Low Production Costs = Significantly Better Stock Prices
The single largest cost of producing CBD cannabis oil is the production itself. However, as noted by this piece at Seeking Alpha, it can be difficult to see what those costs actually are, as each of the four cannabis production companies analyzed by Seeking Alpha list their costs differently.
For example, Canopy, the largest Canadian cannabis company which posted $40 million CAD in revenue in 2017, includes the cost of oil processing into their reported cost. Per Seeking Alpha: “Oil processing costs are not directly related to the cultivation of cannabis plant and represent a post-production value-add process. It is very difficult to adjust Canopy and MedReleaf’s reported cash cost to exclude oil processing, given the limited information we have across disclosures from many produces.”
Seeking Alpha goes on to say that two of the analyzed companies, Aurora and Aphria, report widely different costs to process oil. Aphria’s oil processing costs are only $0.05 per gram, but Aurora’s is much, much higher at $1.42 per gram.
This leads to a major difference in consumer cost for CBD oils. “Pure CBD, at 10 cents per milligram, carries a consumer cost of $2,835 an ounce—more than twice that of pure gold.”
With Aphria’s extremely low oil processing cost and the construction of their Aphria Diamond facility, which retrofits vegetable greenhouses for cannabis, has led them to the number two spot in cannabis companies with the highest growth potential. It’s clear that low costs = better prices.
It Is Significantly Cheaper To Produce Cannabis In Greenhouses
Due to decades of prohibition, many people still think of cannabis production being done in illegal, indoor “grow ops” with rows of high UV lights strung over pot plants in concrete basements. The modern industrial cannabis industry hasn’t evolved far past this style of cultivation. Many industrial cannabis production facilities are nothing more than expensive-looking grow ops: indoors, climate controlled, sterile.
Take cannabis out of the equation for a moment and answer this question: What’s the best place to grow a flower? Inside, or in an open-air greenhouse?
The answer, obviously, is in a greenhouse, and thanks to new levels of legalization allowing for industrial hemp production, the industry is beginning to see the benefits of greenhouse production for cannabis.
The biggest cost benefit is right there in front of us: open-air greenhouses have the sun, and therefore don’t require the installation and maintenance cost of high UV lights. Greenhouses also trap heat and allow for a consistent temperature all day long. Glass greenhouses provide all the benefits of growing in the open air but allow for greater control of other factors in the environment, like keeping out pests and greater moisture control – heavy rains can be just as damaging to a plant as no rain at all.
Running an open-air greenhouse incurs much lower labour costs. In an indoor facility, there is always something to do and always a need for workers. Outdoor workers only need to tend to the crop during the growing season and only require an increase in workers when it comes time to harvest. Most of the costs involved in an outdoor greenhouse at up-front: once the system is up-and-running, there are very few costs compared to maintaining an indoor facility which has constant costs. With energy prices on the rise, the appeal of the outdoor greenhouse is clear.
Colombia Will Be A Global Leader
The above reasons are why Colombia is set to become a global leader in CBD medical cannabis in the coming years. Colombia has a significant advantage in Cannabis production due to its ideal climate: steady sunlight, 12-hours a day, 4 seasons a year. Outdoor greenhouses and farms, like the ones managed by Itoco, can easily produce high-quality cannabis crop of a consistently high quality year-round. These outdoor greenhouses in such an agriculture-friendly environment allow for lower production costs due to the lower labour and maintenance costs inherent in open air greenhouses. Itoco’s assets allow for it to have a relatively low cost of production for CBD cannabis oil.
Agriculture has been a pillar of Colombia’s economy for centuries, and the country has been growing hemp since the late Colonial period. Much of the workforce there are already trained and ready to work on the cannabis crop due to Colombia’s large flower export industry. Producing a gram of cannabis in Colombia costs five cents, versus $1.50 in Canada!
Colombia has quota for over 40% of the world’s cannabis production – the country grew 40.5 tons in 2018, nearly ten tons more than the United States that same year. The country is allowing its licensed growers to export their products to other countries, which they hope will allow their country to become the “Saudi Arabia” of cannabis.
The Emergence Of A Major Global Stock Player
Canadian company Itoco has recently acquired a large property in Colombia focused on CBD cannabis, with a 5-hectare nursery and propagation facility in Cachipay, Cundinamarca which has already been approved by Ministry of Health, Ministry of Justice and ICA to produce medical cannabis for transformation and export. The facility is a short drive to Bogota, where exporting will take place, and Itoco has secured agreements with surrounding Small Producer farmer families to use their fields for CBD medical cannabis production. These partnerships provide an additional 20 hectares to the main 5-hectare farm.
The market for CBD medical cannabis is exploding and is expected to post a compound annual growth rate (CAGR) of 31% in the next four years. Itoco is positioned to be a major global stock player in this market due to its ideal location in cannabis-friendly Colombia, low-cost open-air greenhouse nursery and propagation facility, and 4 harvests a year. The Itoco Camedco facility is already 90% operational with all facilities built and approved by the Ministry of Health, Ministry of Justice, and ICA to produce medical cannabis for transformation and export.
Cost of production for CBD cannabis oil is vital in determining growth potential for CBD cannabis producers. With low-cost open-air greenhouses, ideal Colombian climate, and 25 hectares of land, Itoco is poised to be a major global player in the CBD medical cannabis field.
(Note: In this article we mention Itoco. Itoco is a client of TrendScan and members of the TrendScan team own stock and options to stock in Itoco.)
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