The newly-listed marijuana stock on the New York Stock Exchange, Canopy Growth Corporation (NYSE:CGC), in addition to being the largest cannabis grower in North America, ranks among the top suppliers of cannabis in European markets. The company’s acquisition of MedCann in 2016, a cannabis company based in Germany, the fastest growing MMJ market in Europe, played a large role in expanding its European footprint.
Since then, Canopy Growth’s international presence has expanded into South America through Chilean and Brazilian subsidiaries. The company has its foot in Australia as well, through a partnership and minority ownership of AusCann as one of Oceania’s major players.
Marijuana stock Canopy Growth has its eye on a new continent, with its recent announcement of a Lesotho-based acquisition, a marijuana-based company in Africa.
Canopy Growth’s newest acquisition is Daddy Cann Lesotho, also known as Highlands. While Africa may seem an unlikely place for a marijuana investment, Canopy Growth has valid reasons for looking to expand there. It is also not the first major marijuana stock to look for opportunities on the continent.
In a recent press release, Aphria (NASDAQOTH: APHQF) also announced a new venture in Africa – more specifically, in Lesotho. One of Canopy’s competitors, Aphria is partnering with the Verve Group of Companies in a joint venture focused on CBD extracts for medical purposes. The joint venture, CannInvest Africa, aims to supply not only Africa’s legal MMJ markets with CBD extracts, but also Aphria’s vast network of markets.
Why are these major marijuana stocks turning to the tiny country of Lesotho as their door into the industry of marijuana in Africa?
Lesotho is a land-locked country, with a population below 2.3 million. What potential are Canopy Growth and Aphria seeing in this country that is so darn attractive?
For starters, Lesotho is the first of Africa’s countries to open a legal medical marijuana market. The use of medical marijuana has been legal since 2008, when Lesotho passed its Drugs of Abuse Act; but the first license to grow marijuana was not issued by the country until 2017.
On a practical level, Lesotho’s environment is ideal for cultivating cannabis. The mountainous terrain is exposed to sunshine more than 300 days of the year, with optimal humidity levels for cultivation. In addition, the operational costs, both of resources and employees, are fairly low. The cost for Canopy Growth to opt into the Lesotho market was also attractive, with the acquisition paid for entirely in stock, and valued at CA$28.8 million.
Canopy Growth’s investing in this growing marijuana company in Lesotho, however, largely came down to the country’s geographical location.
As was mentioned above, Lesotho is a land-locked country, entirely bordered by South Africa. And it is South Africa’s population that is so enticing, with its population of more than 57 million people, a solid 20 million above Canada’s population. Sticking close to South Africa could be a strategic move for Canopy Growth, since the country is also progressing toward legalizing medical marijuana.
Another of Canopy Growth’s competitors, Aurora Cannabis (NASDAQOTH:ACBFF), is making medical marijuana business ties within the developing medical cannabis market in South Africa.
Aurora’s acquisition earlier in the year of CanniMed Therapeutics meant the company also inherited the supply agreement CanniMed had signed the year before with a privately held company in South Africa, Akula Trading 2 Pty Ltd. This supply agreement gives Aurora an open door for cannabis oil exports to South Africa.
According to Aurora’s estimations, South Africa’s demand for MMJ products may eventually reach an annual 400,000 kilograms. Should this prove accurate, the size of South Africa’s market may be roughly CA$4.5 billion.
Another appeal to the Highlands location is the country of Zimbabwe, bordering South Africa on the northeast. Earlier in the year, Zimbabwe joined the ranks of Africa’s countries with legal MMJ markets. It appears that support for legalizing medical marijuana is growing in other African countries as well, such as Morocco, Ghana, Swaziland, and Malawi.
Cannabis stock investors with a keen eye will notice a bigger story unfolding in African investments, as major marijuana stocks think globally in light of Canada’s potential supply glut.
There has been much anticipation of Canada’s legal recreational market, as well as concern for cannabis oversupply. Many analysts have estimated that Canada’s demand will not be sufficient to distribute the entire supply of the country’s leading growers, producing a supply glut.
Other analysts, however, are seeing this as an opportunity for major marijuana growers to tap into the growing global markets. Within these markets, there should be more than enough demand to distribute what remains of the projected capacity after domestic demand is satisfied.
And Canopy Growth, currently operating on five continents, is underscoring this bigger picture with its exciting new Africa expansion.
(For more news on marijuana in Africa, read Here’s Why This Major Marijuana Stock is Looking to Africa)