Latam in Limbo: Delays in Legal Cannabis Markets Leave Millions on the Table
By Esteban Rossi I., Ph.D., Analyst, New Frontier Data
Despite South America’s considerable productive capacity, large foreign investments, and widespread public support for cannabis reform, the continent’s legalized markets continue to exhibit slow growth. Domestic sales and exports remain modest, and large companies struggle to find customers and meet their targets. Meanwhile, sales from Jamaica and Puerto Rico illustrate the region’s potential, and raise serious questions about prevailing regulatory strategies and business models. New Frontier Data’s latest summary of the region’s metrics identifies some obstacles hindering growth. At present, firms and regulators are leaving hundreds of millions of dollars on the table, though should ongoing policy initiatives succeed, the region could experience a collective watershed during 2022.
In 2020, South American legal cannabis sales totaled approximately $7.3 million (USD). That figure included sales to Uruguayan adult users, and Uruguayan and Colombian exports and registered patients mostly from Colombia and Peru. By comparison meantime, sales in Puerto Rico reached $145 million (USD), while medical sales in Jamaica added another $12.7 million (USD). Though Puerto Rico benefits from the regulatory advances in the U.S., it is worth considering that Colombia, Peru, and Uruguay have a combined population of more than 85 million people, while the two Caribbean islands combine for roughly 6 million.
Furthermore, Uruguay has pursued an incremental growing path. More than five years after passing landmark legislation in 2014, the cannabis agency (IRCCA) provides products to 70,000 users, combining dispensaries, clubs, and home cultivation. In addition, through close collaboration between entrepreneurs and regulators, Uruguayan firms placed their cannabis flower in foreign markets, including those in Europe and Israel. Uruguay certainly deserves praise for its advances, but exports remain far below expectations for an industry aspiring to play a key role in a post-pandemic economic recovery.
Regulations and business models
The slow growth observed in Latin America was mostly caused by complex regulatory frameworks and implementation challenges. Numerous countries including — Argentina, Chile, Colombia, Peru, and most recently Mexico — enacted legislation aiming to ensure patient access to medicinal cannabis, and found that establishing a medical market turned out to be a long, challenging process for a combination of circumstances, particularly strong competition in the health-care sector and patients’ limited access to cannabis products.
Medical markets are inherently competitive since they group the interests of numerous powerful actors. Health-care providers, the medical community, insurance companies, pharmaceutical companies, and regulatory agencies interact in complex ways dictated by peculiarities within each jurisdiction. Yet, large bureaucracies and strong entry barriers guard the health-care business. Unsurprisingly then, medical cannabis companies struggled to plug into the health-care system.
Arguably, the solution relies on going back to the basics: Mature cannabis markets illustrate that patients, consumers, and doctors learn faster if they have easy access to reliable and easy-to-use products. Simply put, cannabis flower and tinctures (i.e., extracts or generic formulations) distributed in licensed dispensaries, pharmacies, or clinics supported by an online registration/formulation system and inventory-control software well serve the interests of patients and regulators.
To further complicate matters, Latin American patients experienced severe restrictions accessing cannabis products. Due to overly strict controls over generic formulations, and the exclusion of dried flower as a medical product, growing the patient base has been challenging. The figures from Colombia, Chile, and Peru, summarized in New Frontier Data’s Global Cannabis Report: Growth & Trends Through 2025 illustrate the timid growth of medical markets. Moreover, sales from Jamaica and Puerto Rico (along with Europe) demonstrate the needed demand for high-THC products and flower. In Germany, for example, medicinal flower represented 40% of sales. Patients require THC to manage various conditions, particularly pain. If THC (along with CBN and CBG) products cannot be obtained through regulated channels, patients will continue to turn to gray markets to purchase imported tinctures, vapes, and edibles, as currently occurs in various countries across the region.
Over the next few months, it is likely that policymakers and cannabis regulators will be held accountable if legal markets fail to consolidate. Consequently, entrepreneurs and the public are becoming increasingly dissatisfied with legislative and regulatory delays. With its 600+ million residents, Latin America could become a very large and dynamic market, hopefully led by Colombia or Mexico within the next couple years.