BPH Energy invests in LATAM medicinal cannabis

BPH Energy Limited (ASX:BPH) has signalled its intention to invest in the medical cannabis sector, a strategy that is complementary to its existing biomedical business.

Medical cannabis is a sector that’s showing significant growth with current developments boosting its viability, including the recent move to legalise cannabis in Canada and legalise medical cannabis in the UK.

In pursuing this strategy, BPH has agreed to acquire an initial investment of 10% in Patagonia Genetics Pty Ltd (PG Aust), the entity that owns a 100% interest in Patagonia Genetics SPA (PG), a Chilean entity.

Patagonia Genetics

Patagonia Genetics is a craft cannabis company based in Patagonia, Chile boasting a genetic collection of over 260 unique cannabis and hemp strains and a physical collection of over 30,000 seeds.

These strains have been carefully collected from industrial hemp cultivations of the late 1980's whose germination rates where verified in late 2016. A large proportion of these are un-hybridised landraces (a domesticated, locally adapted, traditional variety) that have not seen in domestic markets in over 30 years, hence their genetic value.

This Chilean gene pool has remained greatly isolated from international markets up to recently, hence its uniqueness.

Patagonia Genetics believes it to be the only seed bank in the world to hold the rarest F1 Colombian Red, a strain that was deemed to be lost, along with other notable strains such as the 'Black Black', with genetics that produces an almost pure black cannabis plant.

The collection contains a variety of hemp and cannabis strains that have been selected for their exceptional terpene profile, production yield, pest resistance, uniqueness, CBD/THC content and medicinal properties.

In Chile, the sale of cannabis seeds is permitted if sold as 'collector's items'. The top selling brands are currently Barney Farm’s and Sensi Seeds, whereby individual seeds can sell for as much as A$17-$20.

Patagonia believes the future of cannabis is in high quality craft cannabis, outdoor and field grown.

Latin American cannabis

Ten Latin American countries have so far legalised cannabis for medicinal usage and three have decriminalised it for adult use. There are over 40 licensed producers operating in the region — one that boasts some of the most prime real estate and growing conditions in the world.

According to The Green Fund, Latin America is “known for almost perfect growing conditions, and when coupled with large amounts of available farming land, very low costs of labour, sunshine that can drive up to two harvests per annum, and the booming home grow culture, you have a region primed to potentially become the global leader's in low-cost cannabis production”.

In addition to the above, the price of labour is exceptionally cheap when compared to its European and North American counterparts.

Combined, it is estimated that LATAM will be able to produce cannabis in commercial quantities at a nearly 80% lower cost than the rest of the world.

A key component to successful cannabis growing is providing the plant quality nutrients, pest prevention and natural products at all life stages that do not leave residue. For this reason, Patagonia has sought to vertically align itself by securing global offtake rights to the Wonderland Agronutrients brand, Chile’s leading cannabis fertiliser.

With 11 applications currently under review with the Livestock & Agriculture Service, BPH anticipates to be cultivating medicinal cannabis, conducting R&D on its genetic collection and cultivating stabilised seeds locally before the end of the 2020 financial year.

BPH invest in Patagonia

BPH is taking an initial 10% interest in PG Aust, with the option to increase its total holding to 49%.

It will acquire this initial 10% interest in PG Aust in consideration for a subscription amount of $50,000 in cash into the entity, the issue of 150,000,000 BPH shares, and payment of $50,000 by equal instalments over six months to PG Aust shareholders, representing approximately 5.5% of the issued capital of BPH.

BPH was also granted the option to acquire a 49% shareholding in PG Aust — an additional 39% when added to the original 10% acquired interest — in consideration for a subscription amount of $700,000 into the entity and the issue of 450,000,000 shares in the capital of BPH. BPH may exercise the option by BPH at any time within 18 months.

The transaction will be conditional on appropriate due diligence, and for the second transaction, shareholder approval. There will be no requirement for a shareholder approval for the first transaction as the consideration will be met from the current cash position and the shares issued from the existing 15% capacity of BPH.

Patagonia Genetics SpA has signed land use agreements on two farms in Patagonia, near the major shipping port of Puerto Montt, Chile.

Farm 1

The property is the location of the first legal cultivation of cannabis and hemp seeds for the purpose of genetic preservation. Spanning 18ha, the property has two pristine glacial waterfalls running through it available for use, as well as a greenhouse that remains from prior grows.

It is intended the property will be used to operate as an "Experimental Seed Bank" for R&D purposes, upon receiving the appropriate licenses.

The property has water rights of 30 litres per second.

Farm 2

The property is perfect for cultivation, and is considered to be premium farmland it is large, open and flat spanning 10Ha, with additional land available. Upon receiving the necessary approval to cultivate cannabis, greenhouses and an extraction facility will be erected on site. The property is in close enough proximity to Farm 1 that water can be piped. It is intended that 10Ha of outdoor, high grade CBD will be cultivated to provide near term cash flow.