchased in the open market. We plan to sell the “ZERO” shares of (CSI) 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 (CSI) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information. This contract has been renewed for a period of 180 days beginning on August 2, 2019 and ending on February 2, 2020.

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Published at Mon, 30 Dec 2019 12:33:13 +0000

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