Cannabis Consumers Reap the Benefits of Lower Cultivation Costs

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Jun 12, 2019, 09:00 ET

NEW YORK, June 12, 2019 /PRNewswire/ -- Legal cannabis can be quite expensive for consumers, however, regions that have adopted legislation early on tend to generally have lower prices. The most expensive price per gram is found within countries where illegal sales are still the only way to get cannabis. And the most expensive cannabis can be found predominantly in Asian countries such as Japan, South Korea, and China, where cannabis is strictly prohibited. In particular, illicitly traded cannabis in Tokyo, Japan can cost as much as USD 32 per gram. On the other hand, the price per gram is as low as USD 1.34 in Quito, Ecuador. Interestingly, Ecuador has not legalized cannabis for either recreational or medical use but instead, the Country has decriminalized up to 10 grams of flower for personal use. Similarly, other South American regions such as Bogota, Colombia and areas of Paraguay have priced their cannabis supply at roughly USD 2.20 per gram, according to Leafly. The prices are significantly cheaper in South America, even though several U.S. states had allowed medicinal cannabis by the turn of the century. In the U.S., cannabis prices are cheapest in Denver, Colorado and Seattle, Washington, which were the first two states to legalize recreational use. However, their prices are nearly triple or quadruple what they are in South American regions. Seattle, on average, sells each gram of cannabis for about USD 7.58, while Denver priced each gram at approximately USD 7.79. Even in U.S. markets where cannabis is completely legal, the prices are still extraordinarily high compared to South America. Washington D.C., the capital of the U.S., sells each gram for about USD 18.08, which is over 1200% higher than Quito, Ecuador. Moreover, Canada has experienced its cannabis prices increase by 17% just several months after legalization. Statistics Canada reported that some provinces witnessed the price jump from USD 6.83 to USD 8.02 per gram, while legal adult-use cannabis can cost as much as USD 9.70 per gram. Prices within the cannabis marketplace are still relatively high because the industry remains within a gray area. Nonetheless, as countries within the marketspace continue to mature, consumers can expect prices to drop dramatically. According to data compiled by Mordor Intelligence, the global cannabis market was valued USD 14.5 Billion in 2018. By 2024, the market is projected to reach USD 89.1 Billion while registering a CAGR of 37% during the forecast period from 2019 to 2024. Blueberries Medical Corp. (OTC: BBRRF) (CSE: BBM), Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), Aphria Inc. (NYSE: APHA) (TSX: APHA), PharmaCielo Ltd. (OTC: PHCEF) (TSX-V: PCLO), Khiron Life Sciences Corp. (OTC: KHRNF) (TSX-V: KHRN)

Cannabis prices are dictated by a series of variables. Primarily, cultivation costs weigh the most into the pricing of cannabis. For instance, indoor facilities cost significantly more than outdoor ones because of the controlled technology required to maintain them. According to Wikileaf, an indoor facility can cost as much as USD 75 per sq. ft., while an outdoor can cost in the range between USD 10 to USD 17 per sq. ft. Moreover, the cost of government-mandated taxes and fees also weigh into the pricing of cannabis. Washington state has implemented at a 37% sales tax rate and an additional 7% to 10% state and local sales tax. On the other hand, Colombia has implemented a 16% tax rate on medicinal cannabis, according to PricewaterhouseCoopers. Colombia's tax rate matches the rate of major U.S. cannabis states such as California and Colorado. However, Colombia also has significantly cheaper cultivation costs compared to North America. And Foliumed, a Colombian-based cannabis producer, said that due to Colombia's favorable climate conditions and labor costs, it allows them to cultivate cannabis for a fraction of the cost in North America. In addition, some companies are obtaining licenses or acquiring companies that have already received licenses from the Colombian Ministry of Health and Social Protection. The license allows companies to distribute within Colombia, potentially reaching an addressable market of 5 million users. Moreover, the license also permits scientific research, export, and cultivation, according to Marijuana Business Daily. "As more countries legalize cannabis for medicinal use, Colombia is positioned to become a dominant supplier to these new countries as they ramp up their own domestic production capacity," said Ryan Douglas, a Colombia-based cannabis growth consultant.

