Liquidity Crisis in Cannabis Sector Could Benefit Uruguay

RIO DE JANEIRO, BRAZIL – The cannabis industry in North America is suffering a liquidity crisis, which could channel investments to countries that grow marijuana at low cost, such as Uruguay, according to Jordan Lewis, an industry veteran.

“Everybody is waking up to the fact that it makes no sense to grow cannabis in Canada’s tundra or elsewhere in North America,” said Lewis, director-president of Silverpeak Life Sciences Uruguay. Uruguay, which was the first country to legalize most of the uses of cannabis, has the potential to become a “low-cost production center,” he said.

Cannabis companies are beginning to consolidate, a trend that will rule the playing field as capital markets prioritize profit over steep expansion. Canadian producers like Aurora Cannabis and Tilray cut jobs to cut costs and in the US only the largest cannabis companies have access to the capital market. Some growers face cash deficits that can put them out of business.

“I think there has been a ‘reality check’ across the industry,” Lewis said over a phone interview. “The most important thing right now is to deliver results. That means ensuring you have a sustainable operation in terms of cash flow.”

Silverpeak, based in British Columbia, is in no hurry to borrow more money from investors, after it raised some US$25 million between late 2018 and late last year. The company expects the free cash flow of its Uruguayan subsidiary, Fotmer Corporation SA, to break even this year, it said.

“We want to go to the capital market when conditions are favorable,” Lewis said. “Right now, the goal is to be able to decide when to go.”

Last year, Fotmer sent just over a ton of dried high THC level plants to an EU country, which the executive declined to name, and to Australia. Lewis expects Australia and the EU to be the main export markets by 2020. Israel may also become another potential buyer.

“We expect to ship more than 100 kilos per month in the short term. At the moment, the limiting factor is our current production,” he said.

(Source: Infomoney)