Terrace Global (CVE:TRCE) Expansion Across South America and Europe

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Terrace Global Inc (CVE:TRCE) CEO Francisco Von Bismarck joins Midas Letter to discuss how the company’s entrepreneurial management team are focused on the the development and acquisition of international cannabis assets. Terrace Global is a multi-country operator (MCO) and are currently working in Uruguay, Spain and Portugal markets. Terrace Global’s focus is on federally legal jurisdictions with existing domestic demand, low cost inputs approved for exportation. Mr Von Bismarck explains the company’s focus in each of the countries they are operating within and outlines the opportunities in Southern Europe and in South America.

Transcript

James West: My next guest is Terrace Global CEO Francisco Ortiz Von Bismarck. Francisco, how are you today?

Francisco Von Bismarck: I’m doing very well, James. Thank you for having me.

James West: Great. Francisco, what is the business of Terrace Global?

Francisco Von Bismarck: So Terrace Global came together in late 2018, when several successful cannabis entrepreneurs came together to form this Canadian company with an eye on international opportunities. We are focused on the development and acquisition of international cannabis assets. As of today, we are in Uruguay, Spain and Portgual, and our founders are myself, we have Michael Galego – he was a founder of ICC Labs, which was sold to Aurora; Stephen Arbib, which was one of the founders of MedReleaf, that was sold to Aurora as well; and then the Goldman founder, Jonathan Goldman who were founders of Bedrocan, that was sold to Canopy.

James West: Ah, very cool. And so you guys are focused on cannabis genetics, then?

Francisco Von Bismarck: Well, we’re focused on markets, I think this is a key point, no? On existing domestic market, markets are approved for exportation and local inputs and local jurisdictions. We’re actually focused on what I said before was the development and acquisition of cannabis assets internationally. So in Uruguay, Portugal and Spain. And yes, we’re also focusing on genetics, as well.

James West: Okay, fantastic! And so then, what’s the revenue model? What do you, how are you going to make money?

Francisco Von Bismarck: Good question, I think that’s a very important question for everyone right now in this sector.

James West: You bet.

Francisco Von Bismarck: Well, the first thing that we’re focusing, and I think it’s important to understand that the regions that we’re in, in Europe and South America, we are what Canada was five years ago. So right now, we want to focus on domestic markets that there are sales. For example, in Uruguay, we have a recreational license that actually produces recreational cannabis, and that’s being sold in the local pharmacies in Uruguay. So for you to understand, we produced two tonnes of recreational cannabis, and that’s being sold through the pharmacies in Uruguay. 

For you to understand the market, the current size of demand for Uruguay, even though it’s a small country, is actually, according to the government, 40 tonnes. Between the two licenses, one that belongs to Aurora, and ours, we are actually only producing 4 tonnes per year right now.

But over there, you know, selling dried flower in Uruguay. And then we’re doing where we have a provisional medical license in Portugal, and next year, in 2020, we are going to build our greenhouse facility. Once that’s built out, the production capacity will be 10 tonnes. To give you a better idea of how much revenues that could mean, that’s about three Euros per gram, so that’s potentially 30 million Euros.

James West: Wow, fantastic. And how reasonable is it to expect in the future that you will be able to export products out of Uruguay to the other MERCOSUR and Latin American countries? Is that going to be a pretty fluid border, or is it going to be a little tougher than that?

Francisco Von Bismarck: For the recreational cannabis, that’s not happening; the government, the law states that recreational cannabis is only for the domestic market. On the medical side, it’s a different story. It’s starting to happen, we’re seeing some exports from Uruguay to actually to Europe, and to other South American countries. What we see there, the export route with Uruguay, not on the recreational but on the medical, that will happen. Right now we’re focusing on Uruguay more on CBD extract that I think is very interesting to eventually export to countries like Brazil, which in the past two weeks have changed the law where you can actually export CBD products to Brazil, but there’s no production in Brazil, and that’s 200 million people. 

And then in Portugal, the medical cannabis that’s actually eing in the European Union and with a total population of, I believe, about 750 million in Europe, then we’ll be able to export from Portugal to other European countries. And the Portugal facility that will be built up to GMP, so we make sure we have a pharma-grade product. 

James West: Okay. So obviously, being in Portugal gives you a doorway into the whole European Union, and Europe more broadly. How soon do you see that market becoming a contributor to your revenue?