Blueberries Medical Corp. (OTCQB: BBRRF) (CSE: BBM) is also listed on the Canadian Securities Exchange under the ticker (CSE: BBM). Yesterday, Blueberries Medical Corp. and SLANG Worldwide Inc. (CSE: SLNG) announced that, "the companies have entered into a memorandum of understanding ("MOU") dated June 10, 2019 to develop a strategic partnership ("Strategic Partnership") through which Blueberries may license SLANG's extensive portfolio of renowned cannabis brands and leverage SLANG's industry leading know-how and intellectual property to process and formulate cannabis products in Colombia and Argentina. The MOU was negotiated at arm's length.

Blueberries and SLANG will also collaborate on the commercialization of products into other Latin American countries as regulatory framework is implemented. Latin America is among the world's fastest-growing cannabis markets with expected cannabis spending of $12-billion (U.S.) by 2028 (Prohibition Partners) and an estimated 68 million potential medical cannabis patients currently (Quintiles IMS).

'SLANG is a global leader in the cannabis-based consumer packaged goods industry, with an extensive portfolio of brands, including some of the best-selling cannabis products in the world. Offering these high quality and internationally recognized brands will assist Blueberries in leveraging early-mover advantage and capturing market share in the vast Latin American market,' stated Patricio Stocker, Chief Executive Officer of Blueberries. 'SLANG's industry leading experience, depth of expertise and expansive network will create additional value for Blueberries as we continue to offer high quality proprietary products to consumers across diverse markets in Latin America and globally, and position Blueberries as a leader in this new market segment as it continues to evolve.'

The strategic partnership will include:

The exclusive license to Blueberries of select SLANG propriety standard operating procedures ("SOPs") pertaining to medical cannabis and cannabis-derived products in Colombia and Argentina
An exclusive right of first refusal to sell and distribute select SLANG products in Colombia and Argentina
Collaboration on new and existing products
On-site consulting services to facilitate the integration of the SOPs at Blueberries' manufacturing facilities

'SLANG is continuing to seek opportunities to increase its global distribution footprint for our industry leading portfolio of CPG brands. This partnership represents the jumpstart of our expansion in the rapidly growing Latin American market,' said Peter Miller, CEO of SLANG. 'Blueberries' unique industry expertise and CPG experience makes them the ideal partner for SLANG as we begin to extend our products beyond North America.'

About SLANG: SLANG is a leading global cannabis consumer packaged goods company with a robust portfolio of renowned brands distributed across 2,600 stores in 11 states in the US. SLANG is focused on acquiring and developing market-proven regional brands as well as creating new brands to meet the needs of cannabis consumers worldwide. SLANG is listed on the Canadian Securities Exchange under the ticker symbol SLNG and on the Frankfurt Stock Exchange under the trading symbol 84S. For more information, please visit www.slangww.com.

About Blueberries Medical Corp: Blueberries is a Latin American licensed producer of naturally grown premium quality cannabis with its primary operations ideally located in the Bogotá Savannah of central Colombia and operations currently being established in Argentina. The Company is led by a specialized team with proprietary expertise in agriculture, genetics, extraction, medicine, pharmacology and marketing, Blueberries is fully licensed for the cultivation, production, domestic distribution, and international export of CBD and THC-based medical cannabis in Colombia. Blueberries' combination of leading scientific expertise, agricultural advantages and distribution arrangements has positioned the Company to become a leading international supplier of naturally grown, processed, and standardized medicinal-grade cannabis oil extracts and related products. Additional information about the Company is available at www.blueberriesmed.com."

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Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) is a globally diversified and vertically integrated cannabis company with a presence across five continents. Cronos Group Inc. recently announced that it had entered into a sponsored research agreement with the Technion Research and Development Foundation of the Technion - Israel Institute of Technology to explore the use of cannabinoids and their role in regulating skin health and skin disorders. The preclinical studies will be conducted by Technion over a three-year period and will focus on three skin conditions: acne, psoriasis and skin repair. The endocannabinoid system and the cannabinoids that modulate its activity are believed to have an important role in regulating skin health and skin disorders. The research will utilize Dr. Meiri's cannabis strain database of over 80 cultivars and Cronos Group's strain specific cannabis oils to isolate and investigate the effects of individual and combinations of cannabinoids, potentially including rare cannabinoids, for treating acne, psoriasis and wounds using stem cell-derived organoid cultures developed by Dr. Fuchs' laboratory and mouse models. Cronos Group expects to be able to adapt the individual and combinations of cannabinoids to develop products for each of these three applications and expects to receive an exclusive, worldwide license to market and manufacture such products. "We are thrilled to begin this joint research with Dr. Meiri and Dr. Fuchs, who are among the most respected researchers in their fields," said David Hsu, Chief Operating Officer of Cronos Group. "Dr. Meiri's extensive cannabis strain database and capabilities in analytical testing provide a strong foundation for researching Dr. Fuch's world renowned stem cell organoids. Dr. Meiri and Dr. Fuchs' expertise coupled with Cronos Group's competencies in the cannabis industry make us optimistic about the future opportunities from this collaboration."

