Should You Pursue Cultivation Licenses in Emerging Markets?

Slowly and quietly, countries outside North America are opening new legal cannabis markets for the first time.

Costa Rica just legalized medical cannabis and hemp cultivation for industrial use, and the president has also expressed support for an adult-use market. Barbados recently legalized medical cannabis and has already issued the first cultivation licenses. Last month, St. Maarten’s minister of public health welcomed proposals for exploring a regulated and legalized cannabis industry. Colombia’s recently elected president has insisted that completely legalizing cannabis would be in the best interest of that country.

How do cannabis entrepreneurs determine if investing in emerging markets makes good business sense? Should they expand their cultivation footprint internationally, or is it better to stay close to home?

There are lots of unknowns, but where do you start? If you’re considering international expansion, ask yourself these seven questions before you make the leap:

1. Will you be able to sell cannabis for more than it costs you to grow it?

What price point will be acceptable to the general population, and what price point will be profitable for your business? If you’re not sure, look around; most newly legalized cannabis markets price their products on par with illicit cannabis.

Will medical consumers pay out of pocket, or will insurance cover it? Consumers will be less prone to sticker shock if their medical insurance covers the cost of their cannabis. Otherwise, if domestic illicit cannabis sells for $0.50/gram on the street, you will have difficulty selling your product for $10/gram.

2. Will you be able to export?

Make sure that your company understands the intricacies involved in the export of a controlled substance, and be clear about who is your ideal customer.

For example, suppose you plan to cultivate for export to the European cannabis market. In that case, your facility must receive various certifications to guarantee the quality and consistency of the product you’ll be exporting.

Receiving a European GMP certification can take two years or more, and the ROI horizon may be too much for some investors to endure.

3. Do you have trusted boots on the ground?

Perhaps the most important factor when expanding a cultivation business abroad is to have a trusted partner where you plan to do business.

Launching a start-up in a foreign country has plenty of inherent challenges, and when that business involves cannabis, things get even more complicated. It is imperative that you have a trusted source to serve as your “boots on the ground,” and ideally, they should be native to the country of interest. Partnering with someone you trust will help you navigate cultural, political, and language differences to expedite necessary processes and help you avoid being ripped off.

4. Are the regulations conducive to doing business?

Be cautious of entering cannabis markets that only allow for the cultivation of CBD.

This cannabinoid has rapidly become commoditized, and many countries are already isolating, exporting, and importing CBD. The only reason to pursue a CBD-only cultivation license is if you believe there will be a transition to high-THC cultivation soon. Launching and running a hemp farm is excellent practice for ironing out the commercial cultivation learning curve in preparation for the real money: THC flower production.

5. Do you have a customer?

In medical cannabis markets, the equivalent of roughly 2% of the population becomes customers. That percentage can be higher if it’s easy to obtain a medical card, but it can trend lower if there are few conditions for which cannabis can be legally prescribed.

In recreational markets, even if the domestic population is small, tourism could offer an opportunity that blows domestic revenue out of the water. Jamaica is a prime example, and in my opinion, places like St. Maarten, St. Vincent, and Barbados aren’t far behind.

6. Is there government support for the industry?

Australia has offered grants to licensed cannabis producers in that country, and in Thailand, the government handed out free cannabis seedlings. It’s hard to imagine either scenario ever happening in the US. Banking options, low taxes, and strong government support could make emerging markets more attractive than the US and easier to do business.

7. What is the likelihood of acquiring a license?

Limited license scenarios typically favor politically connected groups or entrepreneurs with deep pockets. If you lack both, your chances of receiving a cultivation license in an emerging market are slim. Panama recently legalized medical cannabis and will issue up to seven cultivation licenses for the entire country. Do you think you’re going to win a license there?

Cultivation companies interested in international expansion should be able to first clearly define the opportunity at hand, determine why it makes sense to send capital resources abroad, and identify who will be their ideal customer. If you can’t, staying rooted close to home is probably best.

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