Cannabis Business: Latin America Can Export More Than Raw Material

Latin American businesses and governments are seeing the marketing and export potentials of an incipient liberalization of marijuana laws in the region. But to really cash in, it must be an investment in more than simple commodity crops.

Picture of a cannabis farm in Libertad, Uruguay

A cannabis farm in Libertad, Uruguay

Natalia Vera Ramírez

LIMA — After his stint at Stanford University business school in California, Uruguayan entrepreneur Andrés Israel began to research the nascent global cannabis industry, to find the countries with the most favorable regulations for its large-scale production and use. They were Canada and Uruguay, with the latter legalizing its recreational use in 2013.

After he returned home, Israel founded the Cannabis Company Builder (CCB) to help new firms exploit Uruguay's new legal framework. Cannabis, he says, is a "blue ocean" industry, with major growth horizon and few current regulations — and Uruguay is at its forefront.

"When I returned from Stanford, I could see that [for the potential size] it is very difficult to know where it's going exactly," Israel said. He notes that there is open debate in the business community whether the future is in THC (the principal psychoactive constituent of cannabis), or CBD (Cannabidiol, derived from the plant for medicinal purposes), or indeed in other derivatives or in cultivation. "That's why I created a business strategy or a vehicle that is flexible and dynamic," he says.

His company aims to help entrepreneurs in all these sectors, providing services, helping with licences, with regulation, certifications. Israel adds: "The cannabis industry entrepreneur sometimes doesn't know the basic things of the startup world."

Latin America knows the pitfalls of commodity-only business

Formed in 2020, CCB was the first cannabis business adviser in Latin America, taking a fee between five and 10% of the new firm's equity. So far Israel and his colleagues have helped 23 startups in the sector, hoping to make this 50 by the end of 2021.

This startup incubator seeks to generate synergies between the firms in its portfolio. It has startups that focus on cultivation, drying cannabis, developing flowers with a high CBD content, or on sleeping products. After the boom in cannabis cultivation and advances in regulating its use, especially in medicine, in several Latin American countries, the challenge now is for a nascent industry to develop an efficient production and supply chain, and assure high-quality crops.

It must also develop new products, ranging from medicines to pet products and even textiles. This existing cannabis ecosystem plays an important role in helping reach these goals. "There is a big opportunity in cultivation," says Israel, "and many entrepreneurs are turning that way ... but only in the short term. In CCB, we're looking at the medium to long-term. We're pushing for the real aggregate value."

Planting cannabis, he said, would in time mean "a commodity, and you have to look for the differentials. Otherwise we fall into the same dilemma of many Latin American countries that export raw materials, and import finished products."

The Global Cannabis Report: 2020 Industry Outlook published by consultants New Frontier Data expects Latin American sales of legal cannabis to reach $44.8 billion by 2025, up from $7.3 in 2020.

Photograph of a person holding a drop bottle of CBD oil

Cannabidiol, or CBD, is derived from the plant for medicinal purposes

Enecta Cannabis extracts

In Colombia, studying if cannabis can treat Alzheimer's

Colombia, which is following Uruguay's regulatory steps, has received investments from Canada for medicines and cosmetics based on cannabis. In July 2021, President Iván Duque signed Decree 811 to allow export of cannabis leaves and specific commercial and industrial usage for hemp.

Within two months of the decree, the Colombian firm Tarkus Pharma Lab, opened its first laboratory in the Tocancipá Free Zone in the Cundinamarca department, with the monthly capacity to process six tons of cannabis flower for exportation.

The aim is to produce "tailor-made" cannabis seeds.

Medical Extractos is another local firm that will settle in the zone, to pack CBD and THC for exports. But Colombian firms are making plans to go beyond export cannabis as raw material. CEO and founder of Medical Extractos, Henry Muñoz, says firms are already working on "quality" medicinal products that are affordable and marketable abroad.

Muñoz says his firm is researching with scientists and other companies the effects of cannabis on Alzheimers' disease. The research is taking place in Yarumal, a town in Antioquia where 8% of residents have Alzheimer's due to a genetic mutation.

His firm is also working with the University of Antioquia through a spin-off firm, Fasplan, to improve cannabis genetics. The aim is to produce "tailor-made" cannabis seeds to suit foreign customers' needs, says Muñoz. His firm is also looking at fusing typical Colombian cannabis seeds with "typical seeds from Europe, which are highly medicinal."

In Argentina, AI innovation to boost plant quality 

Argentina most recently welcomed the first legal and medicinal cannabis plantation, run by a private startup and the National Institute of Farming Technology (INTA). The firm is called Pampa Hemp, and imports seeds from Colorado to plant in the Pergamino Experimental Station in the Buenos Aires province.

Pablo Fazio, managing partner of Pama Hemp, says the firm wants to supply the "raw material" for a "legal market in Argentina," which he says is set on developing a "national cannabis industry."

As an important farming country, he says, "it would be absurd to have to import the raw material." The firm has also collaborated with parties in developing technologies to boost plant quality, including AI to detect disease early.

