Colombian Cannabis Scorecard for Publicly Traded Firms

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

Cannabis companies operating in Colombia and most of LatAm continue to grow incrementally as they seek profitability. Though recent regulations allowing for dry-flower exports and post-pandemic market recovery offer new opportunities in international markets, sales remain modest despite some commercial advances among the largest publicly traded firms operating in Colombia.

Pain Points

As variously seen internationally, the cannabis sector in Colombia faces a combination of challenges: limited demand, complex regulations, and turmoil in financial markets. In the short term, poor performance coupled with macroeconomic forces will drag stocks down further. Consequently, managers need to adjust investments and cut costs.

During 2016-2018, most large cannabis firms sought to establish vertically integrated operations to produce pharma-grade oils for international markets. Unfortunately, not a single company to date has been successful with that approach. Instead, New Frontier Data identified astronomical expenses, operational delays, pump-and-dump schemes, and poor growth (see: chart). Moreover, since their IPOs, most companies lost 50-80% of their market caps. Presently, not a single company has reached profitability, and smaller companies face precarious cash positions.

Fortunately, by 2021 the industry recognized the need to start from the beginning, and export dry flower (Decree 811 -2021). A gradual increase in flower exports to international markets is expected in the near term. Firms including Clever Leaves and Allied Corp. recently opened commercial pathways to Europe and North America, while other companies likewise gained access to Argentina and Brazil.

Business Models

It is incumbent upon cannabis companies to reconsider the fundamentals of the cannabis sector, and update their business models accordingly. It would be strategically wise to dedicate more resources toward educating the public and regulators about the benefits of cannabis, and to develop more direct pathways to consumers. Arguably, rather than selling commodities abroad and competing on price, cannabis firms should strive to create value to consumers and map the value chain locally and internationally. The first and somewhat obvious step will consist of regulating the use of flower for medicinal purposes, which could expand the existing medical market by a factor of 5x to 10x.

Subsequently, it would be wise to pivot from raw material production to pay closer attention to markets for edibles and adult use. Columbia’s markets should be developed locally, and then expanded regionally to compete with the LatAm region’s enormous illicit sector, worth more than an estimated $12 billion USD. 

Table 1. Summary of financial metrics from leading cannabis companies with operations in Colombia during 2021 (Data from company filings and company presentations. Values in USD except if noted.).

Recommendations

Industry leaders and managers should take advantage of the difficult times to strengthen their relations with regulators to facilitate the process for market creation. As previously noted, the future of the industry hinges on strong government support. In the near term it is imperative to both expedite the commercialization of flower, and expand access to financial services. As the requisite advances will require some political will, the restructuring realized throughout the latter part of this year will be a key for commercial progress.

*Disclaimer: New Frontier Data offers objective analysis based on carefully vetted data. This information does not constitute financial advice of any kind. The author does not hold any position in any of the companies discussed.