Colombia gains muscle in the medical cannabis market and puts Canada on alert

With an energetic speech, in front of a huge electronic screen, Colombian President Iván Duque enthusiastically announced that Colombia will be one of the first countries in the world to allow the export of cannabis in its most essential form: the flower. The economic potential is measured in billions of dollars, explained the president in the presentation at the end of July, for which the facilities of one of the companies authorized to grow the herb was chosen as the headquarters. The next day, Canadian cannabis company stocks fell rapidly.

Canada is the only country in the world where cannabis, a floral herb that can be used for its psychotropic effects, is completely legal. While the United States, Portugal and Australia experiment with partial legalizations, Canada is the main exporter in the world. Colombia, a country near the equator where climatic conditions for agriculture are favorable almost 365 days a year, can produce medicinal cannabis for a fraction of what it costs Canadian growers. And, despite the limitations in its regulation, its openness to export made Canada tremble.

"What it is about here is that Colombia starts to play big and with this decree we are putting ourselves at the forefront in terms of regulatory competitiveness," said the president when visiting a highly technified fishing crop, in the department of Boyacá, to four hours by road from Bogotá, from the Clever Leaves company, one of the multinationals –many of Canadian origin– that have already settled in the Andean country.

The promise of a cannabis bonanza stems from a regulation approved in 2016 during the government of his predecessor, Juan Manuel Santos. The strict regulation contemplates medicinal and scientific uses through licenses issued by the Ministries of Health and Justice. The ban on the dried leaf persisted due to a certain fear of the authorities that it could be diverted to illegal traffic.

After a two-year agreement between the Government and representatives of the sector, Duque signed the decree on safe and informed access to the medical and scientific use of cannabis on July 23, which came into force in August. Thus, it gave the green light to the manufacture of cannabis-based textiles, food or beverages, among others. But the biggest novelty is that it allows the industry to export the dried flower of the plant, the form of cannabis that can best be used and a market that exceeds 50% of the sales of medicinal cannabis in the world. The regulation also allows the flower to enter free zones to be cut, dried and go through transformation and packaging activities.

An ideal climate
Colombia starts with the advantage of its climatic conditions, which include a privileged solar radiation, with 12 hours of natural light due to being on the equator, and less fluctuations in temperature and humidity. Also quite lower operating costs than elsewhere, particularly labor. So growing a gram can cost as little as six cents, while in Canada or the United States it can cost as much as $ 1.89. Furthermore, Colombia is the world's second largest flower exporter - behind the Netherlands - and can use that experience and talent to the new industry.

The promise of cannabis has attracted more than 500 million dollars in Foreign Direct Investment to Colombia and the country has the potential to become a world leader in a high value-added industry, both in derivatives of the flower and in the flower itself. They point to Clever Leaves, one of the first companies to obtain licenses.

In the final steps of the chain, the company strips the plants until only the flower is left, which concentrates its active ingredients, cannabinoids. There are more than a hundred, with properties still unexplored. Clever Leaves is today a public company listed on Nasdaq, the second largest stock market in the US and has exported cannabinoids to more than 15 countries - they even have an operation dedicated to the production of dried flower in Portugal.

The companies have frequently been alliances of Colombian and foreign capital, with a prominent Canadian participation, in more or less 60% of the cases, explains Rodrigo Arcila, president of the Colombian Association of Cannabis Industries (Asocolcanna), which has 33 affiliates. "Colombia has the most advanced companies in Latin America, with the largest crop sizes," he says. Some firms, such as Pharmacielo or Khiron, are listed on the Toronto Stock Exchange.

The macroeconomic potential is enormous. Last year, Colombian exports of medicinal cannabis were more than 5 million dollars, but by 2030 they may be above 1.7 billion, according to projections from ProColombia, the government agency for promoting business, a figure that would exceed flower exports. A more optimistic price scenario points to more than 2,500 million dollars, which would even exceed those of coffee - the first product of the country in non-mining-energy exports. That would translate to 44,000 jobs by then.

The reaction of the markets to the new Colombian legislation was anticipated and, in some cases, misguided, since shares of companies that operate in Canada and those that do not fell equally. This has to do with the short history of cannabis companies listed on the international market, which have only hit the stock exchanges in the last three years. The few companies that are listed are usually bought and sold together, as a kind of index, so it affects some, it usually affects all.

So, much remains to be seen. The law in Colombia remains strict, granting only a certain number of licenses to grow cannabis in the country. In this sense, Colombia cannot yet compete with Canada, where the law is much more lax. As the international cannabis market develops, it is possible that not all countries will allow the import of the flower, due to the risks that are still perceived.

"This is a golden opportunity for companies operating in Colombia," says Andrés Fajardo, president of Clever Leaves. He concedes that having a producer that "has the ability to produce a high-quality flower at very competitive costs is a possibility of disrupting the global market," but cautioned that not just any flower can produce that effect. Before it was thought that Colombia was going to limit itself to the extract, which is a value-added product. But the current panorama has shown that the flower is in itself a product with a very high added value, he highlights. "Producing the flower of pharmaceutical medicinal grade so that it can be suitable to enter the different markets of the world is not an easy task", he values. It takes time, investment and quality.


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