By Anita Krepp
Brazilian cannabis market prepares for regulation with spin-offs and internationalization moves for MVP consolidation
The Brazilian cannabis market is developing quickly, despite not being regulated yet. This is thanks to the dozens of startups that have emerged year after year, offering solutions for different industry niches, with an eye on the potential consumer market, the largest in Latin America and one of the largest worldwide.
According to a UN report, by the end of 2022, the Brazilian population will reach 215 million. Although the number of Brazilians who use medical cannabis – around 41,000 – is still low, compared to the total population, the trend is that this number will continue to grow dramatically. Data obtained by Prohibition Partners for the LatAm Report 2022 shows that in 2021, medical cannabis products were imported into Brazil a total of 75,002 times, a 39% increase on 2020 figures, with the rest being supplied by domestic producers.
In a country where around 80% of the population suffers from self-reported stress or anxiety, cannabis has been perceived by society as a potent tool to deal with these and other psychic afflictions (according to a study run at the Universidade Federal do Rio Grande do Sul). While awaiting the regulation of Bill project 399/2015, which it is intended will regulate the production and trade of cannabis for industrial and medicinal purposes, entrepreneurs from different regions of the country have been forming companies to serve the already established market as well as the market that will be established in the next few years.
According to Kaya Mind, a Brazilian data company on the cannabis industry, at the beginning of this year there were 285 companies in the sector, 136 of which were startups. Most of them specialize in importing, marketing and distributing imported medicines. However, there is a growing movement of startups in other sectors, such as banking (Cannapag), veterinary (Dr. VetCannabis), advocacy (Rede Reforma), genetics (Adwa), cultivation (Edroponic), education (CEC), food and beverages (Blue Hemp), and cosmetics (CBeDifferent).
Until a few years ago, most startups were born thanks to the contribution of the founders themselves and the support of angel investors. One example is Dr. Cannabis, the first platform in Brazil to connect doctors and patients. This trend, however, has been changing since last year, with the arrival of larger investments in early funding rounds. There is also a special interest on the part of family offices, normally already linked to the area of health, in millionaire contributions to the cannabis business. This is the case with Green Rock and ALF Participações, investors in Zion MedPharma and Ease Labs, respectively.
Public advocates and investors
Renowned entrepreneurs in other areas are already beginning to perceive cannabis as an opportunity, and not only publicly support the cause, but also bet on the creation of new companies in the sector – which has generated an interesting phenomenon. As Brazil’s financial elite changes its stance on cannabis, middle-class acceptance of the topic grows.
Claudio Lottenberg, the chairman of the board of Hospital Albert Einstein, one of the most respected hospitals in the country, has actively contributed to the paradigm shift within the medical class. A partner at Zion MedPharma alongside Dirceu Barbano – former president of Anvisa – Lottenberg is a trusted personality for much of the sector. Jaime Ozi, country manager of Canopy Growth in Brazil during 2019, is another big name who bets on the Brazilian market through Tegra Pharma, a company he created together with Marcelo Galvão, former executive of BTG Pactual.
Support for cannabis in the financial market is already a reality and it’s growing. Businesswoman Patrícia Villela Marino, a member of one of the controlling families of Banco Itaú, is among the main cannabis investors in Brazil. Her relationship with the sector is a long-standing one. In 2010, she led the creation of the Plataforma de Política de Drogas (Drug Policy Platform), supported by former President Fernando Henrique Cardoso, to discuss this issue in Latin America. Since 2017, she has been a principal investor in The Green Hub (TGH), the only cannabis business accelerator in Brazil.
With 12 companies under its umbrella, TGH has just wrapped up its fourth call for startup acceleration. Of the 109 applicants, only six will be selected to be part of the accelerator’s portfolio, which serves as the backbone of the cannabis business ecosystem in Brazil. Bridging the gap between business and associativism, TGH is connected to all spheres where cannabis circulates and manages to promote its own market through working relationships with companies in different niches.
And it operates not only in Brazilian territory. According to the Innovation Director, Alex Lucena, 20% of applications arrived from different regions of the world. There are two main reasons why more and more startups from other Latin American countries are signing up for its acceleration program. First, because there is no similar selection in their countries of origin, and second, to create a relationship with the Brazilian market, closely monitored by the neighbors.
“Startups want to get into acceleration because they are interested in selling to Brazil,” says Lucena. “We have one of the most difficult markets to enter in the world, so finding a reliable local partner becomes the most important thing”. With the prohibitive legislation in force, TGH promotes the opportunity to enter, for example, into the Uruguayan and Canadian industries. “If it doesn’t work here, we start doing it outside and then we bring it inside”, he concludes.
Among this year’s entries was a diverse set of business strategies, preparing to set up in a variety of market niches. The first is an established fashion company that intends to start manufacturing and selling hemp clothing. In this case, TGH would help with fiber import procedures.
The second is a quality control laboratory, which has everything ready to open a cannabinoid research and testing laboratory. The third, an occupational health company, is planning to offer client corporations medical cannabis treatments for their employees. The idea is to help solve one of HR’s biggest issues: absenteeism.
To keep the market engaged, the accelerator is now dedicated to creating a pre-acceleration program to better prepare companies that are not yet ready for prime selection. And to keep the market evolving, in September, TGH will promote the 4th edition of Cannabis Thinking, a series of talks that approach the industry from different angles.
The recently released North American Cannabis Report: 3rd Edition focuses on the entire North American continent. Available in addition to the free-to-download report is the LATAM report. In this 60-page report includes: LATAM medical and adult-use market sizing forecasts up until 2026, including a deep dive on the timelines for legislation, proposed models and business opportunities for key LATAM markets over the next five years.
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