Canadian company PharmaCielo Ltd could be the first to grow legal pot in Colombia
Publisher Financial Post
If illicit pot plants flourishing covertly in the Colombian countryside represent the marijuana industry’s past, then Canada’s commercial-scale medical licensing system represents its future.
PharmaCielo Ltd., a privately held medical marijuana producer with global ambitions, is hoping to capitalize on both those traditions.
The company, which has board members from U.S. big tobacco and big pharma, is headquartered in Canada — a decision made due to this country’s sophisticated medical cannabis regulations, friendly financial markets and growing base of accountants, lawyers and bankers with cannabis expertise.
But for production, it’s focused on Colombia, where it is hoping to become the first government-approved marijuana producer following the country’s decades-long battle against drug trafficking.
PharmaCielo set out to lobby the Colombian government to consider legalised medical marijuana shortly after the company was founded in 2014.
“Here’s an opportunity to transform, over the next decades, the image of Colombia — a country with illegal drugs, to a country with medicinal drugs,” CEO Patricio Stocker recalls telling skeptical officials.
“It’s a very sensitive issue in Colombia and that’s the reason that making the laws is taking some time. But they are clearly convinced that it makes total sense to do this in Colombia.”
President Juan Maneul Santos legalized medical marijuana in 2015. PharmaCielo was the first company in Colombia to be granted an extraction licence, but it is still awaiting a cultivation licence — it is ready to grow as soon as that goes through and plans to start selling mid-2018.
The privately-held company has about 500 shareholders but is interested in going public, most likely on a Canadian exchange.
PharmaCielo’s choice to call Canada home is an increasingly popular model for players looking to capitalize on a global wave of legalization that is positioning Canada as an international centre for the burgeoning industry.
There is already evidence of Canada’s emergent role as a cannabis capital hub, said Alan Brochstein, investment manager at Houston-based New Cannabis Ventures.
“It’s like the mining industry — mining companies are known to be able to raise capital in Canada and there’s a lot of evidence that’s the case for the cannabis industry as well, so it could be a global financing platform.”
Uruguay’s International Cannabis Corp. recently listed on the TSX Venture Exchange to gain exposure to Canadian markets.
U.S.- focused pot companies such as CannaRoyalty Corp. and Canadian Bioceuticals Corp. are listed in Canada because marijuana companies are banned from public listings south of the border, where pot is still illegal at the federal level despite legalisation in half of U.S. states.
“Right now if you’ve got a business anywhere in the world, Canada seems to be the place where you can raise the most capital and if this continues then I do think we’ll hit that critical mass,” said Jason Zandberg, an analyst at PI Financial.
“We are seen as building up expertise in this sector and I think that translates not only to investment dealers and banking but also legal and even the operators — clearly companies in the U.S. are seeing Canadian companies as the experts in this field as well.”
Most other Canadian companies with global ambitions have gone the route of securing a Health Canada licence to produce and sell into their home market before setting their sights on global markets. Some, like Canopy Growth Corp. and Tilray and have signed export agreements in Europe, while Aphria Inc. is getting into the U.S. market through royalty and licensing agreements.
But PharmaCielo chose to eschew the Canadian production licence to operate in the country where it believes it can build the lowest- cost operation.
They are clearly convinced that it makes total sense to do this in Colombia
By taking advantage of Colombia’s natural environmental advantages that have allowed crops from flowers to coffee to coca to flourish for centuries, PharmaCielo believes it can grow marijuana for five cents per gram. That’s 40 times lower than Canada’s lowest cost producer, Aphria Inc.’s $2 per gram, and eight times lower than the 40 cents per share projection in Uruguay, which has a similar climate and one of the most mature legal marijuana markets in the world.
“The competition around the world will grow, so we wanted to be in the place where we can be the most competitive,” said Stocker during one of his periodic touchdowns in Toronto.
“How many mangoes, how many bananas are grown in this northern part of the world? None. And it’s the same with cannabis, it’s not a natural place in the world to grow it.”
PharmaCielo’s highly-secure operations are centred outside Medellin, home to the infamous drug kingpin Pablo Escobar, who started off by trafficking marijuana. Today, the Cauca region is still growing most of the country’s illegal cannabis.
Operational costs are low in Colombia because plants are grown in open-air greenhouses under a 12-hour sun cycle with accessible natural water sources, so there are no water or electricity bills, which comprise a huge percentage of Canadian companies’ costs.
It also has a low-cost skilled labour force with agricultural expertise thanks to Colombia’s giant flower sector, which provides 75 per cent of flowers shipped to North America.
The company has an exclusive production deal with a workers’ co-operative of indigenous growers affected by the drug wars.
“They are people that used to grow illegally but they didn’t get anything out of it, many of them changed to grow coffee because they were getting no benefits,” Stocker said.
Colombia legalised production only for medical purposes and only in oil form, not bud that can be smoked to deter diversion to the black market. That’s not a problem for Stocker who believes the money is in oil, which is more appealing to the medical sector because it comes in a standardised dose and has a longer shelf life than dried cannabis.
When PharmaCielo is ready to sell, it will first target Colombia’s domestic market, but Stocker said the company has its sights set on exports to international legal medical marijuana markets including Brazil, Argentina, Australia and Germany.
And yes, the company plans to export into Canada, as long as the country Stocker praised for setting global standards doesn’t prevent his Toronto-based company from entering the market it calls home.