Latin America’s medical cannabis market may be a perfect fit for agriculture technology like precision irrigation.

Latin America is one of the world’s most important agricultural hubs, which has created a major market for agriculture technology, including precision agricultural systems. Innovations in this sector include technologies that encompass every aspect of the crop production cycle, including irrigation. Latin America is quickly becoming a central market for a new agricultural sector — medical cannabis. By 2028, the region’s medical cannabis market is expected to reach US$8.5 billion. Because cannabis is a water-intensive crop, Latin America’s medical cannabis industry represents a potentially lucrative market for tech companies capable of delivering innovative agricultural solutions.


Agriculture technology heating up Latin America

Latin America’s tropical and temperate climates make it one of the most ideal regions in the world for growing a wide range of agricultural products. In fact, agriculture is one of the most important sectors in most Latin American economies. As a whole, these countries are responsible for about 16 percent of global food exports, supplying more than 45 percent of the world’s coffee, 60 percent of the world’s bananas, 30 percent of corn, 50 percent of sugar and 50 percent of soybeans.

The region is considered to be a leader in the adoption of agribusiness technology, according to Ciro Echesortu, agriculture technology program director at NXTP Labs, a tech startup accelerator for Latin America’s agribusiness technology industry. Latin America’s agricultural sector has benefited in recent years from advances in precision irrigation technology, which has contributed substantially to increased productivity. The global precision agriculture market is projected to grow from US$4.84 billion in 2018 to US$10.16 billion by 2024. According to a recent report by Global Market Insights, the precision agriculture market in Latin America is expected to experience a growth rate of 18 percent between now and 2025, mostly due to increasing demand for real-time data and analytics to improve productivity.

Latin America’s emerging medical cannabis market

Latin America’s favorable growing environment makes it well suited for not only corn and coffee, but cannabis as well. The region is home to the first country in the modern era to fully legalize both medical and recreational cannabis. Uruguay’s 2014 legalization of cannabis touched off a movement toward more liberal cannabis policies in the region and led to the legalization of medical cannabis products in Mexico, Colombia, Argentina, Peru, Paraguay and Chile.

Thanks to this wave of cannabis legalization, Latin America is quickly emerging as a cultivation hub for the global medical cannabis market. Cannabis cultivators based in Latin American can export cannabis products at a lower cost than in North America and Europe. With a total population of 620 million people, Latin America’s medical cannabis market also offers another route to global expansion for the world’s leading cannabis companies. The growth potential in this market has attracted the world’s top cannabis producers, including Canopy Growth (TSX:WEED,NYSE:CGC), which launched a Latin American division in July 2018 with an acquisition in Colombia that could be worth US$96 million in Canopy stocks.

That same month, in a deal valued at C$193 million, Aphria (TSX:APH) acquired all of Scythian Biosciences’ (TSXV:SCYB) network of cannabis businesses across Jamaica, Argentina and Colombia. More than 40 licensed medical cannabis producers are currently operating in Latin America, with the majority holding licenses in Colombia.

Colombia’s cannabis market leads the way in Latin America

In terms of global agricultural trade, Colombia is already an established leader. Colombia is the third largest coffee exporter in the world and the fourth largest banana exporter. As a member of the Organization for Economic Co-operation and Development, Colombia has free trade export agreements with most of its neighbors as well as countries in the EU and North America. Within Latin America, Colombia is ranked as the third easiest country in which to conduct business, according to the World Bank’s Doing Business annual report. The country also has the third highest GDP in South America.

The combination of ideal growing conditions and a relatively low cost of labor and utilities has made Colombia into one of the world’s top flower producers. Colombia’s exports of roses, carnations, orchids and other flowers total more than US$1 billion every year. The country supplies more than 70 percent of United States’ cut flower imports.

On top of its ideal growing climate, Colombia’s well-established flower industry has given the country the infrastructure and global trade experience to become a world leader in cannabis production. According to Reuters, Colombia’s medical cannabis exports could surpass the nation’s more traditional export products of coffee, bananas and flowers combined in only a few years.

Colombia is the second largest federally regulated medical cannabis market in the world by population and has the most comprehensive legal medical cannabis framework in Latin America. Under this framework, cannabis companies are allowed to simultaneously hold both cultivation and manufacturing licenses, allowing for vertical integration. Colombia also allows companies to sell and export THC-based medical cannabis extracts. It’s estimated that the nation could soon supply as much as 44 percent of global demand for medical cannabis. Beginning in 2019, Colombia is projected to produce upwards of 40.5 tons of cannabis each year.

Water-intensive cannabis crops and precision irrigation tech

Latin America’s emerging medical cannabis market is providing opportunities for growth to agriculture technology companies. This is especially relevant to those that can offer precision irrigation technology specifically tailored to warm climate cannabis cultivation.

“Cannabis is a water-intensive crop, and optimizing water input through precision irrigation systems can help maximize crop quality and yield as well as reduce costs and increase profit margins,”  Ohad Haber, CEO of Israel-based Water Ways Technologies (TSXV:WWT), told Investing News Network. Water Ways has provided irrigation systems to agricultural operators in Latin America for over 15 years. The company’s Data Ways System is a precise irrigation system that collects real-time data from sensors within the crop, enabling cultivators to collect and analyze data and control the system from a mobile device.

“Data Ways reduces water waste and maintains consistency in crop health through smart management tools such as remote sensors that can monitor a variety of metrics including moisture levels, automatically collect data and make rapid irrigation adjustments to ensure all plants are optimally watered and fertilized,” said Haber.

The market for precision agriculture is expected to reach US$10.55 billion by 2025. Irrigation represents the largest submarket for precision agriculture technologies. The rising need for water conservation alongside the booming cannabis market could increase demand for precision irrigation technologies in major cannabis markets such as Latin America.

Recognizing the early entry opportunity in this emerging subsector, established agriculture technology companies are refining their products and services for the cannabis cultivation industry. Through a US$500,000 partnership with Kibbutz Gan Shmuel and Cronos Group (NASDAQ:CRON,TSX:CRON), Water Ways developed a customized cannabis irrigation, fertigation and Internet of Things control system for a 43,055 square foot greenhouse cultivation project in Israel.

The success of this project led Water Ways to leverage its experience in the Latin American agricultural market and implement its Data Ways system when planning a number of medical cannabis cultivation projects in Colombia. The company plans to build out its Latin American cannabis agriculture technology services into other neighboring markets, offering turnkey seed-to-packing project implementation and irrigation solutions to cannabis and hemp cultivators.

Takeaway

Latin America’s ideal climate for growing crops alongside a more liberal government stance on medical cannabis is attracting cannabis cultivators to the region. Latin American countries like Colombia represent an emerging market for not only the billion dollar cannabis industry but for agritech solutions as well. Those companies with proven cannabis-focused technologies that have established relationships in Latin America’s agricultural space could be well positioned to gain a foothold in precision agriculture.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

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Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

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