Canada and the US get all the attention when it comes to booming cannabis markets — but South America could be the marijuana capital of the world says a top industry leader.

MMJ Phytotech (ASX:MMJ) chief Jason Conroy is turning his company’s searchlight on that region to source cheap legal weed.

MMJ last month announced it would change its name and direction — offloading its Phytotech Therapeutics business for $8 million to focus on building a portfolio of minority marijuana investments.

Mr Conroy reckons it’s going to be hard for Aussie and Canadian growers to compete with cheap South American cannabis.

“Exporting cannabis into those established markets [like Canada or the US] is going to be very difficult because you’ll be competing with those markets growing cheaply, at scale,” he told Stockhead.

“Our current focus is on Canada [but] we’re also looking at some businesses in South America which have very distinct cost advantages around both cultivation and production of extracts, which are used particularly in medical cannabis.”

>> Scroll down for a list of ASX stocks with exposure to cannabis:

Peru was the last Latin American country to legalise medical marijuana, following Uruguay, where Algae.Tec (ASX:AEB) is selling off assets, Chile where AusCann (ASX:AC8) has operations, Argentina, Mexico, and Colombia, where Creso (ASX:CPH) has bought into.

Myth busting

In a wide ranging interview about the new direction of the $72 million company, Mr Conroy said it was not a certainty that Australian weed producers could compete with the quickly growing number of global competitors.

South Americans would likely win on price, while Canada may have the edge in quality.

Mr Conroy says if the Canadians leaglise outdoor growing, which he thinks is “imminent”, recreational plants will live outside and medical plants will be cosseted in the expensive indoor grow houses, retaining Canada’s position as a high volume, high quality drug producer.

“The standards in Canada are very high,” he said.

“Australian manufacturers of medical cannabis will ultimately be competing against Canadians in that market…[which] has a significant lead on Australia and just through volume will outpace us. That’s my guess.”

Australia’s place in an upstart market

Australia’s competitive global advantage is in technology.

“On the cultivation side, having an Australian branded cannabis overseas, you’re going to struggle. Unless it’s got some technology that you can’t get overseas, there is really going to be no differentiator,” Mr Conroy said.

“Technology that is something you can export.”

Australia is already a global hub for medical trials, with good rules, a supportive R&D tax scheme, and experienced medical professionals.

Mr Conroy led MMJ’s investment into Martha Jane Medical, on the back of their five-year MoU with the University of Tasmania to investigate new cannabinoid and terpene formulations.

Companies in Australia that are going the technology or biotech route include Zelda (ASX:ZLD), Medlab Clinical (ASX:MDC), Rhinomed (ASX:RNO), Botanix (ASX:BOT).

The new look playbook

With a background in corporate finance and deal making, Mr Conroy was brought in during March to clean house after years of weird deals.

He’s got the company out of its awkward investment in eSense Labs (ASX:ESE) — he says he can’t comment on why they did the deal in the first place — and got Israel-based R&D arm Phytotech off their books and into investee Harvest One.

He has to deal with the fact that MMJ’s most successful investment is Harvest One, which is complicated because it’s listed in Canada, and their stake has fallen from 59 per cent to 30 per cent after the latter raised $CAD35 million in January.

MMJ’s shares gave investors an immediate profit when it listed in 2015, but they’ve been pretty rubbish for long-term holders.

He wants to professionalise the business, “clean up the story”, and attract institutional money.

“Less characters, more professional operators, because ultimately what I want to do with our share registry is institutionalise it,” he said.

The company has no substantial shareholders who own more than 5 per cent of the stock.

Harvest One pushed out former MMJ chief Andreas Gedeon this week and while alluding to “characters”, Mr Conroy skirted the question on whether Andreas no longer fit with the new vision for MMJ.

“We saw [the Harvest One acquisitions of Dream Water and Phytotech] as a great opportunity to look at new leadership. It’s not something that’s been driven by MMJ, it’s being driven by the Harvest One board.”

The new plan is to spread small investments across the cannabis sector, from retail and recreational through to heavy duty research, and become a global venture capital fund.

MMJ currently has nine investments, of which Martha Jane and Cannabis Access Clinics are in Australia.

Here’s a recent list of ASX stocks with exposure to cannabis:

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