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4/20 stories, pt. 4

"Some stray away from entering new cannabis markets, but they hold major growth potential"

Happy 4/20! In today's special, we hear from a Colombian grower. What markets do they think have the most potential? In addition, we have insights from a greenhouse designer. While they see a major demand for their greenhouses, there have also been some challenges along the way.

"Having a low-cost base is key"
"Markets, all of which we are focused on, are expanding as the number of patients grow, such as in Israel, Brazil, and Australia. We also expect more medical markets will arise in Europe and Latin American countries like Poland, Panama, and Ecuador," says Andrés Fajardo, Co-Founder & CEO of Clever Leaves. "However, growth has been less than expected and will continue to depend on regulation passing as countries implement medical and adult use programs."

Andrés Fajardo (Photo credit: Clever Leaves Holdings Inc.)  

Clever Leaves has seen increased regulation across the international cannabis space, posing a challenge to operators exporting products. "For Clever Leaves, this could be a benefit as we're well-positioned with EU-GMP, among other certifications, and have expertise in compliance when it comes to navigating regulatory changes. For other players, this will pose a challenge. Companies need to have a well-thought-out strategy in terms of what products and the quality of those products they want to bring to market, as well as the certifications needed to do so. Otherwise, the result will be excess supply."

Andrés believes that in the short-term, supply will continue to increase as growers' inventory has increased and prices will come further down. "So having a low-cost base, as we do in Colombia, will be key. Resulting of these dynamics, we can expect to see consolidation internationally as companies join forces to overcome market turbulence and limited access to capital."

"From a broad industry standpoint, I believe there will be a shift in medical and adult use programs as they each differentiate themselves in the market," Andrés says. "While adult use will take a less pharmaceutical route, medical companies will be leaning on research and development, utilizing more clinical data to produce effective solutions and educating physicians to drive access and efficiency when prescribing cannabis."

As education and expertise grows, he expects patients will be paying closer attention to other elements of cannabis products aside from the THC/CBD levels. "Niche qualities and characteristics of cannabis flower such as terpene profile, taste, feel, smell, the appearance will become increasingly important to patients, further segmenting the market."

"While some may stray away from entering emerging markets, these new markets hold major growth potential for the select companies operating in these places," Andrés says. "In Israel, Australia, and different parts of the world, regulations that pose challenges are slowly evolving. As more countries allow importation as well as the distribution of additional THC/ CBD products beyond extracts and flowers, Clever Leaves is prepared to meet the growing global demand. Our business model focuses on remaining agile and adaptive and seeking opportunities in growing markets where we can be a dominant player."

Major demand
Ceres Greenhouse Solutions is also seeing the benefit of entering new markets. "Many of our existing growers, who have already found success in growing in our SunChambers, are looking to expand into new markets," says Josh Holleb, Systems Integration Specialist at Ceres. "We are currently very active in the NE, including New Jersey, New York, and Connecticut. We are also starting to get busy in Europe, where cannabis cultivation facilities are just starting to get the permits required to begin moving forward with construction."  

"Besides these new markets, cannabis, in general, seems to be slowing down. Still, we have found a major demand for our efficient, sealed SunChambers," Josh says. "These facilities function like an indoor grow but are designed as high light transmissive greenhouses with full HVAC and dehumidification. This means we have more light than you could imagine in an indoor facility, and it's free. Our growers are able to produce pounds of the highest-end flower for $300 per pound, meaning that a $700 or $800/lb market is still a very profitable market to be in."

The biggest hurdle for Ceres is financing. "We have developed a product that is proven to work the way it was designed, and we work with new clients after the building is operational to ensure they see success. The issue is that traditional lending is still unavailable, and private capital is either too expensive or too nervous about cannabis to lend. We try to work with our clients and lenders to explain that Ceres working together with the client to commission and tune the facility and the processes means a lower risk for investors, and some investors have shown interest in this concept," Josh says.

According to Brian Anderson, Founding Partner of Anderson Porter Design, the cannabis industry is currently seeing mergers and acquisitions happening. “This is in response to the cyclical cycle of the ups and downs of the cannabis industry and new markets emerging. Over the next months, I expect the market to trend towards CPG, Consumer Packaged Goods, as an industry model.” If the market moves towards a CPG model, there will be some challenges to face. “For example, product diversification and innovations to capture new consumers, brand recognition, definition, loyalty, and ensuring cGMP validation by third parties. Moreover, as big corporations buy up smaller corporations there will be interior renovations of processes and personnel retrofitting to ensure success and efficiency.” At the same time, Brian sees an opportunity in manufacturing. “Especially manufacturers teaming with and owning new brands, and developing new products. Also, consumer market research provides a great opportunity, as well as innovative marketing and brand development.”

Tomorrow we will publish part 5, the last of our 4/20 stories.

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