More good news from Creso: set to tap Colombian pot market

Creso Pharma (ASX:CPH) has today updated the market on its progress in leveraging the thriving Colombian pot market, following its recently proposed acquisition of Kunna Canada Ltd., and its wholly owned Colombian subsidiary, medicinal cannabis group, Kunna S.A.S. (previously Cannalivio S.A.S).

Due diligence is on track for completion of the acquisition in March — not long from now.

Kunna has a licence to produce, manufacture, market and export cannabis derivatives and products using extracts in Colombia by the Ministry of Health, making it one of a small number of companies to have secured such a licence. Following on from there, Kunna anticipates receiving its licence to cultivate medicinal cannabis in Colombia in April.

Promisingly, Kunna has also identified a parcel of land suitable for medicinal cannabis cultivation and intends to begin a full genetic and fertilisation research project once it has received its cultivation licence.

Once completed, this strategic acquisition will give CPH a considerable foothold in the Latin American market. Importantly, it will also position CPH as the only ASX-listed medicinal cannabis company with direct exposure to the thriving Colombian market, and with the capacity to commercially cultivate medical-grade cannabis in that country.

However, how much of the market Creso is able to corner is speculative at this stage and therefore investors shouldn’t act on this fact alone, but should take all publicly available information into account and seek professional financial advice.

CPH co-founder and CEO, Dr Miri Halperin Wernli, said: “We look forward to completing due diligence on the Kunna acquisition and to receiving the licence to cultivate medicinal cannabis, which is expected in April 2018.

“The acquisition and cultivation licence will give Creso a significant competitive advantage, as one of the few companies globally and the only medicinal cannabis company listed on the ASX with the capacity to commercially cultivate medicinal-grade cannabis in this strategic and growing market,” continued Halperin Wernli.

This update comes only a day after CPH informed the market of its strong progress constructing its medicinal cannabis production facility in Nova Scotia, Canada. Following that update on Tuesday, CPH’s share price has been on a high, currently sitting at A$1.02.

Its past performance is not necessarily indicative of future results. As part of the due diligence process, clients must consider all factors over and above the past performance of the product. Clients should not engage with a product solely on it past performance.

A strategic acquisition

The benefits of CPH’s acquisition are numerous. Firstly, this will provide CPH with cost-effective entry into the burgeoning Colombian and broader Latin American markets (more on that below), opening up a new opportunity for its innovative animal and human health nutraceutical products.

Correspondingly, this is a salient opportunity for CPH to bring its significant pharmaceutical expertise and rigour to medicinal cannabis production and cultivation in Colombia.

It’s worth noting that CPH has multiple product and commercialisation synergies with Kunna, with a complementary range of medicinal cannabis products aiming to develop end-user applications and a first-mover advantage in the Latin American market.

The acquisition also enables CPH to better integrate its supply chain, allowing it to produce its own medicinal cannabis as well as supply its existing planned products to the Colombian market.

The Colombian pot market

Colombia signifies a vital market opportunity for CPH, considering that the country is expected to export more than 40.5 tonnes of medicinal cannabis oil by 2019.

This market is also growing at a rapid rate — cannabis consumption increased some 15 per cent per year between 2008 and 2013. The size of the country’s medicinal cannabis market itself, moreover, is estimated at between three to six million patients.

Since 2016, cannabis extracts have been legally available to Colombian patients with a doctor’s prescription, and the country is expected to make the full marijuana flower available to patients sometime this year.

Following on from the legalisation of medicinal cannabis two years’ ago, the Colombian government issued a decree through the Ministry of Health, which regulated the production of medical marijuana in 2017. Under that decree, growers will apply for licenses from the National Narcotics Council, while those seeking to manufacture cannabis-based drugs will apply for permits from the Colombian Ministry of Health. The Health Ministry will also grant permits to export the drug to countries where they are legal.

In November 2017, 14 licences were given to medical cannabis businesses by the Health Ministry for the cultivation of psychoactive and non-psychoactive plants and for the use of seeds.

Interestingly, also in 2017, Colombia was allocated a production quota equivalent to one quarter of the world’s total production by the International Narcotics Control Board (INCB), the UN’s body responsible for regulating the legal cannabis market.

Further to that, global production for 2017 was established at 155.5 tonnes. Estimates suggest that Colombia could supply 44 per cent of the global demand for medicinal marijuana in 2018, after the country’s Drug Control Fund authorised the harvest of 40.5 tonnes for export-only proposes.

There are clearly multiple advantages to growing cannabis in Colombia, which CPH could leverage nicely here. On top of to its equatorial location and optimal microclimates, Colombia is also one of the most economically advantageous countries in the world to produce large volumes of high-quality, low-cost cannabis, especially given its expertise in the flower industry, its knowledgeable and skilled labour force, and supportive government.