Colombia Turns A New Leaf

Colombia has rightly attracted the attention of international cannabis investors, but the country faces unique political and social challenges

Guest Feature: Mat Youkee is a consultant and journalist covering Latin America from his base in Bogotá, Colombia. Since May 2018 he has published The Colombia Cannabis Investor, a free monthly business intelligence publication focused on the Colombian medical marijuana industry. He tweets at @colcannin

Birds of Passage, Colombia’s nomination for this year’s Oscars, tells the story of tribal conflict for control of marijuana drug routes in the country’s northern regions in the 1970s. The story is a timely and tragic reminder that, before Colombia became synonymous with cocaine, it was a hub for high-quality grass for American counterculture.

Today Colombia is in a different place. Over a decade of strong economic growth was capped, in 2016, with a peace treaty with the FARC, the largest guerrilla army. But the fertile soils and ample sunlight still make a great place for growers. Today, a rapidly developing regulatory framework is allowing local and foreign firms to build a legal medical marijuana industry.

In the last five months, Canadian majors including Canopy Growth Corp, Aphria and Aurora have acquired projects in the South American nation. Local companies PharmaCielo and Khiron Life Sciences also have advanced-stage cultivation and production projects, the latter becoming the first Colombian cannabis firm to list on the Toronto Venture Exchange. The big players have pledged more than $200m in foreign investment for the coming year and a host of enterprising domestic entrepreneurs are acquiring plots and applying for licenses, with nearly 200 awarded or under process.

There are strong grounds for this optimism. In January 2018 the International Narcotics Control Board, the UN body that regulates the global cultivation of medicinal narcotics, allotted Colombia 40.5 tonnes of marijuana production. This was the largest allocation of any country, representing 44% of the global total, and outstripping the US and Israel.

Aside from its climatic advantages, Colombia has a strong tradition of cultivation of flowers, cheap labor costs and a regulatory regime that allows for the export of medicinal marijuana products. Commercialization of the cannabis flower is not permitted, ensuring that all legally grown plants must be converted into an oil, cream or other medicinal product. The Colombian healthcare sector – indebted to the tune of $4bn – is desperately looking to cut its expenses, and research from Khiron suggests that over 5 million locals could benefit from medicinal marijuana products, helping to cut imports of opiates.

Colombia is no stranger to Canadian capital markets. Especially since the early 2000s, Canadian geologists have been scouring the previously out-of-bounds regions for oil and mineral deposits and Bay Street investors have seen a number of Colombian success stories. Many firms’ successes were based on their ability to successfully manage political and security risks that had been overestimated by mainstream investors. Now that Colombia is in vogue, the concern is that investors underestimate residual risk.

Those risks can be broadly categorized into three groups, with the first being regulatory confusion. Although the previous government made a clear move in 2016 to build a medicinal marijuana market, with Congress approving the law by a huge majority, many of the downstream regulatory changes have yet to be solidified. Marijuana is yet to be classified as a medicinal plant by the food and drug standards agency. The system to award production quotas remains opaque and local banks have steered well clear of opening bank accounts for cannabis companies, let alone providing loans.

The more dynamic local firms, such as Khiron and PharmaCielo have invested significantly in navigating the regulatory maze and educating government and medical personnel on cannabis issues. However, newly elected conservative president Ivan Duque chose a crackdown on micro-trafficking of marijuana as his first social policy. While no one expects him to reverse legalized medicinal use, it raises questions as to the political will to put in place the necessary reforms to boost the industry.

The second area of risk is local growing conditions. While Colombia has dozens of local cannabis strains, many firms have opted to bring foreign seeds to the market. But certain areas around Bogotá and Medellín, the two largest cities, have been affected by an intensive flower industry. Some foreign strains have proved less resistant to local soils and pests.

Another significant issue is physical security and community relations in rural Colombia. In recent years populations near major mining and oil projects have used local referendums to put a halt to extractive projects. One local firm has faced stiff community opposition at its project in the department (state) of Santander due to the perceived effect its project will have on local water sources.  Finally, the murder of three geologists working for a Canadian mining firm in September is a reminder that, despite the peace deal, rural Colombia has serious security threats in certain localized areas.

