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Brazil’s medical cannabis market set to light up

. Feb 08, 2021
Brazil's medical cannabis market set to light up Photo: Dmytro Tyshchenko/Shutterstock

Despite Brazil’s restrictive cannabis laws, the country is on course to become a billion-dollar market and a reference for the medical cannabis manufacturing industry. This is the view of Andres Fajardo, president of cannabis multinational Clever Leaves, and his firm is not alone in its optimism about Brazil’s medical marijuana potential. 

HempMeds Brasil — the first company to obtain permission to import cannabinoid-based medicines before health regulator Anvisa allowed domestic firms to import, produce and sell these pharmaceuticals locally last year — has recently launched new brand Hezium, specifically targeted at the Brazilian market.

And the growth is fostering other segments of the industry. Forbes reports that agricultural group Terra Viva is looking to grow hemp alongside its vegetable and flower crops in the city of Holambra, in São Paulo state. 

</p> <p>According to studies, the current market is just the tip of the iceberg. A <a href="https://www.thegreenhub.com.br/wp-content/uploads/2019/12/resumo-executivo-cannabis-medicinal.pdf">study</a> by cannabis startup accelerator The Green Hub indicates that, if Brazil were to pass favorable legislation for cannabis-based medication, the number of patients could reach a minimum of 959,000 in the first 36 months of approval. If a future law were to allow the use of medical marijuana for chronic pain patients, some 3.4 million people would be eligible to receive the medication, pumping the sector’s annual revenues to BRL 4.4 billion.&nbsp;</p> <p>Clever Leaves is more than ready to surf this wave. In November, the Colombian medical cannabis company signed a USD 4 million <a href="https://cleverleaves.com/en/2020/11/23/clever-leaves-expands-in-brazil-through-multi-year-supply-agreement-with-greencare/">agreement</a> with domestic firm GreenCare to supply them with an initial CBD-dominant product for three years. In January, they signed a similar <a href="https://www.globenewswire.com/news-release/2021/01/12/2157100/0/en/Clever-Leaves-Signs-Multi-Year-Partnership-with-Brazilian-Cannabis-Company-Entourage-Phytolab.html#:~:text=Entourage%20Phytolab%2C%20a%20leading%20research,its%20first%20botanical%20drug%20candidate.">agreement</a> to become a supplier for Entourage Phytolab — an R&amp;D company specialized in cannabinoids — for USD 11.4 million.&nbsp;</p> <p>And this is just the beginning. With the size of the market and the strict quality standards imposed by health surveillance regulator Anvisa, Mr. Fajardo believes Brazil has what it takes to become a premium medical cannabis manufacturer even before federal restrictions on cultivation are reviewed. He shared his views in an exclusive interview with <strong>The Brazilian Report.</strong> See the main highlights below.&nbsp;</p> <p><em>*This interview has been edited for brevity and clarity.</em></p> <p><strong>I gather that the partnership with Entourage Phytolabs is not your first foray in Brazil. So why are you interested in a country with such strict cannabis regulations?</strong></p> <blockquote class="wp-block-quote"><p>I would say Brazil is one of the most attractive markets to us. There are two dimensions to the way we assess a market, the way we assess an opportunity. Number one, how big and attractive it is from an economic perspective, how large profits can be. And frankly, we believe Brazil will be one of the most important markets globally. We see a market that’s probably going to reach a billion dollars as soon as three to five years from now. </p><p>You see different numbers in different places, but we are probably talking somewhere in the range of three to five million patients in the next three years. We see different surveys conducted in Brazil and there seems to be a wide acceptance of cannabis as a medical product. We see that there will be demand. The market potential is there, but that’s dimension number one.&nbsp;</p><p>Dimension number two is what we call at CleverLeaves the &#8220;right to win.&#8221; And this is a field I think we can actually win. The requirements for the products, for the proxies to manufacture these products, the requirements in terms of the quality of anything that will be delivered to a patient in Brazil are very, very, strict. And that’s good because we are one of seven companies in the world that manufactures cannabis products to the degree of quality required in the European Union.&nbsp;</p><p>Brazil is widely known globally for being a demanding country in terms of quality standards and we have a product that is suitable for Brazilian regulations. And there is no cultivation allowed at this point in Brazil, so it will be more focused on serving patients and the scientific development of clinical trials, which we are also discussing with several companies in Brazil. That is exactly what we want.</p><p>And third, we have the same kind of regional soul. Why is that important? It’s not only a matter of proximity, but all our products and the stability tests for those products are developed using the most stringent conditions.&nbsp;</p><p>We put those products under very dry or very hot and humid conditions to see how they would behave in a household in Brazil. It is the same as what we do for Colombia, because we have the same kind of climate.&nbsp;</p></blockquote> <p><strong>Most companies say it would be good to have looser regulations and have cannabis produced locally in Brazil. But the way you put it suggests the strict rules are ideal for you.&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>It’s ideal for the patients. We have built a company that produces at a standard that is best for the patients. Of course, you’ll hear from everybody that it is better to allow an easier path to market. Because if you can launch your product with a lower quality requirement, then many more companies will be able to sell, but this is up to the regulators. I think Brazil has done something remarkably interesting. You broke it up into three stages. Right now, the first path to the market is compassionate use, so it allows patients to have access to it before it is registered by Anvisa, as long as it is manufactured abroad.&nbsp;</p><p>I think the authorities recognized the need to serve the patient first and then get the regulation right. They have a second stage, wherein products that have a quality level compatible with Anvisa’s or higher can be registered in Brazil as a pharmaceutical product and prescribed by a doctor. The only thing they don’t require at this stage is clinical trials.