The Uruguayan government wants to turn medicinal hemp and cannabis into an industry with big export potential, "like with meat," in the words of Rodrigo Ferrés, the Assistant Secretary at the Presidency. An important step in this ambition was the present government's decree allowing sales abroad. The country expects to export some 60 tons of cannabis by the end of 2021.

Mexico, ripe for marijuana growth

Photograph of a woman drying cannabis plants in a greenhouse

Drying cannabis plants

Terre di Cannabis

But along with Brazil, and its 220 million inhabitants, there is another player that could become the biggest in the cannabis market: Mexico. After vicissitudes, the country's Supreme Court ruled in June 2021 that the ban on recreational use of marijuana was unconstitutional. It thus annulled those articles of Mexico's General Law on Health that banned the recreational use, private cultivation and transportation of marijuana.

If and when the country legislates to permit recreational marijuana, it will become the "cherry on the cake in this industry, and earn big profits for its economy," says Henry Muñoz. With a population of some 130 million, it amply exceeds Canada (38 million) and Uruguay (3.4 million) as a market.

Legalization attracts major investments.

Consultants New Frontier Data estimated early in 2021 that the Mexican marijuana industry could be worth up to $2.3 billion, and believes legalization would attract considerable investments to the country and the region.

Yet, Mariana Sevilla, founder of the Mexican NGO México Regula and a member of Regulation for Peace ("Regulación por la paz"), a civil coalition, says the Supreme Court's ruling does not mean full legalization of recreational cannabis. People still need permits for its use, and the Court ruling only allows cultivation for personal use. Very few Mexicans, she said, have the necessary means and space to cultivate cannabis at home.

She says there is work to be done before "Mexico can be a producer.. of this plant, for our geography, our history, our culture." The coalition, she says, is "pushing for this initiative to advance as fast as possible, but that it should also focus on social justice because possession is still a criminal offense. We need changes to assure fair access."

High returns

Paco OG, the founder of HEMPresarios, a platform with events linking cannabis-related businesses and investors, says Mexico has "high-quality genes when it comes to planting cannabis."

The best plants, he says, come from Oaxaca, in south-central Mexico, thanks to the climate and soil. The industry, he added, now needs laws to bring this sector out of its "grey zone," and attract investors and startups.

Cannabis is no fad, and certain bigger firms involved in the sector have had good results on the stock markets in New York, in spite of a downturn in 2019-early 2020. Shares of some firms, like Tilray or Cronos Group, which sell recreational or medical cannabis products, shot up over 2020-21.

In some parts of the world, during the confinement, cannabis came to be declared an essential medical product. Aware of investor interest, Andrés Israel wants to list CCB on the Toronto stock market.

"When an investor wants to invest in the Latin American cannabis industry, they'll do it with us," he declares. "We're going to function like a cannabis index in the region. We have two value proposals: one, helping entrepreneurs develop their potential and ensure their startup's success, and another, for investors seeking diversified vehicles."

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The Food Truck, A Sign That The White And Wealthy Are Moving In

In San Diego, California, a researcher tracked how in the city's low-income neighborhoods that have traditionally lacked dining options, when interesting eateries arrive the gentrification of white, affluent and college-educated people has begun.

Balboa Park Spring Fling Food Truck festival

San Diego Food Trucks via Facebook
Pascale Joassart-Marcelli

SAN DIEGO — Everybody, it seems, welcomes the arrival of new restaurants, cafés, food trucks and farmers markets.

What could be the downside of fresh veggies, homemade empanadas and a pop-up restaurant specializing in banh mis?

But when they appear in unexpected places – think inner-city areas populated by immigrants – they're often the first salvo in a broader effort to rebrand and remake the community. As a result, these neighborhoods can quickly become unaffordable and unrecognizable to longtime residents.

An appetite for gentrification

I live in San Diego, where I teach courses on urban and food geographies and conduct research on the relationship between food and ethnicity in urban contexts.

In recent years, I started to notice a pattern playing out in the city's low-income neighborhoods that have traditionally lacked food options. More ethnic restaurants, street vendors, community gardens and farmers markets were cropping up. These, in turn, spurred growing numbers of white, affluent and college-educated people to venture into areas they had long avoided.

This observation inspired me to write a book, titled The $16 Taco, about how food – including what's seen as "ethnic," "authentic" or "alternative" – often serves as a spearhead for gentrification.

Take City Heights, a large multi-ethnic San Diego neighborhood where successive waves of refugees from places as far away as Vietnam and Somalia have resettled. In 2016, a dusty vacant lot on the busiest boulevard was converted into an outdoor international marketplace called Fair@44. There, food vendors gather in semi-permanent stalls to sell pupusas, lechon (roasted pig), single-sourced cold-brewed coffee, cupcakes and tamarind raspado (crushed ice) to neighborhood residents, along with tourists and visitors from other parts of the city.

Informal street vendors are casualties.

