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ECONOMY | 03-01-2022 12:36

Cannabis price drop creates opportunity for Paraguay

As cannabis starts to behave more like an agricultural commodity, there’s a race to find the best growing climate at the lowest cost. In South America, a new candidate is emerging: Paraguay.

As cannabis starts to behave more like an agricultural commodity, there’s a race to find the best growing climate at the lowest cost. In South America, a new candidate is emerging: Paraguay.

Medical cannabis exporter CPlant Switzerland expects to acquire a licensed producer in Paraguay early in 2022 to produce THC-rich flower and extracts for the company’s Swiss laboratory, Chief Executive Officer Lucas Crivilone said. If cannabis prices keep falling, CPlant may shift most of its farming from Uruguay to Paraguay, where operating costs are 50 percent lower, he said.

“If Paraguayan regulations work for us, and market prices allow us to have a substantially higher profit margin in Paraguay than Uruguay, we would aim to do our farming in Paraguay,” Crivilone said in a telephone interview.

Cannabis exporters probably face several years of falling prices as growing volumes of low-cost production from Mediterranean and Southern Hemisphere countries hit the market, according to consulting firm Prohibition Partners. The price squeeze could spur more companies to seek out favourable growing climates with low operating costs.

Enter Paraguay, which legalised medical cannabis in 2017. Its inexpensive electricity, low wages and established pharmaceutical industry give it a chance to compete with pot-friendly countries such as Colombia and Uruguay. Marijuana production for medical purposes is currently limited to 12 local investors that obtained licenses in 2020. Three of those companies are already supplying CBD oil and capsules to pharmacies and Paraguay’s Health Ministry, said María Mercedes da Silva, who coordinates the nation’s medical cannabis programme.

CPlant plans to start growing higher-priced flower that is rich in THC, the psychoactive ingredient in marijuana, next year in both Uruguay and Paraguay. The company already produces cannabis for CBD, a substance that is advertised as having therapeutic effects, in Uruguay.

CPlant could grow as much as five hectares (12 acres) of THC-rich flower in Paraguay by 2024, Crivilone said. The shift into THC comes as prices drop for CBD products. Crivilone expects prices for CBD flower in the European Union will fall about 20 percent this year from their current range of US$300 to US$700 a kilogramme. Prices for CBD flower already declined 20 percent in 2021 from the previous year, he said. 

Crivilone expects to produce 15 to 25 tons of flower in Uruguay this year, up from about nine tons in 2021. Sales will more than double to US$8 million because of new products and higher production, he said.

 

Beyond Uruguay

As the cannabis market matures, companies like CPlant and Cannabis Company Builder that got their start in Uruguay — the first country in the world to legalise most uses of the drug in 2013 — are pivoting away from farming to more profitable consumer products. Since 2019, Uruguay has shipped more than 32 metric tons of flower, biomass, seeds and medical products to countries including Switzerland, Germany and Portugal. 

CPlant sources all of its cannabis from 44 hectares farmed by associated producers. The company provides seeds, licences and technical assistance.

“We are convinced that this will be the dominant model,” Chief Strategy Officer Guido Husni said. “Farming requires a lot of work and investment. We completely exited that part of the business to focus on sales and finished products.”

Founded by Argentine entrepreneurs Crivilone and Husni in 2018, CPlant ships dried CBD-rich flower by air to a laboratory in Switzerland, where it is processed into packaged products for sale to distributors in Latin America and the EU. There’s plenty of opportunity to grow: Prohibition Partners forecasts medical cannabis sales in Europe will reach almost US$2.6 billion in 2026, up from an estimated US$270 million in 2021.

In November, CPlant started raising US$4 million in capital investment to finance projects including product development, the entry into Paraguay and new distribution offices in Argentina, Brazil and Slovenia. CPlant is also lobbying the Uruguayan government to authorize the production and export of psilocybin mushrooms for medical purposes, Crivilone said.

“Our focus now is retail products and other compounds such as THC and psilocybin mushrooms,” he said.

 

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by Ken Parks, Bloomberg

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