The News

Canopy Growth Corp. (TSE: WEED) announced a deal to buy the Colombian licensed producer Colombian Cannabis S.A.S for $96 million US dollars of Canopy stock.

Colombian Cannabis S.A.S. will be renamed Canopy LATAM Corporation, a subsidiary of Canopy Growth the parent company.

Colombian Cannabis is based out of the state of Huila, southwest of Bogota, Colombia. The company owns a 13.5 million sq. ft. farm with current licenses to grow and process marijuana on 4.5 million sq. ft. of the property.

This property will be Canopy’s regional growing and processing hub for all of South America.

Construction on the initial greenhouse and processing facility will commence by September of 2018 and take 12 months, according to the company.

 

Canopy LATAM Management Team

To lead the LATAM subsidiary, Canopy lured Antonio Droghetti Neto, an executive with strong business ties in Brazil.

Droghetti Neto has ties to Silvio Santos, the billionaire behind Grupo Silvio Santos, the third-largest media conglomerate in Brazil.

He was also listed as an attorney-in-fact of an entity listed in the Panama Papers, leaked documents that showed the vast network of offshore tax havens utilized by the global elite.

Perversely, these papers along with his prior position at Grupo Santos prove that Droghetti Neto has deep relationships with the political elite of Brazil.

To convince him to join the LATAM subsidiary, Canopy had to buy out his investment firm, Canindica, for $56 million and agree to pay him shares worth 6% of the value of Canopy LATAM in 2023.

Spectrum Colombia will be run by the current CEO of Colombian Cannabis S.A.S. Bibiana Rojas. She previously worked as assistant to the CEO of Grupo ORO, a conglomerate based out of Bogota Colombia.

 

Why Did Canopy Growth Buy Into South America

Colombia presents an attractive place to grow marijuana with a cost of production 75% lower than Canada.

Throughout 2017 and into early 2018, Europe and Australia were the two most promising growth opportunities for licensed producers.

All of the largest players including Canopy Growth, Aurora Cannabis, Aphria, and others signed dozens of import and export deals and purchased European land and assets outright in a bid to serve the growing medical markets abroad.

However, in the last two months South America, and Colombia in particular, have begun to steal the limelight.

As previously explored on this site HERE and HERE, Colombia presents an attractive place to grow marijuana with a cost of production 75% lower than Canada due to its abundant sunlight, low electricity costs and longer growing season.

The two largest growers in Colombia, PharmaCielo and Khiron Life Sciences (CVE: KHRN) successfully raised over C$75 million from Canadian investors in the past year, giving them the capital to compete for exports on a global scale.

Canopy is well aware of the cost advantage enjoyed by South American growers and has kicked off what we think is the beginning of a Canadian stampede to buy up growing assets there.

Large Canadian growers are smart enough to know they can never compete with South America on costs, so the only way to survive is to compete on an equal playing field using the same assets.

 

Where Big Cannabis Leads Others Follow

The four largest producers in Canada have been in a figurative arms race to see who can establish the largest global growing and distribution system first.

When one company signs an import deal in Germany you know the others won’t be far behind.

Now that Canopy has fired the first shot by buying direct growing capacity in Latin America, we would not be surprised to see Aurora Cannabis, Cronos Group, Aphria, and others follow suit.

 

Potential Targets

Two companies we see as potential targets are PharmaCielo and Khiron Life Sciences (KHRN).

Both companies hold all required cultivation, processing, and sales licences in Colombia and are already operating, in the case of PharmaCielo, or will commence operations by the end of 2018, in the case of Khiron Life Sciences.

Buying these companies would give another Canadian producer a head start on Canopy Growth, with the Canopy LATAM greenhouse not scheduled for completion until the middle of 2019 at the earliest.

PharmaCielo in particular could already be in play as the company has gone silent since they announced plans on April 23rd to do a reverse merger in Canada and begin trading on the Toronto Venture Exchange.

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