Ecuador Plows Ahead With Hemp Cultivation Guidelines

By Esteban Rossi I., Ph.D., Special Contributor to New Frontier Data

Last October, the Ecuadorian Ministry of Agriculture published its guidelines for hemp cultivation, setting things in motion for the country to become not only a producer and exporter of flower, grain, and fiber, but also a potential breeder of hemp.

Ecuador learned from its neighbors and moved quickly. Mere months after its initial announcement, the Ministry of Agriculture (Ministerio de Agricultura y  Ganadería), supported by professional advisers, developed detailed guidelines regulating hemp importation, cultivation, transformation, and research. The guidelines describe the licensing requirements in adequate legal and technical detail to ensure compliance and expediency.

Hemp constitutes an ideal opportunity for Ecuador. Presently, the country plays a leading role in the regions’ market for palm oil, shrimp, and cacao. That experience — along with affordable land, labor, and a tropical climate – place it in good stead to grow industrial hemp.

For now, Ecuador’s chosen regulatory strategy focuses exclusively on hemp, and depends on a single government agency: The Ministry of Agriculture. According to cannabis entrepreneur Jose Saltos, that targeted approach seeks to facilitate licensing procedures and prevent compliance hurdles caused by technical issues or contradictory interpretations of the law. Unfortunately, coordination of government agencies remains a very time-consuming process. Since handling THC remains burdensome for firms and government agencies, beginning with hemp constitutes a prudent move.

The recent experience from Colombia and the United States illustrates some challenges caused by novel and often patchy regulatory frameworks.

When the Department of Agriculture changed the threshold of allowable THC in hemp. Suddenly, farmers learned that their hemp plants had become “hot” and were no longer compliant, requiring critical losses in disposing of them. Subsequently, government agencies were flooded with complaints and legal actions which continue to this day. Thanks to the 1% threshold Ecuador expects to leapfrog most such challenges.

The guidelines in brief

The regulatory framework developed by the Ministry of Agriculture aims to facilitate the production cycle. The guidelines (i.e., Acuerdo Ministerial 109) cover importation, cultivation, harvesting and post-harvesting, storage, processing, commercialization, and exports. Hemp is defined as cannabis with less than 1% of THC in dry weight, and includes flower, biomass, fiber, and any derivatives. The 1% threshold affords crucial advantages, as it both expands the number of strains that can be used and facilitates compliance for novice producers.

Guidelines stipulate that hemp derivatives including oils, resins, and tinctures, should be used as raw substances to manufacture cosmetic, medicinal, or edible products. Those raw materials cannot be sold directly to the public, Defined derivatives of industrial hemp include stems, fiber, seeds, flowers, or any other woody material with less than 1% THC which could be used for the manufacture of foods, beverages, or supplements.

The guidelines define seven types of licenses to cover the entire supply chain, from acquiring seeds in international markets to exporting derivatives. The license types include: 1) seed importing, 2) seed production, 3) cultivation, 4) cultivation for industrial purposes, 5) processing, 6) breeding, genetics, and research, and 7) commercialization, exporting and associated uses. Interestingly, the framework allows firms to focus on a specific market niche rather than building a vertically integrated production process.

The legal requirements for license applications are also straightforward. Basic requirements include an application form, the company’s legal information, and a technical plan describing its proposed approaches for cultivation, production, or commercialization. Applicants must also provide information about the production site, and meet some specific requirements according to the type of license being requested.

The license rates and fees were published in Acuerdo Ministerial 141. The Ministry of Agriculture ensured that license fees would be affordable for local firms, which generally pay from $400 to $3,000 USD, depending on use and extent. Larger costs await firms interested in buying biomass in bulk for export, an approach which resonates with the general spirit of the guidelines.

Implications for Latin America

With publication of its hemp production guidelines, Ecuador sends a powerful message to the industry. Despite hardships caused by COVID-19, local policymakers recognized both the opportunities offered by the industry and the market’s interest in them. Accordingly, the Ministry of Agriculture developed a regulatory framework well aligned with the country’s established expertise in agribusiness.

Policymakers and their advisers deserve praise for their focus and timeliness. The Ecuadorian hemp industry seems poised for speed, as licensing procedures and technical requirements were carefully crafted. Hopefully, policy implementation will continue along similar lines, free from excessive bureaucratic delays.

Moreover, the guidelines incorporate valuable lessons gathered by Uruguayan and Colombian firms over the past two years. First, Ecuadorian firms will be allowed to export flower (e.g., Article 19). Considering recent shipments from Uruguay to Switzerland and Portugal, it would be shortsighted not to open the door to the large European market. Of course, Ecuadorian producers must first overcome numerous barriers to entry. Yet, shortening the time to market and establishing a positive cash flow will dramatically improve the odds for nascent hemp companies.

Second, unlike regulations in other countries, the Ecuadorian guidelines do not -passively- encourage firms to establish vertically integrated operations (e.g., Chapter 6, Article 22). Though the evolution of the local market is unpredictable, allowing firms to focus on specific niches can translate into relevant competitive advantages. Numerous Canadian and Colombian cannabis firms struggled with vertical integration because of steep learning curves and high risks. Consequently, the ability to focus on a product, business model, or market remains crucial.

Ultimately, by initially focusing on hemp, Ecuador carefully placed the cornerstone for broader policy discussions in the future. Once hemp has established itself as a promising business, the public will be more prepared to start broader discussions regarding medicinal and adult-use cannabis. Subsequently, with support from a broader coalition of firms and individuals, the government should be ready to engage the legislative branch and the opposition. According to cannabis expert and consultant Manuel Baselga, Ecuador took a key step in the right direction. Nevertheless, entrepreneurs, investors, and advocates should not forget that regulatory changes take time before fruition.