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.
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.
Cannabidiol, or CBD, is derived from the plant for medicinal purposes
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
Drying cannabis plants
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."
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."
- Uruguay Moves Closer To Legalizing Marijuana Industry ... ›
- Like Afghan War, The U.S. War On Drugs Must End - Worldcrunch ›
- What COVID-19 Means For Worldwide Push To Legalize Marijuana ... ›
- Nobel Peace Prize, Iran Nuclear Talks, 700-Year-Old Pollution ›
- High In Italy's Alps, Ancient Tradition Of Cannabis Cultivation Revived - Worldcrunch ›