After Delays, Colombia to Compete With Uruguay for European Flower Exports

By Esteban Rossi I., Ph.D., Analyst, New Frontier Data 

Colombia has long been praised as a pioneering nation for the legal cannabis industry. Yet for the advances the country has offered in regards of reforms for regulating the possession, production, distribution, commercialization, and export of seeds, plants, and cannabis-derived substances (i.e., oils, creams, and medicinal extracts), investors have long bemoaned its frustrating tendency for a tortuous export-approval process.

Last month – following no less than three years of posturing and policy development – passage of Resolution 539 effectively cleared the last of Colombia’s impediments to permit the sale of THC and CBD dried flower to international markets. In countries with mature medical cannabis programs (e.g., the United States, United Kingdom, Germany, and Israel), dried cannabis represents the most developed sector of the market, accounting for more than 50% of all sales.

The news was happily received by companies and investors like multinational operators Pharmacielo Ltd., Allied Corp., Clever Leaves, and Pharmacielo Ltd., and domestic stakeholders eager to compete with Uruguay to establish inroads to Europe. The estimated $79 billion (USD) European market offers immense opportunity for Colombian companies; roughly 45% of the segment consists of certified and properly packaged dry-flower. Still, regulatory unknowns and entry barriers may delay sales growth.

Yet, numerous regulatory unknowns and entry barriers could hinder sales growth. A comprehensive look at market projections, sales data, and policies is available over New Frontier Data’s business intelligence platform, Equio.

Regulatory progress

Jointly developed by the ministries of agriculture, trade and justice, the resolution also establishes rules for moving cannabis products into and out of free trade zones (FTZs). That allows Colombian-based cannabis firms to export dry flower to international markets including Europe, Israel, and Australia.

Resolution 539 stipulates that multiple government agencies must approve import/export requests, and that the agencies must connect to the electronic platform of the trade bureau within 12 months. Thus, by May 2023 all relevant paperwork should be conducted electronically through the trade ministry and the license monitoring platform (MICC).
Meantime, licensed firms seeking import/export approvals must gain approval from multiple government agencies (justice, health and agriculture), which can translate to the characteristic bureaucratic delays.

Resolution 539 comes after those years of public dialogue, and three months before the end of the President Ivan Duque’s term. As anticipated by the administration’s critics, Duque’s government obfuscated the policy process, failed to develop mechanisms to support small producers, and lacked the vision to connect the cannabis industry with its entrepreneurial policies. Moreover, recent security issues in the northern part of the country, combined with the government’s inability to build consensus among different social groups, have caused concern among foreign investors and domestic business leaders. Nevertheless, progress takes time, and every new industry faces growing pains.

Domestic Dynamics and Advances

Since the early days of the Colombian industry, numerous companies focused on producing low-cost flower for sale to international markets. The good weather, agricultural traditions, and low costs made Colombia an ideal producer. Almost five years after publication of landmark regulatory Decree 613 (2017), the vision is taking practical focus.

International wholesale buyers will likely favour medium-sized companies with agricultural experience, demonstrated execution, and quality certifications. The European Good Manufacturing Practices certification (EU-GMP) process continues to present a bottleneck, but Latin American companies are finding foreign partners to assist in ensuring their compliance before their flower hits the European market.

The flower markets have also attracted the interest of public companies. After having actively opposed flower exports, Pharmacielo – a Canadian company based in Rionegro – recently reorganized its operations to produce dry flower. The strategic changes came after a hostile takeover (led by seasoned American cannabis executive Bill Petron) changed the board, restructured the company, and slashed costs. Similarly, large wholesale producer Clever Leaves, remains focused on the flower market, and strengthened its commercial networks in Germany and Australia. Sadly, in 2021 the company burned almost $41 million USD, prompting a change of leadership and the appointment of Andres Fajardo as its new CEO. Since regulatory barriers were finally removed, companies must execute rapidly and generate revenue, or otherwise confront disenchanted investors in the next quarter.

Market Destinations

Presently, Uruguayan firms dominate international flower markets. Fotmer and Cplant have achieved important sales milestones since 2019 . While Fotmer exports THC flower to Portugal, Israel, and more recently Germany before obtaining its GMP certification, Cplant focuses on the CBD market reaching Europe via Switzerland. Colombian companies could replicate the business models of those pioneers to grow lean and produce premium flower.

Uruguayan firms beat them in developing valuable knowledge and expertise, but Colombian companies should now find the ability to catch up and compete on price. The race just begun.

More broadly, international legislative advances suggest that the cannabis sector will probably grow incrementally over the next year. As observed in multiple jurisdictions, demand grows slowly, consumers learn slowly, and competition from grey markets remains strong. Therefore, the legal operators must persevere to earn their market share. The slow growth and keen competition may be hard to navigate – especially for large companies finding themselves unable to meet the most basic investors’ expectations or justify large operating expenses for small markets.

The shakeout seems likely to include more leadership changes, restructurings, and consolidation, but at least Colombia has finally joined the fray.