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Cannabis firms catch a whiff of opportunity in Brazil

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Marijuana plants are seen inside of a greenhouse at the Federal University of Vicosa as part of the cannabis cultivation for research and cultivation project at the Federal University of Vicosa, Minas Gerais state, Brazil, August 18, 2021. Picture taken August 18, 2021. REUTERS/Washington Alves

SAO PAULO, Aug 20 (Reuters) - International cannabis companies are showing interest in Brazil, both its large consumer market for medicinal products and a proposal that could legalize planting of the crop.

Major producers like Colombia's Clever Leaves (CLVR.O) and Canada's Canopy Growth (WEED.TO) are developing and selling medicinal cannabis products to a Brazilian consumer segment estimated at 10 million to 13 million people. This results from a 2019 regulatory change allowing the import, sale and manufacturing of such products.

But permission for cultivation of hemp and cannabis in Brazil would be a bigger prize. If granted, the industry could blossom in four to five years, based on the experience of other countries such as Colombia.

"By 2025, I would like to be planting hemp in the interior of Pernambuco," said José Bacellar, founder of Canada's VerdeMed, referring to a northeastern state known for illegal marijuana growing.

A proposal that would legalize cultivation was approved in June by a congressional committee. Lawmakers are weighing if it could be fast-tracked to the Senate for approval. If passed there, President Jair Bolsonaro would have to sign it into law.

While Bolsonaro's far-right positions may seem an unlikely match for the bill, the proposal has support from some members of the powerful farm sector, a key constituency that helped him win the 2018 election.

SILICON VALLEY OF CANNABIS

In the quiet town of Viçosa in southeastern Brazil - which some call the Silicon Valley of cannabis - researchers are developing a hemp variety better suited to the tropics.

If the law is changed and research is successful, Brazil could become a top grower of cannabis and hemp, experts said.

Sérgio Rocha, director of ag-tech startup Adwa which is developing the hemp strain for Brazil, said about 3 million square kilometers (1.2 million square miles) of land would potentially be suitable for cultivating the new variety.

Brazil could overtake China, the world's largest hemp producer, which has about 670 square kilometers (259 square miles) planted.

"Using a part of Brazil's agricultural land would be enough to give the country the title of world's largest producer and exporter of hemp fibers, seeds and flowers for medicinal and industrial purposes," said Dennys Zsolt, an agronomist specializing in the plant.

Brazil bans growing of Cannabis sativa L, the plant that produces hemp and marijuana. Hemp, which has less than 0.3% of the psychoactive compound THC, contains CBD or cannabidiol. This non-intoxicating ingredient has been touted as beneficial for many health conditions including childhood epilepsy.

Growing the plants in Brazil would lay the foundation for a vertically integrated industry. A stable source of the raw material would support manufacturing of medicinal cannabis products, growth of a retail market and exports. Recreational cannabis would remain illegal.

Gabriela Cezar, chief executive of New York-based Panarea Partners investment banking firm, sees Brazil playing a leading role in hemp in Latin America, a region she calls the "epicenter of world hemp production."

Panarea plans to form a Brazilian cannabis company focused on pharmaceutical products for pets while seeking to broker more cannabis deals in Brazil.

TROPICAL ADVANTAGE

Among Brazil's advantages are lower growing costs because its warm climate allows plants to grow outdoors compared to greenhouses in some countries. Stable hours of sunlight due to Brazil's proximity to the equator are another plus.

Canopy Growth is "actively monitoring the advancement of hemp regulations in Brazil," David Culver, the company's vice president of global government relations, said.

But nothing is certain without the change to Brazil's law, though some signs suggest the prospects are favorable. When Rocha spoke to a congressional committee about hemp in 2019, he was surprised that conservative lawmakers were not hostile.

"After I finished presenting the maps and hemp's potential, I was applauded," he said.

Although the farm caucus has not taken a formal position, members of the group said a majority in both houses of Congress back the proposal. The farm caucus controls slightly fewer than half the seats in the two chambers, and the law requires approval by a simple majority.

Center-right lawmaker Fausto Pinato, a member of the farm caucus, said he supports the bill. "If you are authorizing the sale, why not cultivation?," he said.

Reporting by Ana Mano in São Paulo, Jimin Kang in Seul and Maximilian Heath in Buenos Aires; Editing by Cynthia Osterman

Our Standards: The Thomson Reuters Trust Principles.

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