Another Colombian “drug war” is brewing
Dear Retail Investor,
The other night I was sitting around channel-surfing, determined to find something fun to watch.
That’s how I stumbled onto Narcos.
As you may know, Narcos is a Netflix series that highlights notorious Colombian drug lord Pablo Escobar.
He reportedly made $30 billion by trafficking cocaine to the U.S.
In the process of amassing that fortune, he turned his country into a war zone.
In fact, his crews killed so many rival drug gang members, cops, politicians, judges and innocent bystanders, Colombia became known as the murder capital of the world.
Those murders dropped off dramatically after Escobar was killed in a 1993 police shootout.
But the flood of Colombian cocaine into the U.S. continues to this day.
Rival drug cartels have seen to that.
You don’t hear much about cocaine from Colombia anymore.
Colombian drugs are back in the news
This time it’s cannabis.
But I’m not talking about recreational weed.
Yes, Colombia legalized possession of up to 20 grams of pot for personal use… but that was in 2012.
That’s hardly breaking news.
What is newsworthy – especially for retail investors – is the growth of Colombia’s medical cannabis industry.
It’s now in a position to explode… as are the prospects of small-cap cannabis companies working in Colombia.
The legalization of medical marijuana in 2015 kick-started this development.
Yet that legislation didn’t cover the export of dried cannabis flower for medicinal use.
But thanks to Decree 811, that’s all changed.
Colombian President Ivan Duque signed the decree into law on July 23, 2021.
And it not only allows the export of dried cannabis flower for medicinal use, it also covers cosmetics, foods and beverages.
Plus it permits the production and export of oils, extracts, textiles and foods containing non-psychoactive cannabis.
The global market for medicinal and industrial cannabis is exploding
That market was worth about $9.1 billion in 2020.
According to President Duque, it could grow 7-fold by 2024, to $62 billion.
Colombia is uniquely positioned to capture a big chunk of that market.
For one, the country boasts an ideal growing climate for cannabis.
It has its position near the Equator to thank for that, which allows for up to four harvests a year.
The labor costs of cannabis production in Colombia are also lower than almost anywhere else in the world.
In fact, labor costs amount to between 5 and 15 cents per gram (compare that to the 50 cents to $1 per gram it costs in the U.S.).
Tack on Colombia’s new medical marijuana law, and it’s easy to see the country leading the world in the international cannabis market.
The small-cap growers in perfect position to profit from Colombian cannabis
The top dog of this group?
I think it’s a company headquartered in New York called Clever Leaves (Nasdaq: CLVR), which has a market cap of about $242 million.
The main reason I like this company so much is because President Duque actually signed Decree 811 at a Colombian facility that Clever Leaves owns.
Somehow that tells me the company has an inside track over its competitors…
It’s got several other things going for it…
- It currently cultivates over 1.8 million square feet of greenhouses in Colombia
- It has operations and investments all over the world, including the U.S., Canada, Germany, Portugal and (of course) Colombia
- It has its own pharmaceutical branch (a private company in Colombia called Iqanna)
The company also manages three wellness and beauty consumer brands.
And it boasts an impressive portfolio of other cannabis companies.
Another small cap cannabis company worth considering is Miami-based Flora Growth Corporation (Nasdaq: FLGC).
This $386 million company operates a Colombian cultivation farm that’s licensed to produce 247 acres of cannabis.
Flora also owns a facility that produces cannabis-based pharmaceuticals, cosmetics and nutraceuticals.
Plus it owns a Colombian company that produces food and beverages from exotic Amazon fruits.
Bottom line – Flora Growth is deeply entrenched in Colombia.
That can only help it compete successfully against Clever Leaves.
Of course there are many other cannabis growers that operate in Colombia.
In fact, there are hundreds of them.
And you can bet they’ll battle it out for a piece of the action.
Fortunately, they won’t be resorting to the tactics that made Pablo Escobar rich.
Speaking of Escobar, I think I’ll take a break and watch a couple more episodes of Narcos.
(There’s something about gangsters running amok that fascinates me…)
Contributing Editor, Dear Retail
Disclosure: This article is not investment advice and the opinions are of the author and may contain forward-looking statements. Please do your due diligence and/or seek professional investment advice for any investment decisions made. This author owns Khiron stock and may buy or sell at any time.
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