As the U.S. Inches Forward Slowly, Latin America Lights the Way for Global Cannabis Legalization

By Luis Merchan, CEO, Flora Growth Corp.

While the U.S. cannabis market is still trying to figure out interstate commerce and federal legalization, Latin America has more worldly ambitions. Although globalization of the cannabis market is a relatively new concept, Latin America is no stranger to the nuances of intercontinental cannabis. And as the stranglehold of prohibition weakens and more countries open their borders to cannabis businesses, Latin American cultivators are poised to capitalize on the opportunity.

In 2019, New Frontier Data estimated the global market size to be around $344 billion, including both legal and illicit sales. It’s imperative for operators on the front lines to watch the legislative moves and changes across every country, a giant undertaking. We believe the energy and excitement around the global cannabis market is just getting started. We have already witnessed significant changes taking place in major developed nations including Switzerland, Germany, Italy, Malta, Portugal, Australia, and continue to see more progress each year.

But, with recent legislative changes in Colombia, it is clear Latin America offers the most significant potential for cannabis production and exportation. In the coming months and years, we expect Latin America, and Colombia in particular, to emerge as one of the dominant countries in the global cannabis industry.

Below is an overview of why, how, and the opportunity that is created by the recent law change in Colombia.

Cannabis, an Economic Shot in the Arm 

As many Latin American countries work to recover economically from the pandemic, the potential economic benefits from the cannabis industry can represent an important shot in the arm, while simultaneously helping take power away from operators in the illicit market. Anyone questioning this point only needs to look to the Canadian cannabis market to see the proof.

As of April 2020, the legal cannabis industry contributed $3.96 billion to Canada’s gross domestic product since the nation’s adult-use legalization reform in October 2018 – an increase of 215 percent, according to Statistics Canada data. The agency also reported that estimated illicit cannabis sales contributed $4.13 billion to the nation’s economy, down about 21 percent since October 2018. This represents roughly 15% of Canada’s agricultural GDP with the trend accelerating to replace the illicit market.

Relative to Colombia, the impact could be substantial. Looking at Ontario estimates, who’s GDP is roughly CAD $744 billion while Colombia’s sits at approximately CAD $400 billion, taxes from the federal cannabis excise duty were $245 million for 2021-2022, with another $170 million in revenue from the Ontario retail revenue captured by the province. This is obviously a substantial amount of additional income for the government, and one that can be obtained in a relatively short period of time.

Further, Canada’s cannabis industry has also seen employment numbers nearly quadruple from 2018 to 2019 – from 2,630 jobs to 9,200 jobs, according to Statistics Canada figures. In 2017, the industry employed about 1,438 people. It is estimated there are 22,000 hectares of Canadian cannabis cultivation currently. With a similar recreational regime, we see Colombia potentially being able to add 10,000-plus jobs to its economy in the next 3 years.

Recognizing these positive benefits, the Colombian government made meaningful changes to its cannabis laws, drastically changing the landscape of the global cannabis market.

The Progression of Colombian Cannabis

The laws supporting the production of cannabis and cannabis derivatives in Colombia have developed considerably over the last few years. In 2015, Colombian lawmakers passed Decree 2647, allowing for the production and manufacture of cannabis derivatives. Then, the following year, Decree 780 was enacted to regulate cannabis and its derivatives for the secure and informed access for scientists and medical uses. Colombian lawmakers approved Decree 613 in 2017, designed to provide “safe and informed access to the medical and scientific use of cannabis” through various types of licenses.

While Decree 613 of 2017 allowed for the cultivation of cannabis, the use of dried cannabis flower for medicine was prohibited, as was the exportation of dried flower. All cannabis for medical and scientific use had to be transformed into extracts. Additionally, whether psychoactive or non-psychoactive, producers could not use cannabis for industrial uses, including the manufacture of food and beverages.

However, the recently signed amendment to Decree 613 changes the game for Colombian operators as it positions Colombia as a key nation in the global cannabis market. The following points summarize the impact of this legislative change:

1. The sale of dried cannabis flower is now permitted, where dried cannabis flower continues to account for an estimated 50% of demand in major international markets, including the US, Germany and Australia.
2. The manufacturing, sale and export of cannabinoid ingestible products is now permitted.
3. Substantial marketing restrictions on cannabis products within Colombia have been removed, creating a stronger domestic market.
4. The sale of cannabinoid medical products through drugstores as “custom formulas” is now permitted. Custom formulas are pharmaceutical products prescribed and prepared by pharmacists to meet the unique needs of a patient and are intended to complement medical prescriptions. This substantially increases access to cannabis products, further supporting the growth of the domestic Colombian market.
5. The industrial use of cannabis is now permitted, including in textiles, plastics, paper, and construction materials.

While substantially opening up its cannabis industry, the Colombian government is still enforcing very strong regulatory guidelines and standards, as well as standard operating procedures for all producers. After securing a license, producers must command traceability from the moment they receive the seed to the moment they harvest. International cannabis is subject to challenging and complex regulatory environments.

The Colombian Opportunity

Located near the equator, select regions of Colombia have an ideal climate for the cultivation of cannabis 365 days a year. The country also boasts one of the world’s largest cut-flower industries, resulting in a labor force with substantial agricultural experience that can produce a high-quality cannabis product at low-cost. With the entire cannabis market now available to Colombian operators, including dried flower, ingestible products, and industrial uses, this combination of geographic factors positions Colombia as a major player in the international cannabis market due to its low-cost structure.

This low cultivation cost will allow Colombian operators to penetrate the protectionist measures of international markets. While protectionist actions by governments are expected, largely due to the economic benefits outlined above, we believe cannabis will be treated like many other agricultural products.

As noted in an MKM Partners initiation report, “regions that aren’t efficient growers will import from regions that are efficient growers. In broad terms, the E.U. already imports 8x as many fruits as it exports, and imports and exports of vegetables are nearly equal.” As a more concrete example, avocados were once sourced exclusively domestically in the U.S. but are now nearly 90% imported. This is after an array of protectionist measures were dismantled by the substantial cost savings achieved by growing in more favorable regions.

To close the point on the Colombian opportunity, while there are substantial cost advantages, the product should not be misconstrued as lower quality. Colombian operators have achieved globally recognized standards of production and manufacturing for its cannabis flower and derivatives, including GACP, EU-GMP, and organic standards. As the operators in Colombia turn their focus to the global cannabis market, they have an opportunity to become the leaders as the usual global leader in the United States continues to slow play the opportunity.

U.S. Legalization Mired in Politics, Red Tape

Despite the new legislation introduced by Senator Chuck Schumer in recent weeks, the gridlock of partisan politics may for a time stymy the reception of the new federal cannabis legalization bill, the Cannabis Administration and Opportunity Act. However, we’re hopeful that changes in the United States are not a question of “if,” but of “when.”

Obviously, the U.S. government understands the industry's economic benefits, and the scientific community understands that there’s research and science behind the potential benefits for patients and consumers. I expect to see these factors gain momentum over the coming months and years.

However, where the U.S. once led the world in regulatory decisions, many countries aren’t waiting for the U.S. government to take advantage of the economic benefits of cannabis. Yet companies like ours see the international markets as an opportunity to sharpen their toolbox and improve the supply chain.

Flipping the Switch

As cannabis legalization initiatives gain momentum, it will be cannabis producers poised for international growth on multiple continents that dominate the industry. Latin America is positioned to deliver high-quality products all over the globe, so when the regulatory environment in the United States is ready, we’ll be able to meet that demand.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.