Colombia has rightly gained a reputation as one of the most exciting cannabis markets in Latin America and the industry has the potential to become a major plank of the national economy. But investors should be under no illusion of the challenges companies face. As well as strong technical teams and a vigilant security protocol, firms will need to keep a close eye on the morphing regulatory and political framework. Colombia Cannabis Investor, a free monthly newsletter, aims to report the most timely business intelligence on the sector, straight from Bogotá and Medellín.

September State Legislative Look

On August 31st, the Legislature adjourned for the 2017-18 legislative session.  Of the hot end-of-session bills, like wildfire liability and net neutrality, some cannabis bills were still being debated on the Floor. Of the many cannabis-related bills, three have already been signed and one vetoed by the Governor.  Twenty-three never made it fully through the legislative process, and these are the 13 bills pending Governor action before the September 30th deadline:

AB 1793 (Bonta) – This bill expedites the identification, review, and notification of individuals who may be eligible for recall or dismissal, dismissal and sealing, or redesignation of specified cannabis-related convictions.

AB 1863 (Jones-Sawyer) – This bill allows taxpayers subject to Personal Income Tax Law to deduct ordinary and necessary business expenses attributable to commercial cannabis activity by a licensee.

AB 2020 (Quirk) – This bill would authorize the Bureau of Cannabis Control to issue a temporary state license to provide on-site sales and consumption of cannabis at a temporary event located at a fairground, district agricultural association event, or at another venue expressly approved by a local jurisdiction.

AB 2255 (Lackey) – Would allow law enforcement to seize and potentially destroy cannabis, in consultation with the Bureau of Cannabis Control (BCC), if a licensed distributor is found to be transporting cannabis or cannabis product that is significantly in excess of the amount stated on the shipping manifest.  Clarifies that transportation of cannabis or cannabis product with a counterfeit shipping manifest is unlawful.

AB 2799 (Jones-Sawyer) – Requires an applicant for a state license under the Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) to provide a statement that the applicant employs, or will employ within one year of receiving a license, an employee who has successfully completed a training course offered by a training provider authorized by an Occupational Safety and Health Administration (OSHA) Training Institute Education Center.  Exempts applicants with only one employee.

AB 2899 (Rubio) – Prohibits a cannabis licensee from publishing or disseminating advertising or marketing while the licensee’s license is suspended.

AB 2914 (Cooley) – Prohibits an alcoholic beverage licensee from selling, offering, or providing cannabis or cannabis products, including the sale of an alcoholic beverage that contains cannabis, and clarifies existing law banning alcoholic beverages containing tetrahydrocannabinol or cannabinoids, regardless of source.

AB 2980 (Gipson) – Redefines “premises” for purposes of licensed cannabis businesses to allow for the sharing of common use areas, such as bathrooms, break rooms, locker rooms, hallways, or loading docks wherein no license privileges are exercised.

SB 311 (Pan) – This bill authorizes a distributor to transport cannabis and cannabis products to another distributor.

SB 829 (Wiener) – This bill allows specified cannabis license holders to donate medicinal cannabis and medicinal cannabis products to qualified patients, and allows such donations to be exempt from the cultivation tax, the use tax, and the excise tax.

SB 1294 (Bradford) – This bill establishes the California Cannabis Equity Act of 2018, which will allow, upon appropriations by the Legislature, a local jurisdiction to submit an application to the Bureau of Cannabis Control (Bureau) for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program; requires the Bureau to post model ordinances; and requires the Bureau to publish a report on local jurisdiction equity programs, as specified.

SB 1409 (Wilk) – This bill updates existing California law pertaining to the production and cultivation of industrial hemp.

SB 1459 (Cannella) – This bill establishes a provisional cannabis license that may be issued at the sole discretion of a licensing authority, as specified, until January 1, 2020.