Following Mexico’s Issuance of Medical Cannabis Regulations, Clever Leaves Enters Market
Clever Leaves’ cannabis production in Colombia
Photo courtesy of Clever Leaves

Following Mexico’s Issuance of Medical Cannabis Regulations, Clever Leaves Enters Market

CEO Kyle Detwiler shared the company’s plans with Hemp Grower and Cannabis Business Times.

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July 6, 2021

A public cannabis company with a strong focus on the international market is stepping into Mexico’s nascent medical cannabis industry.

Clever Leaves, a cultivator, manufacturer and distributor listed on the Nasdaq, announced its entrance into Mexico last month with an active pharmaceutical ingredient (API) supply agreement with CBD Life, beginning with cannabidiol (CBD) isolate.

In 2017, Mexico legalized medical cannabis with tetrahydrocannabinol (THC) concentrations below 1%. But Mexico’s health ministry didn’t pass medical cannabis regulations, including those addressing cultivation and harvesting, until this January. (The country’s supreme court also declared adult-use cannabis prohibition unconstitutional in late June.)

Luisa Conesa, an attorney and cannabis activist, told Reuters of the medical regulations: “[The regulation] is not aimed at patients growing their own cannabis, it is aimed at pharmaceutical companies producing pharmaceutical derivatives of cannabis which are classified as controlled substances that need prescription.”

Some companies aiming to create products can import cannabis plant material, according to the news source.

A June press release from Clever Leaves said the company’s partnership with CBD Life “is Clever Leaves’ first commercial agreement in the Mexican market, and it comes shortly after regulations were fully approved in the country, providing a strategic growth opportunity in one of the world’s largest pharmaceutical markets.”

Speaking with Cannabis Business Times and Hemp Grower, Clever Leaves CEO Kyle Detwiler said he and others at the company see Mexico as a “great demand center for medical cannabis, for other cannabinoid products.”

The opening of the market is allowing Clever Leaves to get in on the ground floor with shipping cannabis product there. “I think an announcement like our first shipment to Mexico is a reminder that—listen, in other geographies, cannabis hasn't really reached the saturation—both societally as well as regulation-wise—as it has in the U.S.,” Detwiler said. “A lot of these countries are just beginning their cannabinoid journey.”

Photo courtesy of Clever Leaves
Detwiler

Clever Leaves follows in-depth quality procedures to produce the pharmaceutical-grade product the Mexican government requires, Detwiler said, noting the company’s adherence to European Union Good Manufacturing Practices (EU-GMP).

Clever Leaves has about 400 employees, 2 million square feet of greenhouse production and 70 million square feet of expansion potential in Colombia, and more than 100,000 square feet of greenhouse production on 9 million square feet of “agricultural and agro-industrial land” in Portugal, according to U.S. Securities and Exchange Commission (SEC) filings.

“So, we have a smaller operation [in Portugal], but it's for the production of flower, whereas Colombia's for the production of extracts right now based on what’s permitted in those two geographies,” Detwiler said.

Simultaneously, Clever Leaves is focused on other operations around the globe, including in the U.S. Its wholly owned subsidiary Herbal Brands, which “manufactures and distributes non-cannabinoid nutraceutical products to more than 15,000 retail locations” across the U.S., per the SEC filings, entered into a partnership with LooperGroup and TruSource Hemp Group in February to import CBD into the U.S.

Detwiler said the goal there is to build upon existing relationships with U.S. retailers to provide them with CBD products, pending greater regulatory clarity in the country.

In Colombia, the company manufactures the CBD isolate that it sells into Mexico, and grows the cannabis from which it derives that isolate.

When asked about future plans for working in the Mexican market, Detwiler said: “Clever Leaves is really out there to be a B2B partner to the industry. I think there’s probably a lot of companies in Mexico thinking through the decision calculus of ‘Hey, wait a minute. Maybe I should go out and build a huge cultivation operation, maybe even a big processing center.’”

However, it could take several years to build out those facilities, become GMP-certified and -compliant—which the Mexican government requires for the entire supply chain—gather stability data and so on, Detwiler said.

“Let me save people the suspense: It's a pretty low cost to produce our products in Colombia, so even if you could build it in Mexico, I don't think you would be able to be cost-competitive with sort of a Colombian-produced solution,” he said.

In April 2020, Clever Leaves announced it would supply Canopy Growth subsidiary Canopy LATAM with cannabis extract that Clever Leaves produced through its Colombia operations.

One grower aside from Clever Leaves who has decided to cultivate in Colombia noted the low production costs in speaking with CBT. Cultivator Flora Growth shared its costs to cultivate flower—6 cents per gram—though that business cultivates its entire crop outdoors.

But there are always challenges exporting cannabinoids, Detwiler said, adding: “Imagine showing up with 10 kilograms of fine white powder coming from Colombia into a country for the first time.”

And, when the United Nations’ (UN) Commission on Narcotic Drugs (CND) voted in December 2020 to remove cannabis from Schedule IV of the 1961 Single Convention on Narcotic Drugs, the CND “opened the door to recognizing the medicinal and therapeutic potential of the drug, although its use for non-medical and non-scientific purposes will continue to remain illegal,” according to a UN webpage.

Still, Detwiler remains optimistic about Latin America. He said he has a history of investing in the region, including while serving as a principal at The Blackstone Group and as a member of Kohlberg, Kravis, Roberts & Co.’s private equity practice.

The cannabinoid journey is under way there, as elsewhere, though he said global demand for minor cannabinoids has yet to really take off.

“I think in the U.S., you are starting to see CBN [cannabinol] products often around a sleep claim that are starting to emerge,” he said. “CBG [cannabigerol], CBGA [cannabigerolic acid] are starting to pop up as—I guess some people are saying [they] kind of [accentuate] the cannabinoids that are otherwise already present. There are a variety of different things that I think we’re really just scratching the surface on.”

However, he said, “In any case, Clever Leaves is currently able to provide high THC, high CBD and balanced products to our clients, and also has the capabilities to develop a customized product in a reasonable period of time for our clients.”