A public-private partnership called the City Heights Community Development Corporation, together with several nonprofits, launched the initiative to increase "access to healthy and culturally appropriate food" and serve as "a business incubator for local micro-entrepreneurs," including immigrants and refugees who live in the neighborhood.

On paper, this all sounds great.

But just a few blocks outside the gates, informal street vendors – who have long sold goods such as fruit, tamales and ice cream to residents who can't easily access supermarkets – now face heightened harassment. They've become causalities in a citywide crackdown on sidewalk vending spurred by complaints from business owners and residents in more affluent areas.

This isn't just happening in San Diego. The same tensions have been playing out in rapidly gentrifying areas like Los Angeles' Boyle Heights neighborhood, Chicago's Pilsen neighborhood, New York's Queens borough and East Austin, Texas.

In all of these places, because "ethnic," "authentic" and "exotic" foods are seen as cultural assets, they've become magnets for development.

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

A call for food justice

Cities and neighborhoods have long sought to attract educated and affluent residents – people whom sociologist Richard Florida dubbed "the creative class." The thinking goes that these newcomers will spend their dollars and presumably contribute to economic growth and job creation.

Food, it seems, has become the perfect lure.

It's uncontroversial and has broad appeal. It taps into the American Dream and appeals to the multicultural values of many educated, wealthy foodies. Small food businesses, with their relatively low cost of entry, have been a cornerstone of ethnic entrepreneurship in American cities. And initiatives like farmers markets and street fairs don't require much in the way of public investment; instead, they rely on entrepreneurs and community-based organizations to do the heavy lifting.

In City Heights, the Community Development Corporation hosted its first annual City Heights Street Food Festival in 2019 to "get people together around table and food stalls to celebrate another year of community building." Other recent events have included African Restaurant Week, Dia de Los Muertos, New Year Lunar Festival, Soul Food Fest and Brazilian Carnival, all of which rely on food and drink to attract visitors and support local businesses.

Meanwhile, initiatives such as the New Roots Community Farm and the City Heights Farmers' Market have been launched by nonprofits with philanthropic support in the name of "food justice," with the goal of reducing racial disparities in access to healthy food and empowering residents – projects that are particularly appealing to highly educated people who value diversity and democracy.

Upending an existing foodscape

In media coverage of changing foodscapes in low-income neighborhoods like City Heights, you'll rarely find any complaints.

San Diego Magazine's neighborhood guide for City Heights, for example, emphasizes its "claim to authentic international eats, along with live music venues, craft beer, coffee, and outdoor fun." It recommends several ethnic restaurants and warns readers not to be fooled by appearances.

Longtime residents find themselves forced to compete against the "urban food machine"

But that doesn't mean objections don't exist.

Many longtime residents and small-business owners – mostly people of color and immigrants – have, for decades, lived, worked and struggled to feed their families in these neighborhoods. To do so, they've run convenience stores, opened ethnic restaurants, sold food in parks and alleys and created spaces to grow their own food.

All represent strategies to meet community needs in a place mostly ignored by mainstream retailers.

So what happens when new competitors come to town?

Food vendor at outdoor international marketplace called Fair@44.

Fairat44 via Instagram

Starting at a disadvantage

As I document in my book, these ethnic food businesses, because of a lack of financial and technical support, often struggle to compete with new enterprises that feature fresh façades, celebrity chefs, flashy marketing, bogus claims of authenticity and disproportionate media attention. Furthermore, following the arrival of more-affluent residents, existing ones find it increasingly difficult to stay.

My analysis of real estate ads for properties listed in City Heights and other gentrifying San Diego neighborhoods found that access to restaurants, cafés, farmers markets and outdoor dining is a common selling point. The listings I studied from 2019 often enticed potential buyers with lines like "shop at the local farmers' market," "join food truck festivals" and "participate in community food drives!"

San Diego Magazine's home buyer guide for the same year identified City Heights as an "up-and-coming neighborhood," attributing its appeal to its diverse population and eclectic "culinary landscape," including several restaurants and Fair@44.

When I see that City Heights' home prices rose 58% over the past three years, I'm not surprised.

Going up against the urban food machine

Longtime residents find themselves forced to compete against what I call the "urban food machine," a play on sociologist Harvey Molotch's "urban growth machine" – a term he coined more than 50 years ago to explain how cities were being shaped by a loose coalition of powerful elites who sought to profit off urban growth.

I argue that investors and developers use food as a tool for achieving the same ends.

When their work is done, what's left is a rather insipid and tasteless neighborhood, where foodscapes become more of a marketable mishmash of cultures than an ethnic enclave that's evolved organically to meet the needs of residents. The distinctions of time and place start to blur: An "ethnic food district" in San Diego looks no different than one in Chicago or Austin.

Meanwhile, the routines and rhythms of everyday life have changed so much that longtime residents no longer feel like they belong. Their stories and culture reduced to a selling point, they're forced to either recede to the shadows or leave altogether.

It's hard to see how that's a form of inclusion or empowerment.The Conversation


Pascale Joassart-Marcelli is a Professor of Geography and Director, Urban Studies and Food Studies Programs at San Diego State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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