Cannabis in Latin America: Potential Beyond an Agricultural Powerhouse
By Esteban Rossi I., Special Contributor to New Frontier Data
Following the regulatory footsteps of Uruguay (which federally legalized cannabis in 2014) and Colombia (in 2017), the Latin American Cannabis industry advances towards consolidation. While just three years ago Latin America emerged as a potential agricultural powerhouse with low production costs, the region offers much broader industrial opportunities. Numerous firms recently established early milestones for product development and fostering partnerships to conduct pharmaceutical research. Three key factors are present to drive industry consolidation: agricultural experience, dynamic regulatory frameworks, and — most importantly — a growing regional market.
Latin American firms are keenly aware of the challenges involved in selling agricultural commodities in international markets. The experience of Colombian coffee, Mexican avocados and Brazilian soy provide a crucial lesson: unless economies of scale are achieved, Latin American producers will be hamstrung to compete much less thrive in international markets. Consequently, leading cannabis firms adjusted their approaches and focused on climbing the value chain. Khiron, for example, recently opened Clinic Zerenia to provide cannabis treatments. Similarly, Colombia-based Clever Leaves launched a comprehensive sales platform offering tailored solutions to large clients. Moreover, companies like Plena and Colombian Organics recently shipped their first sample batches to local cosmetic firms.
As a result of such activities, Latin consumers have options for sampling a variety of tinctures, lotions, and sprays to serve various purposes. Latin consumers mostly rely on marketing networks and digital channels to obtain these products. For example, a pioneer brand like Nat Herb carved a niche for itself by using a small marketing network. As operators in the region continue to develop new products, it is likely that the first breakthrough product will soon reach the market.
Foreign direct investment flowing into Colombia after legalization pushed other governments in the region to reconsider their stance towards cannabis. Estimates indicate that between 2016 and 2019, the Colombian cannabis industry attracted over $500 million (USD). Currently, Ecuador, Peru, Panama, and Mexico are looking for strategies to foster the local cannabis industry.
Following the U.S. example, Ecuador took steps to regulate hemp at the federal level. Ecuador leverages considerable experience in agribusiness (particularly in cacao, shrimp, and oil palm), and consequently is well equipped to grow hemp. Peru, in turn, focused on facilitating patients’ access to cannabis tinctures. The Peruvian regulatory agency, DIGEMID, has issued detailed guidelines and plays an active role in the medicinal cannabis market. Similarly, since October 2019, the legislature in Panama has been extensively discussing bills to respectively regulate medicinal cannabis and hemp.
Mexico, on the other hand, has struggled to reach consensus for regulating cannabis production and use. Fortunately, the Mexican Senate recently approved the first proposal to regulate adult use, associations and home cultivation. The draft bill has moved to the chamber of deputies where it should be discussed before the end of 2020. Consequently, it is expected that the legal foundations of the Mexican market will continue to fall into place. Though the regulatory process is impossible to forecast, growing public awareness and business incentives will continue to fuel the development of cannabis regulation across the region.
Cannabis firms recognize the potential of the Latin American market. With a population of 600 million, the region’s market was estimated as worth $10 billion (USD) in 2019. The regional market offers additional possibilities for firms to develop toiletries and cosmetics through the region’s modern facilities, quality ingredients, affordable labor and strong track record. Also, countries in the Andean community share the regulatory framework allowing for the commercialization of cosmetics and cosmeceuticals across borders, and therefore offer a pathway to reach larger markets.
In sum, promising opportunities are emerging as cannabis firms reorient their efforts to expedite product development and reach regional consumers. In the next three to five years, Latin America is poised to establish itself as an industrial powerhouse beyond agriculture.