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.