Why Canopy Growth Is Eyeing Africa's Marijuana Market

With all of the focus on the Canadian market and the country’s impending marijuana legalization this summer, investors and industry insiders have begun looking for less crowded cannabis markets like Africa. Cannabis investors are making waves on the continent. For instance, Supreme Cannabis Co. (TSX-V:FIRE) just invested millions in Lesotho company Medigrow Lesotho to export cannabis oil. And Canadian cannabis giant Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) has also thrown their hat in the ring.

Canopy Growth just recently announced that they acquired Lesotho-based Daddy Cann Lesotho PTY Ltd., which trades under the name Highlands. It is a company that has a foothold in almost every sector of the marijuana market, from cultivation to manufacturing, supply, hold, import/export and transport. The high altitude, mountains, ideal humidity and eternal sunshine of 300 days per year in the region make it the perfect cannabis cultivation haven for greenhouse growing.

The tiny country of Lesotho is also landlocked, making it an ideal location to sell to the rest of Southern Africa where marijuana has been a crop grown for decades. Indeed, marijuana is a major cash crop for the small kingdom.

Daddy Cann is also attractive due to the company’s very low operating costs and resource costs. The acquisition positions Canopy Growth to very quickly begin production of medical cannabis in substantial quantities at a very low cost. Politics are also on their side--the kingdom of Lesotho was the first African nation to legalize marijuana for medical purposes in 2017.

Because of the legalization, Lesotho is strategically poised to open up even more medical cannabis opportunities for the South Africa economy. Jody Aufrichtig, Founder of Highlands, explained that “Lesotho and Southern Africa have enormous potential and we look forward to building a responsible medical cannabis business across the region.”

Mark Zekulin, President of Canopy Growth, echoed Aufrichtig’s sentiments by saying, “Lesotho is Canopy Growth's first step into Africa and we look forward to working with the strong local team at Highlands to establish production and distribution capabilities consistent with Canopy's global standard for high-quality, regulated medical cannabis products,” said

The acquisition is a great match, pairing Canopy’s global expertise with Highlands’ regional know-how and entrepreneurial spirit. Canopy has an ever-present local place now in South Africa to serve their local market, and their influx will bring much-needed job creation and community engagement. The current Highlands management team will continue to lead the company, reporting they are very excited to join Canopy Growth.

In the agreement, 666,362 common shares were issued to sole shareholder Highlands, which stands to gain up to nearly one million shares after closing the deal and meeting certain Canopy-designated milestones. Shares were based on the 30-day volume (as of May 11) weighted average price of $28.763 for Canopy Growth common shares traded on TSX. The agreement is worth nearly $30 million.

After the African expansion, Canopy now has a market presence on five continents, including both North and South America, Europe and Oceania. The company has begun building its tenth production facility in Canada (in Quebec). In total, Canopy Growth has tripled its growing space just since the beginning of 2018. They now have 2.4 million square feet of cultivation space, and they are planning over double that to 5.6 million square feet in production space for both the medical and recreational markets.

Canopy joins other big Canadian players who are all trying to secure global deals as countries move to legalize medical cannabis. Most of the big Canadian companies are making large equity investments or simply outright purchasing companies in these countries. Many are also signing large distribution, licensing and supply agreements. Aphria (TSX:APH) has its own $4 million deal to become a majority stakeholder in Lesotho’s Verve Dynamics, yet another Africa-based medical cannabis company.

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