Aphria Inc. (NYSE: APHA) (TSX: APHA) is a leading global cannabis company driven by an unrelenting commitment to our people, product quality and innovation. Aphria Inc. recently announced that it had closed the acquisition of LATAM Holdings Inc. from Scythian Biosciences. The Transaction was funded by the assumption of USD 1 Million of existing LATAM Holdings debt with the remaining consideration funded by the issuance of 15,678,310 common shares of Aphria. The closing was pursuant to the terms of the definitive share purchase agreement previously announced by the Company on July 17th, 2018. As a result of the Transaction, the Company has solidified an important foothold in Latin America and the Caribbean by acquiring industry-leading cannabis-related companies in Colombia, Argentina and Jamaica as well as a right of first offer and refusal in respect of a majority interest in a Brazilian entity seeking a cannabis cultivation and sales license. "Aphria continues to execute on its plans for strategic international expansion, including in Latin America and the Caribbean," said Vic Neufeld, Chief Executive Officer of Aphria. "With a combined population of nearly 640 million, and with significant momentum from numerous countries introducing new or modernizing existing medical cannabis legislation, the region represents a significant opportunity for long-term growth. It also hosts some of the most favourable conditions for cultivating high-quality medical cannabis at substantial efficiencies – ideal for both regional supply and export opportunities. This acquisition firmly cements Aphria's leadership in the region and on the global cannabis stage."

PharmaCielo Ltd. (OTC: PHCEF) (TSX-V: PCLO) is a global company, headquartered in Canada, with a focus on ethical and sustainable processing and supplying of all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors. PharmaCielo Ltd. recently announced that its Colombian subsidiary had received from the national cultivar registry approval for the listing of a further 10 strains, each of which has a prominent tetrahydrocannabinol (THC) profile. The additional registration of the new strains to the national cultivar registry, including a unique 1:1 THC to CBD ratio strain, doubles the number of approved strains PharmaCielo holds in the registry, making it the largest holder of approved strains in Colombia. It also paves the way for the commercial registration, production and sale of the 20 unique strains. "The approval and registration of a second set of strains with the national cultivar registry is another important step towards PharmaCielo's goal of becoming a leading global supplier of premium medicinal-grade cannabis oils," said Federico Cock-Correa, President and Chief Executive Officer of PharmaCielo Colombia Holdings S.A.S. "The range of the strains now available at our disposal for commercial production is an important advantage that sets the company apart in both the Colombian and global marketplaces."

Khiron Life Sciences Corp. (OTCQB: KHRNF) (TSX-V: KHRN) is positioned to be the dominant integrated cannabis company in Latin America. Dixie Brands Inc., one of the cannabis industry's leading consumer packaged goods companies, and Khiron Life Sciences Corp. have recently signed a definitive agreement relating to the joint venture the companies announced on January 30, 2019. With the execution of the Agreement, a new company called Dixie Khiron JV Corp. has been established, 50% owned by each of Dixie and Khiron. Dixie-Khiron will take advantage of the complementary strengths of both companies to manufacture and distribute cannabis-infused products to the Latin American market. By combining Dixie's portfolio of more than 100 cannabis-infused products with Khiron's established footprint throughout Latin America, the companies aim to capture first-mover advantage and establish leadership in the region of 620 million people. Alvaro Torres, Co-founder and Chief Executive Officer of Khiron Life Sciences, stated, "Our timing for launching this joint venture is ideal. Latin America is poised to become one of the world's largest cannabis markets, due to continuing legalization across the region and the increasing affluence of the population, particularly in urban areas. Despite these attractive dynamics, there are relatively few significant competitors, as many companies have targeted other global regions. We believe we have an opportunity to establish ourselves as a dominant player in this market."

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