Francisco Von Bismarck: That, I think the earliest we’d see that is end of 2020. We believe in the first nine months, we’ll have our greenhouse built, and then we’ll start some production, and we estimate about one tonne of production end of 2020, and that will be sold domestically and on export. First in the one tonne will be sold domestically through local pharmacies, and then in 2021, the facility will be at full capacity producing the 10 tonnes that I mentioned earlier. So I think we’ll see domestic revenues from Portugal in end of 2020, and then from exports in 2021.

James West: Do you have an idea as to how much you’re going to be able to retail cannabis for in Portugal?

Francisco Von Bismarck: Yes. I mean, we’ll be selling it at the wholesale for between about three and four Euros per gram; retail, actually, is closer to ten.

James West: Sure. And do you have a handle on your costs in terms of producing in Portugal?

Francisco Von Bismarck: We better!

James West: Yeah!

Francisco Von Bismarck: So producing medical cannabis is below 1 Euro per gram.

James West: Oh, okay, fantastic. So is it mostly outdoor in Portugal, or is it greenhouse, indoor?

Francisco Von Bismarck: No, it’s in greenhouse.

James West: Oh, it’ll be in greenhouse, okay. So it seems like there’s a lot of companies trying – [interruption, inaudible] I see. It seems like there’s a lot of countries, companies, rather, trying to get something going in Portugal. Is it difficult to get set up there? Is the government giving away licenses like free tickets, or is it more of a, you have to know somebody to get your stuff organized, there?

Francisco Von Bismarck: So to give you a better idea, you need to know people. The Infarmed, the regulatory body of Portugal, there is one full license operating in Portugal, which is Tilray, and there are a couple, another five, which have provisional licenses to build the greenhouse. What the Infarmed has told us is that they want to see what happens with these licenses, and that should becoming more difficult to issue new provisional licenses. And they want to see how the market evolves, but basically, the short answer is, with these six licenses in 2020, they don’t foresee issuing many more licenses for the short term.

James West: Okay. So you’re based in Montevideo, Uruguay, correct?

Francisco Von Bismarck: Correct, yes.

James West: And what is the advantage to an internationally-focused cannabis company to be based in Montevideo, Uruguay more broadly?

Francisco Von Bismarck: Well, we do have an office in Toronto, since we are a Canadian company, but what we have is operation teams in Uruguay, in Portugal and in Spain, and I’m basing in Uruguay always because I think it’s the country outside North America. I mean, as you know, it was the first country to legalize recreational cannabis in the world, and it has a very good legislation and a very supportive government for this sector. And I think being very well-positioned close to Argentina, Paraguay and Brazil, it has a tremendous opportunity, no?

James West: Sure. And tell me about Spain. Spain is the country that you really don’t hear that much about, even though I know that there’s some conferences on cannabis happening there next year. How close is Spain to becoming a retail market recreationally, or a medical market?

Francisco Von Bismarck: So there are five or six, I believe, medical licenses in Spain, where those companies are producing and they’re exporting. There’s not a local medical market, and there has been some talks about potentially recreationally, but I think that’s still far away. What Spain offers, I think it has one of the best growing climates for outdoors, so it’s very cheap to grow hemp in Spain. So our focus right now is, we are focusing on growing hemp outdoors, and then one of our milestones for 2020 is actually to build our extraction facility in Portugal, to be able to do extraction on a GMP.

So the growing climbing and the locus of production in Spain favours that, and Spain and Portugal, they’re neighbours.

James West: Right. Okay, so then, in terms of your capital requirements, getting to the point of profitability, how is that looking for you right now?

Francisco Von Bismarck: I think we’re actually one of the very few companies that successfully closed funding in the past months, and we closed our RTO. We raised a total of $17 million CDN, which is enough. I mean, we’re fully funded to finance our CapEx and take us to profitability, so I think we’re very excited about the opportunity. We’re a very young startup, but I think our Canadian founders, they were brilliant in the sense that they started, they pioneered the industry in Canada; they exited the Canadian industry last year, which I think was the perfect timing; and then understood that there was a big opportunity internationally. So I think that together, and now with a fully funded startup, there are also great M&A opportunities that we’ve allocated some funds towards it. And I think there’s a liquidity constrained in the market for, I mean, in North America, but even more so in Europe and South America.

So we are very excited and I think that there’s tremendous opportunity for us in Southern Europe and in South America.

James West: You bet. All right, Francisco, great to hear about your company. We’ll look forward to covering you in the future. Good luck, and we’ll see you soon. Thank you.

Francisco Von Bismarck: Thank you very much.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.