Setbacks in Colombia: Monopoly Concerns and Meager Sales

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

Though the global demand for cannabis flower continues to grow, the Colombian government just rejected a new decree allowing flower exports. The decision hurt the industry, particularly because the decision had been thoroughly discussed and vouched for by the ministry of justice and senior government officials.

Context

Since 2016, Colombian-based cannabis firms received considerable media attention and foreign investments. As has been widely reported, its pro-business regulatory framework (Decree 613, 2017) attracted over $450 million USD in venture capital while spurring local investments. When conservative Ivan Duque assumed the presidency in 2018, local firms feared that his new administration would not support the nascent cannabis industry. Subsequent events have proven them right.

Following suggestions from numerous companies and associations, by February industry representatives led by Rodrigo Arcila, president of Asocolcanna, requested the government to authorize flower exports. The request came after a year-long process of consultation with state agencies and industry associations (Asocolcanna, Asocannacol, Asocañamo, Procannacol and the Cámara Colombiana del Cannabis). Initially, government officials welcomed the proposal, but come late June the president rejected it.

Background

The government’s reasons for reversing its position are unclear. Sources close to the administration believe that the government remains committed to prohibitionist policies and subject to intense lobbying efforts. Apparently, a small number of firms focused on extract production oppose flower exports to prevent smaller companies from meeting commercial milestones. Conversely, firms focused on flower production depend on the new regulations to export meaningful amounts of flower to large international markets. Consequently, big players delay the advance of the industry while aiming to secure a monopolistic position.

Direction

Estimating the economic impact of the government’s rejection of the export of dry flower is straightforward: First, since Uruguay’s exports last year were worth $9 million USD, New Frontier Data estimates that Colombian firms could easily sell between $10 and $30 million in dry flower annually.

Second, considering that German flower imports last year were worth €54 million euros ($63.8M USD), if Colombian producers could provide 15% of the market, annual exports could reach  €8 million euros ($9.5M USD). Consequently, Colombian firms have ample opportunities in the international flower market.

Third: Colombian exports of cannabis derivatives exhibited considerable growth from $310,000 in 2019 to $4.5M USD last year. Were flower exports allowed, international sales would seem poised to increase significantly. In addition, export growth would spur a parallel industry of generic formulations, drugs, dietary supplements, food, and industrial products. The multiplier effect of those products on the Colombian economy would be considerable. Thus, Colombian-based firms would be advised to fight to maintain their competitive edge in Latin America while preparing for the next administration.