</p><p>Then you go into phase 3, which is a normal pharmaceutical product, where some parts of the manufacturing will largely happen in Brazil. And that’s what we are looking at. We are partnering with some high-quality Brazilian partners to be able to have a product to participate in that stage. So, I would say that in a few years from now, the participation of Brazilian companies in any cannabis product — at least from the manufacturing standpoint — will almost be a requirement. It is pretty smart, you protect patients and yet allow them to have access to medicine.&nbsp;</p></blockquote> <p><strong>So, you already have two partners in Brazil and you say you are talking to more. Can you give us a hint about who they might be?</strong></p> <blockquote class="wp-block-quote"><p>I cannot go into details, but we are absolutely happy with the partners we have. We are working with them and other partners in looking at different market segments and different products than we have already agreed to commercialize.&nbsp;</p></blockquote> <p><strong>You also mentioned the desire to have facilities in Brazil in the long term, but of course that would depend on federal regulations. Do you see a favorable scenario for that to happen now?</strong></p> <blockquote class="wp-block-quote"><p>That’s something we have been exploring. There are many ways in which you can participate in a market. Invest in facilities, in an office, and do everything ourselves, that’s one extreme. The other extreme is sending a very basic product, having someone else manufacturing it and then you forget about the market. The answer will be something in the middle. Certainly, Brazil is very interesting for us and we foresee investment in the future, whether that&#8217;s in a manufacturing facility or commercial engine. I wouldn’t say we have an answer for that yet. But it will involve investment and partnering with local Brazilian companies.&nbsp;&nbsp;</p></blockquote> <p><strong>And when you say the country has a patient-first approach, in actual fact patients complain the process of obtaining cannabis-based medication is cumbersome and often ends up in court. And importing the medicine makes the cost prohibitively expensive for many families. Do you think that having something locally-produced could increase people’s access?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>It is a process. In the beginning, it is cumbersome. But there is a path which is starting to work and authorities are getting used to it. As the market and the path to the market expand, we and other companies will have more channels to the market. I think there will be greater affordability, as prices start to lower. There will be situations in a few years when governments will start to invest and buy these products. I think it will be a combination, things will be more available and affordable, but there will be control. </p><p>And this is why I am saying it is patient-focused, because physicians are deciding what patients should take. It&#8217;s a long journey, though. I won’t say it is perfect, but it is working.&nbsp;</p></blockquote> <p><strong>I assume that by having a footprint in Brazil you would be interested in selling to the public health system?</strong>&nbsp;</p> <blockquote class="wp-block-quote"><p>Absolutely. That’s a reality, we will see different healthcare systems having different behaviors around the world. But, as an example, we have operations in Germany and we are trying to understand what insurance companies are doing there and we are closely working with regulators and health systems in Colombia and Mexico.</p></blockquote> <p><strong>Speaking of Mexico, they have recently published new rules for cannabis research and may become the world’s biggest market later this year. Do you believe this could be paramount for other countries that struggle with their own “war on drugs”?</strong></p> <blockquote class="wp-block-quote"><p>Very few countries have struggled with that as much as we have [in Colombia]. And what we were able to do as a country is to completely differentiate the war on illegal drugs from the safe medical use of drugs that just happens to involve the same ingredient. More than a discussion on drugs, this is a discussion on patients. It is a very interesting conversation and I always give this example of medical cannabis in Colombia.&nbsp;</p><p>The reality is that it is a completely different product, I would say that medical cannabis is not even interesting for illegal markets. It’s really not tailored to get you high. In Colombia, you are allowed to grow up to 20 plants at home. It’s not a matter of legality, it’s a matter of producing a great pharmaceutical product and it is not easy to produce that from a plant. Let’s say the doctor prescribes a cannabis-based medicine to your child and recommends 20 drops, three times a day. You have to make sure the 20 drops are exactly the same today, tomorrow, and the next day. This is very hard if you don’t have a high-standard product. So this has to be a patient-focused discussion.&nbsp;</p></blockquote> <p><strong>Do you believe a lighter approach from the Biden administration on medical cannabis in the U.S. could spur Latin American countries on to follow their lead?</strong></p> <blockquote class="wp-block-quote"><p>Yes and no. I think there will be changes, for sure, and that will reflect on the shares of cannabis companies. Making it federally legal would facilitate banking, research, and it would allow more people to invest. It would allow the U.S. Food and Drug Administration to start behaving like the European authorities, those regulators would start looking at each other and see what their demands are. </p><p>But I think it is going to take some time to become a federally-legal product in the U.S., in terms of what will be permitted and what will not, and the product, process, and quality requirements. I do see a trend, but it will be a process. Particularly on the medical side, I think recreational use is another discussion.&nbsp;</p></blockquote> <p><strong>Do you think there is a likelihood the recreational cannabis debate will gain steam in Latin America?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>I think it is difficult to generalize. Countries <a href="https://brazilian.report/latin-america/2020/11/24/following-uruguay-argentina-takes-step-toward-legalizing-cannabis/">are moving in that direction</a>, but it will be on a country-by-country basis rather than a region-wide phenomenon, very much as it is in Europe. This is a growing trend, but right now we are focusing on medicinal cannabis. Recreational use involves more than scientific views, it involves social, political, religious views.

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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