Cannabis in Latam: Perspectives for 2022
By Esteban Rossi I., Ph.D., Analyst, New Frontier Data
As a rule, forecasts for the cannabis industry oscillate between deep-seated beliefs in continuous market growth versus skepticism towards regulatory progress. Despite their limitations, the value of predictions lies mostly in the effort we put it to making them. By anticipating the future, analysts must examine their assumptions and choose the likeliest path ahead. Here, New Frontier Data’s analysis highlights some advances and challenges expected for 2022, drawing from observations from industry leaders and empirical data from our proprietary Equio cannabis business intelligence platform.
The Signal and the Noise
In 2022, New Frontier Data will continue to monitor market activity and document the evolution of both mature and emerging markets. Still, most of the world’s future legal markets do not yet formally exist, or remain inchoate pending forthcoming regulations. Arguably, the information overload of the digital era means that both sound and unsound perspectives get equal traction on the media, particularly for new sectors like cannabis. For investors mining for promising opportunities, New Frontier Data recommends focusing on fundamentals: finding good products primed for a specific market should be the main concern. Ideally, target companies should be located in jurisdictions where sales can be tracked, and consumers studied. Fortunately, the global market is expanding to the point that increasing numbers of jurisdictions can provide sufficient data to adequately assess investment opportunities.
Last year, Mexico provided perhaps the most obvious example of noise trumping signal. True to its recent history, Mexico’s Senate again postponed discussing its adult-use bill until the end of the legislative period. At the last hour, Senator Ricardo Monreal announced that they needed to reschedule. Unnamed sources suggested that the legislators did not feel comfortable with the text, and that the U.S. government is unprepared for a fully legal cannabis market south of its border. Thus, Mexican legislators seemed blinkered to the opportunity for its regulated adult-use market to lead policy among the global markets. Industry experts are hopeful that President Andres Manuel Lopez Obrador will acknowledge Mexico’s opportunities to seize industrial advantages while leveraging a large consumer market.
In 2022, we will continue to observe progress in line with well-known global trends, namely: legislative advances, continued public support for cannabis reform and growing consumer markets. New jurisdictions worth watching closely include Latam markets in Panama (Ley 242) and Argentina, and European developments in Germany, Malta, Luxembourg, and Switzerland. Regulators in Panama must soon publish guidelines for its medical-use program, while consumers and stakeholders in Argentina look forward to the consolidation of the home cultivation regime, the research framework for medical use and the approval of a hemp bill.
In Europe, as a handful of small countries took steps to regulate personal use, a newly formed coalition government in Germany roiled market speculation. Also, we should see advances from Swiss pilot trials in the next few months. In the best-case scenario, one of the jurisdictions will succeed in establishing an adult-use market to urge policy reforms and industry forward; at the least, the sprouting policy efforts should shape the continent’s paths of least resistance toward incremental reforms.
In parallel to those legislative milestones, consumer markets will continue to expand. Retailers on both sides of the Atlantic, along with incumbent players seasoned in grey markets, will expectedly reap the benefits of these trends. While overly restrictive regulations in Latin America limited access to cannabis products, consumers turned to the grey market to purchase tinctures, edibles, and flower. Consequently, local purveyors surreptitiously flourished in tandem with the legal market. Whatever challenges they present for regulators in places like Canada and Colombia, the realities of the internet and online retail render it effectively impossible to prohibit high-THC products.
Agency and Friction
Recent accomplishments in the cannabis industry stem from decades of efforts by users which led to court rulings and new legislation. Nevertheless, the industry needs to accept and endure the friction which comes with change. In Ecuador, for example, the government continues to criminalize possession, thereby causing consumers to face petty criminal charges while straining the legal system. Cannabis advocates would benefit from marshaling some demonstrated political will: Regulating home cultivation while eliminating petty offenses costs relatively little to implement while leading to substantial savings for bureaucracies and state budgets.
Last year, the Spanish cannabis industry found itself at odds with its government. Despite having a generally cannabis-friendly culture and decades of cultivation experience, the ministry of interior framed cannabis in terms of organized crime, and launched a task force against it. While laws are required and some cannabis growers crossed beyond legal boundaries, draconian measures have a problematic history, and alternative approaches demonstrably exist. Given that the Spanish cannabis industry is estimated at nearly $6 billion USD, it would seem wise for industry representatives to collaborate with the government and pay reasonable taxes. Otherwise, a considerable amount of knowledge and wealth will be needlessly missed, and returned to the realm of bad actors.
Bureaucratic resistance has also been observed in other places. In Colombia, regulators still have failed to establish guidelines for flower exports, though Decree 811 to mandate such was signed in July 2020. In the U.S., prospects to expand access to financial services and ease the tax burden of cannabis business stalled in Congress. In Chile, patients continued to struggle in securing access to generic formulations, though it appears that the new administration of president-elect Gabriel Boric will support cannabis reform. Lastly, in Mexico, civil society organizations monitored proposed changes to the adult-use bill, and played a vital role informing the public.
The vision, grit, and persistence of cannabis associations continue to help inspire like-minded reform movements in other countries. While during the near-term patchwork solutions seem likeliest to drive further reforms and the global market’s evolution during 2022, public acceptance and the embrace of innovative efforts should keep paving a progressive path forward.