International Cannabis Corp or ICC Labs Inc (CVE:ICC) (OTCMKTS:ICCLF) (FRA:2Q9) Director Michael Galego talks about how they are currently the only publicly traded cannabis corp based in South America. Their home base is in Uruguay and they are focused on domestic recreational cannabis as well as another business segment for medical cannabis. They are currently producing approximately 68 acres of outdoor hemp grow where they will use to extract medical CBD oil for export.

TRANSCRIPT:

James West: Michael, thanks for joining me today.

Michael Galego: Thanks, thanks for having me, James.

James West: International Cannabis Corp is the only licensed producer of cannabis in Uruguay, if I’m not mistaken.

Michael Galego: Well actually, there are two recreational cannabis licenses in Uruguay, and ICC Labs is one of the two, but we are the only one that is listed on a stock exchange. And in fact, we’re actually the only South American licensed producer listed on a stock exchange anywhere in the world.

James West: Okay. How much cannabis do you produce? What’s the sort of footprint look like?

Michael Galego: So we have two business segments: one for the recreational market domestically in Uruguay, and we produce, we have a quota for two tonnes per year. But we have run rate production of about four to five tonnes this year. So as the domestic market expands, we expect our license to expand to meet the Uruguayan demand.

That being said, we also have a second business segment, which is our medical cannabis segment. We have over 550 acres of licensed hemp for CBD production in Uruguay, which is a tremendous land package if you look at Canadian peers.

James West: That’s huge, yeah.

Michael Galego: And so we also have that license as well. So there’s kind of two different regimes: one domestic and then one really meant for CBD export.

James West: Wow. So is 550 acres, is it under cultivation? Is it a greenhouse, is it an enclosed space?

Michael Galego: Sure. So we have a small, half-acre greenhouse that we use for research and testing purposes, and we’ve already gone through two growth cycles thee. We’ve planted just about 69 acres of outdoor hemp production, which will come to be full grown at the end of April, and we’ll start extraction shortly thereafter, in May. So fi you can imagine 68, 69 acres of production, we’re going to have a significant amount of CBD dried flower which we can extract into oils, extract into a pure CBD extract form…

James West: In a greenhouse?

Michael Galego: This will be outdoor.

James West: Outdoor?

Michael Galego: 100 percent outdoor, produced with GAP-certified standard operating procedures. Then we’re building a GMP-certified pharmaceutical-grade extraction lab in Uruguay, the first of its kind, in a free trade signed zone in Uruguay. So anything that we import or export out of that zone is on a tax-free basis, which is a huge competitive advantage for us compared to international firms.

James West: So what’s the domestic market worth in terms of size?

Michael Galego: Sure. So recreationally, if you look in Uruguay, it’s about 3.1 million people, compared to Canada, which is 35 million. And the way we like to look at it is, if you compare on a population basis, Canada, with probably close to 100 licensed producers and 35 million in population, Uruguay is 3.1 million people and only two licensed producers. So even on the domestic basis, if you exclude the export potential, it’s pretty meaningful numbers.

James West: Sure. The economics appear to be attractive, superficially anyways. So on the export side, you’re growing a much bigger footprint for export, and I do recall seeing that you have executed an agreement with a Canadian LP to import extracts from your operation. Now, is that something that can occur with international laws in the condition they’re in right now?

Michael Galego: That’s a really good question. So, at the beginning of last year, we struck a deal with Emblem, which is a Canadian licensed producer, and we really like the team there – really good cultivation team, basically their facility in Paris, Ontario was led by a guy named Max Zavet, who we struck a deal with and really have a really good relationship with them. Under the current Canadian ACMPR regime, there actually is a regulatory pathway to allow importation, and it’s for medical and scientific purposes. And so under that track, we can actually export from Uruguay CBD dried flower and that was one of the relationships that we’ve struck on the export side.

We’ve also struck a deal with Nuuvera, which was formerly a licensed dealer named Avanti. If you’ve been following it, they were recently acquired by Aphria.

James West: Yes.

Michael Galego: And so under that relationships, we’re looking to export CBD crystal or CBD oils under a separate regulatory regime not governed by Health Canada. So those are the two main Canadian commercial relationships we have for import into Canada. We also have presale agreements in Mexico and Brazil with two pharmaceutical chains. In Mexico, the agreement calls for 120,000 30-ml bottles of CBD oil, and in Brazil it’s for 180,000 30-millilitre bottles of CBD oil.

So you know, initially ICC’s mandate was, Uruguay, from a regulatory perspective, far ahead of Canada. I mean, they had a recreational regime in 2017, right? So we looked at it as, well, if they’re going to be first mover from a regulatory basis, then obviously places like Brazil, Argentina, Mexico and South America, which have had absolutely no movement in terms of local domestic cultivation, then really that’s our opportunity. And those were largely the relationships we’re looking at, and largely the market that we’re trying to capture.

James West: Well, that’s fascinating. So at this point, do you have a sense of the sort of the margin you’re going to earn from your exports into Brazil?

Michael Galego: So if you look from a cultivation perspective on our industrial hemp product, we’re probably going to be producing at, you know, probably south of $0.10 per gram on CBD dried flower. What that’ll materialize in an end product, we’re still in the production phase, so it’s a bit unclear, but you’re looking for those 30-ml bottles that I was talking about, you’re looking at a retail value anywhere from $40 USD to $200 USD on the international market. So the margins are substantial, and being able to grow outdoors, having things like low-cost labour, a very skilled labour force in Uruguay because it’s largely an agricultural country; energy is cheaper, water is cheaper. So all of these things factor into our production profile and really give us a competitive advantage when you’re looking globally.

James West: Right. All right, that’s great, Mike. Well, let’s leave it there. We’ll come back to you in a quarter’s time or something and see how you’re making out.

Michael Galego: Sounds great.

James West: Thank you for coming in.

Michael Galego: Thanks so much for having me.