Canada has played a major role in the cannabis legalization trend and is a market that we will remain highly focused on in 2021 and beyond.

During the last year, we have seen a significant rise in the amount of cannabis revenue that is being generated in countries like the European Union (EU), South America, the Middle East, and Africa. Although this is a trend that we expect to become more significant in 2021, we continue to prefer some international markets to others for the following reasons:

1. The legalization trend: will the country remain a medical cannabis market or will it one day transition to being a recreational market
2. Population: we prefer countries that have a large population and prefer markets that have a large total addressable market (TAM)
3. The economic and political climate is a country’s regulatory body favorable on the amount of tax revenue that can be generated from cannabis and how does the country look after the COVID crisis

Today, we want to provide more insight on the international cannabis industry and highlight the 3 markets that we are most excited about in 2021 as well as the 3 markets that we are not as excited about.

3 International Markets that we are Bearish on in 2021

Although Uruguay the first country in the world to legalize recreational cannabis, the market has not developed like we have hoped. After Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB) (Frankfurt: 21P; WKN: A1C4WM) acquired ICC Labs Inc. for approx. $290 million in late 2018, we expected Uruguay’s market to record impressive growth, but this is a trend that did not play out like expected.

When the acquisition was announced, many analysts referred to ICC as the jewel of the Latin American cannabis market. The market got this one wrong and ICC is not the diamond in the rough that many people had hoped it would be.

The acquisition was expected to establish Aurora as an industry leader in the Latin American cannabis market. Although ICC has developed a portfolio of high-quality, low-cost production cannabis assets, we believe it will take time for the market to mature and are not sure if Aurora Cannabis will be around once it does

South Africa is another emerging international cannabis market that did not evolve like many analysts had hoped. During the last year, we have seen several cannabis operators exit the South African cannabis market and this is a trend that did not surprise us.

Most of the companies that were focused on the South African market were targeting a region that is called the Kingdom of Lesotho. According to the World Bank, their kingdom has a population that is barely above 2 million. This is a tiny market and we believe that companies viewed it more as a low-cost cannabis production market that could provide significant expansion opportunities over the long-term.

Earlier this year, Canopy Growth Corporation (WEED.TO) (CGC) reported to have transferred the ownership of its operations in South Africa and Lesotho. As a result, the Canadian cannabis producer has exited its Africa operations. Following this decision, we have seen other cannabis companies follow Canopy Growth’s lead and this is a market that we are not excited about.

Jamaica is a market that is synonymous with cannabis and is a market that we plan to avoid in 2021. During the last year, we have seen a significant slowdown in activity in Jamaica and this is a trend that does not come as a surprise.

A few years ago, several Canadian cannabis producers acquired Jamaican-based cannabis assets, and this is a strategy that did not pan out as expected. Since then, we have not heard too much from the companies that were considered to be early movers on the Jamaican cannabis market.

Bob Marley played an important role in the emergence of the Jamaican cannabis market and he was known to be a major cannabis consumer. While we are favorable on his music and his impact on the industry, his brand is more associated with helping people than making money.

When we think of the Jamaican cannabis market, we do not think of big corporations or large-scale state-of-the-art cultivation facilities. Over the long-term, we believe the Jamaican market will provide companies with attractive export opportunities and tourist-related revenue (once the COVID pandemic is over).

3 International Markets that we are Bullish on in 2021

The entire cannabis industry has been closely following the advancement of the US cannabis industry. Cannabis was the clear winner of the US general election in November and four states passed legislation to legalize recreational cannabis.

Based off the performance of states that recently legalized recreational cannabis (Illinois and Michigan), there is a lot to be excited about with the US cannabis industry in the near and the long-term.

Currently, several leading US cannabis operators are generating more than $100 million of revenue on a quarterly basis and we are impressed with these numbers. We expect the US cannabis industry to thrive under a new White House administration and believe that it is the most exciting cannabis market in the world

We believe that Israel will be one of the most attractive international cannabis markets in 2021 and is a region that we are excited about over the long-term. The country has the ideal climate for cultivating cannabis and producers have reported to be able to grow cannabis for less than $0.40 per gram (all-in costs). In Canada, the all-in cost per gram is closer to $1 and this provides Israeli producers with an economic advantage.

Another reason we are excited about the Israeli cannabis market is related to the export opportunity to the European Union (EU). From a geographic standpoint, Israel is located much closer to the EU than Canada. As a result, shipping costs from Israel to the EU are lower than shipping costs from Canada to the EU.

A few weeks ago, Aurora Cannabis announced a two-year strategic supply agreement with Cantek Holdings which is considered to be a leading Israeli medical cannabis operator. The relationship provides Aurora Cannabis with a great opportunity to expand its medical cannabis brand and its intellectual property and will monitor how the team is able to execute. HEXO Corporation (HEXO: NYSE) (HEXO: TSX) is another large-scale Canadian cannabis producer that is levered to the Israeli cannabis market via a strategic supply agreement with Breath of Life (BOL), which works with Super-Pharm, Israel’s largest pharmacy retailer with 258 locations.

Germany is considered to be one of the most attractive cannabis markets in the EU and is a region that we have been highly focused on. After Germany announced the legalization of medical cannabis in 2018, we saw a surge in interest in the market from leading Canadian cannabis producers.

Germany is the largest country (by population) in the EU and it represents a massive opportunity for licensed cannabis companies. According to the United Nations, the current population of Germany is more than 83 million, which makes the country twice the size of California.

Several large-scale Canadian cannabis producers are levered to the German cannabis market and this is an opportunity that we are excited about. Although legal recreational cannabis is not expected to pass in Germany for several years, we believe the writing is on the wall and expect to see the country go in this direction over the long-term.